Draft assessment order requirement for eligible assessees u/s144C in s.153A variations; final orders without draft quashed

Where the assessee is an "eligible assessee" under s. 144C(15)(b) and the AO proposes variations prejudicial to it, issuance of a draft assessment order under s. 144C(1) and recourse to the DRP mechanism is mandatory and overriding, including in assessments framed under s. 153A, by virtue of the non obstante scheme of s. 144C. Non-issuance of a draft order is a fatal, incurable jurisdictional defect not curable under s. 292B, and participation cannot validate a void order; further, the statutory time-limits under s. 144C bar any belated final order. Accordingly, the final assessment orders passed without a draft order were held void ab initio and were quashed, and the appeals were allowed.

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ISSUES PRESENTED AND CONSIDERED

1. Whether the assessee's additional ground challenging the assessments for non-compliance with Section 144C (non-issuance of draft assessment order) could be admitted as a pure jurisdictional/legal issue at the Tribunal stage.

2. Whether, on the facts accepted by the revenue authorities, the assessee was a "non-resident" during the relevant assessment years and therefore an "eligible assessee" for purposes of Section 144C(15)(b).

3. Whether, in the case of an eligible assessee, failure to forward a draft assessment order under Section 144C(1) before passing final orders under Section 153A is a mandatory non-compliance rendering the assessments void ab initio and without jurisdiction, and whether such defect is curable by participation or Section 292B.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Admission of additional jurisdictional ground on Section 144C non-compliance

Legal framework: The Court considered whether a pure question of law going to the root of jurisdiction can be raised before the Tribunal even if not raised earlier.

Interpretation and reasoning: The Court found that the plea-non-issuance of a draft assessment order despite the assessee being an "eligible assessee"-attacked the very jurisdiction to pass the final assessment orders. It did not require fresh factual investigation because the record already contained the travel/passport material and the verification findings relied upon in the assessment/appellate record. The Court treated such foundational defects as requiring adjudication prior to merits.

Conclusion: The additional ground was admitted as a pure legal/jurisdictional ground going to the root of the assessments.

Issue 2: Determination of non-resident status and resulting "eligible assessee" status under Section 144C

Legal framework: The Court examined residential status under Section 6 and the definition of "eligible assessee" in Section 144C(15)(b), specifically the limb covering "any non-resident not being a company, or any foreign company."

Interpretation and reasoning: The Court relied on the factual findings on record that the assessee's presence in India during the relevant years was below the statutory threshold and that the non-resident status had been independently verified (including through travel record verification) and accepted in the related proceedings referenced in the record, and also accepted by the appellate authority. The Court rejected the revenue's contention that the assessee should not benefit due to alleged non-disclosure/misrepresentation, holding that on the accepted record there was "no doubt" that the assessee was a non-resident.

Conclusion: The assessee was held to be a non-resident for the relevant years, and therefore fell within the scope of an "eligible assessee" under Section 144C(15)(b) for purposes of applying the draft-order/DRP procedure where prejudicial variations are proposed.

Issue 3: Whether non-issuance of draft assessment order under Section 144C(1) vitiates Section 153A assessments (mandatory nature; curability)

Legal framework: The Court examined Section 144C(1) (draft order to eligible assessee where prejudicial variation is proposed), read with the scheme of Section 144C and its overriding character (non-obstante clause). The Court also considered the revenue's reliance on cure/participation and Section 292B.

Interpretation and reasoning: The Court held that once the assessee is an eligible assessee and the Assessing Officer proposes prejudicial variations, the procedure under Section 144C becomes mandatory. The Court reasoned that Section 144C is not merely directory; it confers a substantive forum-related right and begins with a non-obstante clause, and therefore cannot be bypassed even in assessments framed under Section 153A. The Court treated the failure to issue a draft assessment order as a "fatal and incurable jurisdictional defect," rejecting the contentions that participation could cure the defect or that Section 292B could validate an order passed without following the mandatory jurisdictional precondition. The Court further concluded that because final orders were directly passed without the draft-order mechanism, the orders were non est and void ab initio, making adjudication of additions on merits unnecessary.

Conclusions: (i) Passing final assessment orders under Section 153A without first issuing draft assessment orders under Section 144C(1) to an eligible assessee is a jurisdictional illegality. (ii) Such illegality is not cured by participation and is not protected by Section 292B. (iii) The impugned assessments for all the relevant years were quashed as void and without jurisdiction, and the merits of additions were not examined as they became academic.

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