Objections to draft assessment under s.144C(1) held timely; rejection and penalty set aside, DRP rehearing ordered
HC held that the assessee's objections to the draft assessment order under s.144C(1) were filed within the prescribed 30-day period, as the draft order dated 16.03.2024 was communicated on 18.03.2024 and objections were received on 16.04.2024. The DRP erred in rejecting the objections as time-barred. HC quashed the impugned DRP orders (Annexures H and J) and the penalty order dated 25.08.2025 passed during pendency of the petition. The DRP was directed to reconsider the objections and conclude proceedings afresh after affording reasonable and personal hearing.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the objections filed by the assessee to the Draft Assessment Order under Section 144C(1) of the Income Tax Act were within the prescribed period of limitation.
1.2 Whether the Dispute Resolution Panel was justified in rejecting the objections as time-barred and, consequentially, whether the Assessing Officer could validly pass the final assessment order and penalty order without awaiting or acting upon DRP directions.
1.3 Whether, in light of the statutory scheme under Section 144C and the precedents cited, the impugned assessment order, DRP order, and penalty order are liable to be quashed with consequential directions to the DRP and Assessing Officer.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Whether the objections filed by the assessee to the Draft Assessment Order under Section 144C(1) were within the prescribed period of limitation.
Legal framework (as discussed)
2.1 The judgment proceeds on the basis of the statutory scheme under Section 144C of the Income Tax Act, as discussed and applied in earlier decisions, namely LG Soft India (P) Ltd., Open Silicon Research (P) Ltd., and INFRRD Private Limited. Under this scheme, upon receipt of a draft assessment order, an "eligible assessee" has 30 days from the date of receipt to file objections before the Dispute Resolution Panel.
Interpretation and reasoning
2.2 The Draft Assessment Order was passed on 16.03.2024 and was communicated to the assessee on 18.03.2024 as per the communication/letter dated 18.03.2024 issued by the Assessing Officer.
2.3 The assessee filed objections in Form No. 35A on 16.04.2024, which were received by the respondents through courier on the same date. The Court treats the date of communication (18.03.2024) as the starting point for computing the 30-day limitation period under Section 144C.
2.4 On these undisputed dates, the Court holds that filing on 16.04.2024 falls within the prescribed 30-day period from the date of communication of the draft order.
2.5 The Dispute Resolution Panel proceeded on the premise that the objections had not been filed within 30 days and therefore rejected them as time-barred. The Court finds this premise to be contrary to the material on record, since the objections were demonstrably filed and received within the statutory period.
Conclusion on Issue 1
2.6 The objections filed by the assessee to the Draft Assessment Order were within the prescribed 30-day limitation period, and the DRP committed an error in rejecting them as being filed beyond time.
Issue 2: Whether the DRP was justified in rejecting the objections as time-barred and, consequentially, whether the Assessing Officer could validly pass the final assessment order and penalty order without awaiting or acting upon DRP directions.
Legal framework (as discussed)
2.7 The Court refers to and applies the principles laid down in prior decisions, particularly LG Soft India (P) Ltd., Open Silicon Research (P) Ltd., and INFRRD Private Limited, which interpret Section 144C of the Income Tax Act.
2.8 From these precedents, the following statutory principles are reiterated and applied:
(a) After issuance of a Draft Assessment Order to an eligible assessee, the assessee has two alternatives: either to accept the variations or to file objections before the DRP within the stipulated time.
(b) Once objections are filed before the DRP within time, the Assessing Officer is obliged to await directions from the DRP and proceed to complete the assessment strictly in conformity with those directions, in terms of Section 144C(5)-(13).
(c) Passing of a final assessment order without awaiting DRP directions, when valid objections have been filed, is arbitrary, illegal, and without jurisdiction.
