Draft assessment orders protect eligible assessees' DRP rights; bypassing that statutory step is treated as jurisdictionally fatal.

Section 144C(1) requires the Assessing Officer to first forward a draft assessment order to an eligible assessee where a proposed variation is prejudicial, including a transfer pricing adjustment. This mechanism preserves the assessee's right to approach the Dispute Resolution Panel and forms an integral part of the statutory scheme. Directly passing a final assessment order after receiving the Transfer Pricing Officer's adjustment bypasses that protection. The notes characterise such non-compliance as a foundational jurisdictional defect, rather than a curable procedural error under Section 292B, rendering the assessment invalid.

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Issues: Whether an assessment order incorporating transfer pricing adjustment could validly be passed directly without first forwarding a draft assessment order to the eligible assessee under Section 144C(1) of the Income-tax Act, 1961.

Analysis: Section 144C(1) creates a mandatory statutory mechanism where, upon variation prejudicial to an eligible assessee including on account of transfer pricing adjustment, the Assessing Officer must in the first instance forward a draft assessment order. This requirement preserves the assessee's right to approach the Dispute Resolution Panel and is integral to the statutory scheme. Direct passing of the final assessment order after receipt of the Transfer Pricing Officer's adjustment bypasses that mechanism. Such non-compliance is not a curable procedural defect under Section 292B, but a foundational jurisdictional defect that vitiates the assessment proceedings.

Conclusion: The assessment order passed without issuance of a draft assessment order under Section 144C(1) was invalid and rightly annulled; the issue was decided in favour of the assessee and against the Revenue.

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