2026 (4) TMI 130 - HC - Income Tax

Mandatory draft assessment order requirement: final assessment without DRP opportunity was quashed as jurisdictionally defective.

An eligible assessee must first receive a draft assessment order where the proposed variation is prejudicial, so that objections can be raised before the ... Final assessment order passed without first serving a draft assessment order on an eligible assessee - Mandatory compliance with dispute resolution procedure - Jurisdictional error in faceless assessment HELD THAT: - The Court held that, on a combined reading of Section 144B(1)(xxi) to (xxix) and Section 144C, the procedure requiring service of a draft assessment order upon an eligible assessee continued to apply even in faceless assessment. Since the petitioner's case involved an international transaction, and the proposed variation was prejudicial to it, service of a draft assessment order was mandatory before a final order could be made. The direct passing of the final assessment order without affording the statutory opportunity to file objections before the DRP was therefore a breach of the mandatory scheme of the Act and constituted a jurisdictional defect. The Court rejected the Revenue's request either to treat the final assessment order as a draft assessment order or to remand the matter for that purpose, holding that such an order, having been made in breach of the mandatory procedure, was liable to be quashed. The question whether the Assessing Officer could lawfully recommence the process by issuing a fresh draft assessment order was expressly left open. [Paras 6, 7, 8] The impugned final assessment order was quashed and set aside as having been passed in violation of the mandatory procedure u/s 144C read with Section 144B. Final Conclusion: The writ petition was allowed and the final assessment order for A. Y. 2023-24 was quashed for failure to follow the mandatory draft assessment procedure applicable to an eligible assessee. The Court left open the question whether the Revenue could, in law, initiate the process afresh by issuing a proper draft assessment order. Issues: Whether a final assessment order passed without first serving a draft assessment order on an eligible assessee, so as to enable recourse to the Dispute Resolution Panel, is sustainable in law.Analysis: The assessment scheme applicable to eligible assessees requires the Assessing Officer to first forward a draft assessment order where the proposed variation is prejudicial to the assessee. That procedure is not a mere formality. It confers a substantive right to object before the Dispute Resolution Panel. The direct passing of a final assessment order without serving a draft order violates the statutory sequence and amounts to a breach of the mandatory framework under the faceless assessment provisions as well as the dispute resolution mechanism. Such non-compliance is a jurisdictional defect and not a curable irregularity. The proposed course of treating the final order as a draft order or remanding the matter was not accepted; the impugned order itself could not stand.Conclusion: The final assessment order was quashed and set aside for failure to follow the mandatory draft-assessment procedure, and the petition was allowed.Ratio Decidendi: In the case of an eligible assessee, failure to serve a draft assessment order before passing a prejudicial final assessment order violates a mandatory jurisdictional requirement and renders the final order unsustainable.