Draft assessment order u/s144C(1) in prejudicial tax variation case: final assessment quashed as jurisdictional error.

Where an eligible assessee is subjected to variations prejudicial to it, s.144C(1) mandates issuance of a draft assessment order and service of its copy to enable objections before the DRP; this confers a substantive statutory right. Non-issuance of the draft order deprives the assessee of that right and constitutes a jurisdictional error, not a mere procedural irregularity, and is incurable. Consequently, the final assessment order passed without following s.144C(1) was quashed and set aside, and the matter was remitted to the AO to proceed in accordance with law; the disposal upholding the setting aside was not interfered with.

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The writ petition challenged an assessment order dated 29.09.2021 passed under Section 143(3) read with Section 144B of the Income Tax Act, 1961 for Assessment Year 2018-19. The assessee contended it was an "eligible assessee" and that Section 144C(1) mandated issuance of a "draft assessment order"; non-issuance deprived it of the "valuable right to raise objections before the Dispute Resolution Panel (DRP)." Although the impugned assessment was set aside, the matter was remitted with a direction to treat the assessment order as a draft order. On appeal, relying on precedent, the Court reaffirmed that "the requirement under Section 144C(1) ... to first pass the draft assessment order and to provide a copy thereof to the assessee is a mandatory requirement" conferring a "substantive right." Denial of the opportunity to object before the DRP amounts to "denial of substantive right." Following the view that non-compliance constitutes a "jurisdictional error" and "an incurable irregularity," the Court quashed the remand direction while maintaining the setting aside of the assessment order.

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