Revision under Section 263 for non-compliance with Section 144C draft assessment procedure leads to de novo reassessment direction

Revision under section 263 was invoked for non-compliance with the draft assessment procedure under section 144C, with the revisional authority setting aside a crystallised final assessment and directing the assessing officer to pass a fresh assessment de novo; consequence: the AO must revert to the stage of the transfer pricing officer's upward adjustment recommendation and rework the assessment while considering earlier and newly discussed issues. The AO was held not entitled to bypass the draft assessment framework and directly pass a fresh order ignoring the Section 144C process.

---

---

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.

---