Mandatory draft assessment procedure under section 144C cannot be bypassed when the order itself finalises liability and issues demand notices.

Section 144C requires the Assessing Officer to issue only a draft assessment order to an eligible assessee and complete assessment after the statutory procedure is followed. An order styled as a draft but which itself computes taxable income, determines tax payable, and is accompanied by demand and penalty notices is in substance a final assessment order, not a draft order. Such non-compliance is a jurisdictional defect and cannot be cured by section 292B. Demand and penalty notices may be issued only after assessment is completed in accordance with section 144C, so the impugned assessment and consequential notices were quashed.

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Issues: Whether the assessment order and consequential demand and penalty notices were liable to be quashed for non-compliance with the mandatory procedure under section 144C when the so-called draft assessment order itself determined tax liability and was accompanied by demand and penalty notices.

Analysis: The procedure under section 144C is mandatory and requires the Assessing Officer, in the first instance, to forward only a draft order to the eligible assessee and complete the assessment only after the statutory process is followed. Where the order described as a draft assessment order itself computes taxable income, determines tax payable, issues a notice of demand, and initiates penalty proceedings, the order is in substance a final assessment order and not a draft order. Such a breach goes to jurisdiction and cannot be cured by section 292B. The issuance of demand and penalty notices is permissible only after completion of assessment in accordance with section 144C.

Conclusion: The assessment proceedings were void for breach of section 144C, and the impugned final assessment order together with the consequential demand and penalty notices were quashed.

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