Failure to Follow IT Act Procedure Renders Assessment Order Void; Court Quashes Orders for 2017-2018

The court held that the failure to comply with the mandatory procedure under Section 144C(1) of the IT Act constituted a jurisdictional error, rendering the final Assessment Order void ab initio. As a result, the court quashed the impugned orders for the Assessment Year 2017-2018 and allowed the writ petition, with no order as to costs.

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Issues Involved:
1. Whether the provisions of Section 144C(1) of the IT Act are mandatory or directory.
2. Whether the failure to follow the procedure under Section 144C(1) constitutes a jurisdictional error or merely a procedural error.
3. Whether the final Assessment Order passed without a draft Assessment Order is valid.
4. Whether the procedural lapse can be cured under Section 292B of the IT Act.

Issue-Wise Detailed Analysis:

1. Whether the provisions of Section 144C(1) of the IT Act are mandatory or directory:
The court examined the provisions of Section 144C(1) of the IT Act, which mandates the Assessing Officer to first pass a draft Assessment Order and communicate it to the assessee before finalizing the assessment. The court referred to the Andhra Pradesh High Court's decision in M/s. Zuari Cement Limited, which held that the provisions of Section 144C are mandatory and not directory. The court noted that the Special Leave Petition filed by the Revenue against this decision was dismissed by the Supreme Court, reinforcing the mandatory nature of Section 144C(1).

2. Whether the failure to follow the procedure under Section 144C(1) constitutes a jurisdictional error or merely a procedural error:
The court referred to the Gujarat High Court's decision in Commissioner of Income Tax, Vadodara-2 Vs. C-Sam (India) (P.) Limited, which held that the procedure under Section 144C is not merely procedural but gives substantive rights to the assessee. The failure to follow this procedure constitutes a jurisdictional error, not just a procedural lapse. The court also cited the Bombay High Court's decision in International Air Transport Association Vs. Deputy Commissioner of Income Tax, which held that passing a final Assessment Order without a draft Assessment Order is a jurisdictional error.

3. Whether the final Assessment Order passed without a draft Assessment Order is valid:
The court found that the final Assessment Order dated 6th April 2021 was passed without first issuing a draft Assessment Order, as required under Section 144C(1). This omission deprived the petitioner of the right to file objections before the Dispute Resolution Panel (DRP), which is a substantive right. The court held that this failure struck at the root of the procedure and rendered the final Assessment Order void ab initio.

4. Whether the procedural lapse can be cured under Section 292B of the IT Act:
The court rejected the Revenue's argument that the procedural lapse could be cured under Section 292B of the IT Act. It held that Section 292B cannot save an order passed in breach of the mandatory provisions of Section 144C(1), as it is an incurable illegality. The court cited the Delhi High Court's decision in JCB India Limited, which emphasized that such an omission is not a mere irregularity but an incurable illegality that Section 292B cannot rectify.

Conclusion:
The court concluded that the failure to follow the mandatory procedure under Section 144C(1) constituted a jurisdictional error, rendering the final Assessment Order, Demand Notice, and Penalty Notice void ab initio. Consequently, the court quashed and set aside the impugned orders dated 6th April 2021 for the Assessment Year 2017-2018. The writ petition was allowed, with no order as to costs.

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