Interpretation and reasoning
2.9 The Court notes that the assessee's objections were filed within limitation and were in fact transferred to the concerned DRP-1, Bengaluru on 08.05.2024. Despite this, the DRP rejected the objections as time-barred, leading the Assessing Officer to treat the case as if no valid objections existed and to pass the impugned final assessment order and consequential demand and penalty.
2.10 Relying on INFRRD Private Limited, LG Soft India (P) Ltd., and Open Silicon Research (P) Ltd., the Court reiterates that once an eligible assessee files objections before the DRP within time, the Assessing Officer cannot proceed to pass a final assessment order until the DRP concludes the proceedings and issues directions. Any such final order passed in the interregnum is in violation of the mandatory procedure under Section 144C.
2.11 The rejection of the assessee's objections by the DRP on the erroneous assumption that they were time-barred vitiates the subsequent steps taken by the Assessing Officer, because those steps are premised on a legally incorrect and factually unsustainable foundation.
2.12 The Court follows the ratio of the cited precedents to hold that the Assessing Officer ought to have awaited the conclusion of DRP proceedings and could not have proceeded to pass the impugned assessment order and penalty order when timely objections had been filed.
Conclusion on Issue 2
2.13 The DRP was not justified in rejecting the assessee's objections as time-barred. Consequently, the final assessment order, demand notice, and penalty order passed without awaiting and giving effect to valid DRP proceedings are arbitrary, illegal, and without jurisdiction and are liable to be quashed.
Issue 3: Whether, in light of the statutory scheme under Section 144C and the binding precedents, the impugned orders are liable to be quashed with consequential directions to the DRP and Assessing Officer.
Legal framework (as discussed)
2.14 The Court expressly relies on and applies the principles from:
- LG Soft India (P) Ltd.: holding that once objections are filed before the DRP within the prescribed period, the Assessing Officer cannot proceed to complete the assessment without awaiting DRP directions; any such assessment is arbitrary, illegal, and without jurisdiction.
- Open Silicon Research (P) Ltd.: holding that even where there is lapse in intimation to the Assessing Officer, once objections are filed before the DRP and directions are issued, the Assessing Officer must proceed only in conformity with such directions, and failure to await or follow DRP directions vitiates the assessment.
- INFRRD Private Limited: applying the above principles to quash a final assessment order passed without awaiting DRP outcome despite timely objections, and directing the authorities to proceed only after DRP concludes the matter.
Interpretation and reasoning
2.15 Applying these principles to the facts, the Court finds that:
(a) The assessee is an eligible assessee who was served with a Draft Assessment Order under Section 144C(1).
(b) The assessee filed objections within the statutory period, thus triggering the mandatory DRP procedure under Section 144C.
(c) The DRP's rejection of these objections as time-barred is contrary to undisputed dates on record and thus erroneous.
(d) The Assessing Officer's passing of the impugned final assessment order and penalty order, without awaiting proper DRP adjudication on validly filed objections, contravenes the mandatory scheme of Section 144C as interpreted in the binding precedents.
2.16 In view of the above, and consistent with the approach adopted in INFRRD Private Limited, LG Soft India (P) Ltd., and Open Silicon Research (P) Ltd., the Court considers it just and appropriate to quash the DRP order rejecting the objections, the final assessment order, and the penalty order, and to restore the matter to the DRP stage for fresh consideration of the objections.
Conclusions on Issue 3
2.17 The impugned DRP order rejecting objections (Annexure H), the assessment order and demand notice (Annexure J), and the penalty order dated 25.08.2025 are quashed.
2.18 The jurisdictional Dispute Resolution Panel is directed to consider afresh the objections filed by the assessee to the Draft Assessment Order and to conclude the proceedings in accordance with law, after providing sufficient and reasonable opportunity and personal hearing.
2.19 Upon receipt of the DRP's directions, the Assessing Officer is directed to provide adequate opportunity and personal hearing to the assessee and to pass appropriate orders strictly in accordance with law and in conformity with the DRP's directions, as mandated by Section 144C.
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