AO cannot pass final assessment under section 92CA(4) without mandatory draft order under section 144C(1)

ITAT Mumbai held that passing a draft assessment order under section 144C(1) is mandatory before final assessment under section 92CA(4). The AO directly passed final assessment order without draft order, constituting jurisdictional error making the order void ab-initio. Even though assessee waived right to challenge draft order before DRP, estoppel cannot apply to jurisdictional issues. Waiver cannot confer jurisdiction that doesn't exist or bypass statutory procedure. The final assessment order was quashed as it violated mandatory provisions of section 144C(1).

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Issues Involved:
1. Whether the passing of the draft assessment order as prescribed under section 144C(1) of the Act is mandatory.
2. Whether the Assessee can be estopped from challenging the assessment order based on their own admission.
3. Whether the AO is competent to pass the assessment order under section 92CA(4) without passing a draft assessment order as prescribed under section 144C(1).

Summary:

Issue 1: Mandatory Nature of Draft Assessment Order
The Tribunal examined whether the passing of the draft assessment order as prescribed under section 144C(1) of the Income-tax Act, 1961 is mandatory. The Tribunal referred to the jurisdictional High Court case of SHL India Pvt. Ltd vs DCIT (2021), which held that the Assessing Officer must pass and furnish a draft assessment order initially. Failure to follow this procedure constitutes a jurisdictional error, rendering the final assessment order illegal and void ab initio. The Tribunal concluded that passing the draft assessment order is mandatory.

Issue 2: Estoppel from Challenging Assessment Order
The Tribunal considered if the Assessee could be estopped from challenging the assessment order based on their own admission. The Tribunal referred to the case of Principal Commissioner of Income-tax Vs Lion Bridge Technology Pvt. Ltd (2018), which clarified that there can be no estoppel on issues of law related to jurisdiction. The principle of estoppel does not apply, and mere consent of parties does not bestow jurisdiction. Thus, the Assessee cannot be estopped from challenging the order.

Issue 3: Competence of AO to Pass Final Assessment Order
The Tribunal addressed whether the AO could pass the final assessment order under section 92CA(4) without issuing a draft assessment order as required under section 144C(1). The Tribunal cited the case of Linc Pen & Plastics Ltd vs DCIT (2023), which held that passing the proposed order of assessment is a sine qua non before passing the final assessment order. The Tribunal concluded that the AO is not empowered to pass the final assessment order directly without issuing a draft assessment order.

Conclusion:
The Tribunal quashed the final assessment order dated 13/03/2015 passed by the AO under section 143(3) read with section 92CA(4) of the Act, as it was without jurisdiction and void ab initio due to the failure to pass a draft assessment order as prescribed under section 144C(1). Consequently, the appeal of the Assessee was allowed, and the appeal filed by the Revenue was dismissed as infructuous.

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