Draft assessment procedure under section 144C is mandatory; finalising tax liability at draft stage renders the order void.

Section 144C mandates that the Assessing Officer issue only a draft assessment order in the first instance, allowing objections before the DRP before finalising the assessment. Where the officer, though labelling the order as draft, also determined tax liability, issued demand and penalty notices, and granted credit for prepaid taxes, the assessment was treated as finalised in substance at the draft stage. That non-compliance with the statutory sequence was a jurisdictional defect, not a mere procedural irregularity, and the assessment orders were held invalid and quashed for breach of section 144C(1) of the Income-tax Act, 1961.

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Issues: Whether the assessment orders were invalid for failure to comply with the mandatory procedure under section 144C(1) of the Income-tax Act, 1961, where the Assessing Officer issued demand notices and penalty notices along with purported draft assessment orders.

Analysis: The additional ground was admitted as a pure question of law going to the root of the assessment. The Assessing Officer, while describing the orders as draft, proceeded to determine tax liability, direct issue of demand notices, grant credit of prepaid taxes, and initiate penalty proceedings. These acts showed that the assessment had been finalised in substance at the draft stage itself. The statutory scheme under section 144C requires the first instance issuance of only a draft assessment order, followed by objections before the DRP and then completion of assessment in conformity with the DRP's directions or on deemed acceptance. Since that sequence was not followed, the mandatory procedure was breached and the defect was jurisdictional, not merely procedural.

Conclusion: The assessment orders were without jurisdiction and invalid for non-compliance with section 144C(1) of the Income-tax Act, 1961, and were quashed.

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