Validity of assessment order following DRP directions upheld as binding; rectification power cannot prima facie cure noncompliance, stay granted

Validity of an assessment order was tested against mandatory directions issued by the dispute resolution panel; the court held that directions under the statutory scheme are binding on the assessing officer and must be implemented, and a posthoc rectification power cannot prima facie validate a contravention of that mandate. The court observed that the fouryear rectification window applies only where the original order did not breach a mandatory provision, and concluded that the question required further consideration. Meanwhile the court stayed the impugned appellate order and any consequential proceedings until further listing.

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Issues: (i) Whether the final assessment order dated 27.11.2014 is invalid and void having been passed purportedly in violation of Section 144C(10) and Section 144C(13) of the Income-tax Act, 1961; (ii) Whether the impugned ITAT order dated 19.09.2024 is invalid for failing to adjudicate on the validity of the final assessment order dated 27.11.2014.

Issue (i): Whether the final assessment order dated 27.11.2014 is invalid and void having been passed purportedly in violation of Section 144C(10) and Section 144C(13) of the Income-tax Act, 1961.

Analysis: The Court examined the mandatory nature of Section 144C(10), which provides that directions of the Dispute Resolution Panel (DRP) are binding on the Assessing Officer (AO). The Court noted the AO's admitted non-conformity with DRP directions in the order dated 27.11.2014 and considered whether subsequent rectification under Section 154 could validate that non-conformity. The Court observed that Section 154(7) provides a time limit for rectification but indicated that the rectification power cannot prima facie be used to cure a breach of a mandatory statutory mandate; this requires further consideration on merits.

Conclusion: No final determination on the validity of the assessment order was made; the Court found that the question requires detailed consideration and prima facie indicated that the rectification submission does not conclusively validate the breach of Section 144C(10).

Issue (ii): Whether the impugned ITAT order dated 19.09.2024 is invalid for failing to adjudicate on the validity of the final assessment order dated 27.11.2014.

Analysis: The Court noted an existing substantial question of law framed earlier relating to whether the ITAT ignored adjudication on the validity of the 27.11.2014 order. Having considered parties' submissions, the Court determined that further consideration of these questions is necessary and appropriate at the final hearing.

Conclusion: The Court did not quash the ITAT order on the merits at this stage but stayed the ITAT order and related proceedings pending further consideration of the framed questions of law.

Final Conclusion: On the interim prima facie view the matters raised require full adjudication; the Court has stayed the impugned ITAT order dated 19.09.2024 and consequential proceedings and has framed an additional question of law regarding the validity of the final assessment order for consideration on the next date of listing.

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