2026 (3) TMI 1487 - AT - Income Tax

Draft assessment order requirement under section 144C was mandatory; omission vitiated the assessment and denied DRP remedy.

Where a remanded transfer pricing assessment fell within section 144C of the Income-tax Act, 1961, the Assessing Officer was required to issue a draft ... Validity of assessment order passed u/s 144C - absence of a draft assessment order - Violation of mandatory assessment procedure - Non-curable procedural defect HELD THAT: - The Tribunal admitted the additional ground as it raised a pure question of law requiring no further factual inquiry. On examining the impugned orders, it found that the AO had treated the remand proceedings as denovo assessment proceedings, made a fresh reference to the TPO, and proceeded on the basis of a fresh order under section 92CA(3). In such circumstances, the mandatory procedure of first issuing a draft assessment order under section 144C(1) had to be followed. Since the Assessing Officer straightway passed the final assessment order, the assessee was deprived of its right to approach the DRP. Applying Headstrong Services India (P) Ltd. [2020 (12) TMI 1086 - DELHI HIGH COURT] Tribunal held that this was not a mere irregularity or curable defect, but a defect that vitiated the assessment proceedings. [Paras 3, 6, 7] Final Conclusion: The Tribunal held that, after remand and fresh transfer pricing proceedings, the Assessing Officer was bound to follow the mandatory draft assessment procedure under section 144C(1). As the final orders were passed without such draft orders, the assessments for both years were vitiated and were quashed. Issues: Whether the final assessment orders were vitiated for non-compliance with the procedure under section 144C of the Income-tax Act, 1961, in that no draft assessment order was issued after the matter was remanded for fresh adjudication.Analysis: The additional ground raised a pure question of law arising from the record and was therefore admitted. The remand proceedings were treated as fresh assessment proceedings, and the Assessing Officer, after obtaining approval and making a fresh reference to the Transfer Pricing Officer, proceeded directly to pass final assessment orders. As the statutory procedure under section 144C(1) required issuance of a draft assessment order before passing the final order, the assessee was deprived of the statutory right to approach the Dispute Resolution Panel. Such non-compliance was held to vitiate the assessment proceedings and was not a mere irregularity or curable defect.Conclusion: The assessments were invalid for breach of section 144C(1) of the Income-tax Act, 1961, and the additional ground was allowed.Ratio Decidendi: Where, in a case covered by section 144C of the Income-tax Act, 1961, the Assessing Officer fails to issue a draft assessment order before passing the final assessment order, the assessment is vitiated because the omission deprives the assessee of a substantive statutory remedy and is not a curable procedural defect.