IT Act - Non-Issuance of Draft Assessment Order Renders Final Order Void, Delhi High Court

High Court upholds the necessity of draft assessment order under Section 144C, dismissing the application of principles from Sarabjit Singh's case.
The Delhi High Court has reaffirmed that a failure to issue a draft assessment order under Section 144C of the Income Tax Act renders the final assessment order void. The court dismissed the argument that this infraction is merely procedural, emphasizing the distinct and mandatory nature of the draft assessment process, particularly for eligible assessees.
The case involved several petitions where the Jurisdictional Assessing Officer (AO) proceeded to finalize assessment orders without issuing a draft assessment order after remand by the Income Tax Appellate Tribunal (ITAT). The petitioners argued that the omission to issue a draft assessment order was not just a procedural irregularity but a fundamental violation of their rights under the law.
The court noted that the issuance of a draft assessment order is a critical step in the assessment process, particularly under Section 144C, which applies to eligible assessees. The court rejected the respondents' reliance on the precedent set by the Sarabjit Singh case, where non-compliance with Section 144B was deemed a mere procedural irregularity.
Justice Yashwant Varma emphasized that Section 144C introduces a special and distinct mechanism for assessment, involving multiple tiers of review, including the Dispute Resolution Panel (DRP), which are integral to ensuring fairness and transparency in the assessment process. The court observed that the failure to issue a draft assessment order deprives the assessee of the opportunity to challenge the proposed variations, a right enshrined within the statutory framework.
The court differentiated Section 144C from the earlier Section 144B, under which the Sarabjit Singh case was decided. It noted that while Section 144B allowed for a degree of internal review by the Deputy Commissioner, Section 144C mandates a more rigorous process, involving a draft order that is subject to review and challenge at multiple levels. The court ruled that non-compliance with this process cannot be considered a mere procedural lapse but constitutes a fundamental flaw that vitiates the final assessment order.
"The failure to frame a draft order of assessment not only curtails the right of the assessee to adopt corrective measures, but also deprives it of a salutary right to challenge the draft in terms of the statutory mechanism laid in place," the court noted in its judgment .
The Delhi High Court's ruling underscores the judiciary's commitment to upholding procedural fairness in tax assessments. By affirming the necessity of a draft assessment order under Section 144C, the judgment sets a precedent that reinforces the protection of taxpayers' rights in the assessment process. This ruling is likely to have significant implications for future cases where similar procedural violations occur.
 

Date of Decision: September 02, 2024