Appeal Dismissed: Final Assessment Order Deemed Illegal for Lack of Procedural Compliance

The High Court dismissed the Department's appeal, affirming that the final assessment order dated 2.3.2016 was illegal and without jurisdiction due to the failure to follow the mandatory procedure under Section 144C of the Income Tax Act. The court upheld the Tribunal's decision, emphasizing that procedural compliance under Section 144C is not waivable and any deviation constitutes an incurable defect.

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Issues Involved:
1. Legality and jurisdiction of the final assessment order without a prior draft assessment order.
2. Validity of the Tribunal's reliance on a Supreme Court order dismissing the Special Leave Petition.
3. Compliance with Section 144C of the Income Tax Act in the assessment procedure.

Detailed Analysis:

1. Legality and Jurisdiction of the Final Assessment Order:
The core issue revolves around whether the final assessment order, issued without a prior draft assessment order, is legal and within jurisdiction. The Department argued that the assessee, by opting to appeal before the Commissioner of Income Tax (Appeals) instead of the Tribunal, effectively waived the requirement of following the procedure under Section 144C of the Act. However, the Tribunal and the High Court found that the omission of issuing a draft assessment order under Section 144C is an incurable defect, rendering the final assessment order illegal and without jurisdiction. The court emphasized that the procedure under Section 144C is mandatory, and failure to adhere to it cannot be waived by the assessee.

2. Validity of the Tribunal's Reliance on a Supreme Court Order:
The Department questioned the Tribunal's reliance on a Supreme Court order dismissing a Special Leave Petition as a binding authority. The High Court upheld the Tribunal's approach, citing precedents where similar procedural lapses were deemed incurable defects. The court referenced the Delhi High Court's decision in Nokia India Pvt. Ltd. v. Addl. Commissioner of Income Tax, which held that failure to pass a draft assessment order violates Section 144C(1) and is not a curable defect under Section 292B of the Act.

3. Compliance with Section 144C of the Income Tax Act:
The High Court meticulously reviewed the procedural history, noting that the initial assessment involved a draft assessment order and subsequent directions from the Dispute Resolution Panel (DRP). However, in the revised final assessment order dated 2.3.2016, the Assessing Officer failed to follow the mandated procedure under Section 144C, bypassing the draft assessment order and DRP's directives. The court reiterated that the assessment involving transfer pricing issues under Sections 92B and 92CA necessitates strict adherence to Section 144C. The Tribunal's decision to dismiss the Department's appeal and allow the assessee's Cross Objection was based on this procedural non-compliance, which the High Court affirmed as correct.

Conclusion:
The High Court dismissed the Department's appeal, affirming that the final assessment order dated 2.3.2016 was illegal and without jurisdiction due to the failure to follow the mandatory procedure under Section 144C of the Income Tax Act. The court upheld the Tribunal's decision, emphasizing that procedural compliance under Section 144C is not waivable and any deviation constitutes an incurable defect.

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