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of <h1>Revision under Section 263 for non-compliance with Section 144C draft assessment procedure leads to de novo reassessment direction</h1> Revision under section 263 was invoked for non-compliance with the draft assessment procedure under section 144C, with the revisional authority setting ... Revision u/s 263 - violation of the provisions of Section 144(C) of the IT Act of failure to pass the draft assessment order - PCIT has set aside the final Assessment Order passed u/s 143(3) r/w Section 144C and 144B by making specific observations by issuing a direction to the assessing Officer “to pass fresh assessment order, de novo, after taking into consideration the issue as may have been already considered together with the issue discussed hereinabove” - HELD THAT:- When the petitioner-company did not chose to file application with DRP a final Assessment Order was passed on 29.10.2021.Hence, the assessment which got crystalised on 29.10.2021, was resurrected in revisional proceedings under the provisions of Section 263. Thus, the Final Assessment Order dated 29.10.2021, which emerged from the reference made by the TPO and passing of the draft Assessment Order u/s144C of the IT Act, gets encompassed in the order dated 24.03.2024 passed under the provisions of Section 263 in view of the specific directions issued by the PCIT, to pass a fresh Assessment Order de novo, while taking into consideration all the issues which already considered earlier with the issues discussed in the said order. Thus, in our considered opinion the appropriate course which ought to have been adopted by the Assessing Officer was to fall back to the stage of the order dated 26.07.2021 passed by the TPO suggesting upward adjustment of Rs. 94,88,151/. The draft Assessment Order dated 20.09.2021 culminated into final Assessment Order passed on 29.10.2021, which was subject matter of revision. Hence, it was not open for the Assessing Officer to directly pass an order on 26.03.2025 under the provisions of Section 143, read with Section 263 read with Section 144B of the IT Act, while ignoring the provisions of Section 144C of the IT Act, more particularly, in wake of the draft assessment order on 20.09.2021 and final assessment order dated 29.10.2021. Issues: Whether, after a revisional order under Section 263 directing the Assessing Officer to pass a fresh assessment de novo, the Assessing Officer could lawfully pass a final assessment without issuing a draft assessment order as mandated by Section 144C of the Income-tax Act, 1961, where the variation arose from a Transfer Pricing Officer's order under Section 92CA(3).Analysis: Section 144C requires that where a variation in returned income arises as a consequence of an order of the Transfer Pricing Officer under Section 92CA(3), the Assessing Officer must, in the first instance, forward a draft of the proposed order to the eligible assessee and permit the assessee to either accept the variation or file objections with the Dispute Resolution Panel and the Assessing Officer. The status of the assessee as an eligible assessee under Section 144C(15)(b)(i) is established if the variation flows from a TPO order. A revisional direction under Section 263 setting aside a final assessment and directing a fresh assessment de novo does not, without clearer specification, displace the statutory mechanism and safeguards created by Section 144C where the variation arose from a TPO order. Precedent recognizes Section 144C as a self-contained code creating substantive rights for eligible assessees; failure to frame a draft order curtails those rights. Remanding for de novo assessment may be impermissible where limitation under Section 153 would bar completion of remanded assessment, but such limitation considerations do not validate bypassing the draft-order requirement where the statutory scheme applies.Conclusion: The requirement of issuing a draft assessment order under Section 144C is mandatory where the variation arises from a TPO order; accordingly, the final assessment orders passed without resort to Section 144C are quashed and set aside in favour of the assessee.
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