Facts of the Case

AT Kearney India Private Limited (“the Petitioner”) was subjected to assessment proceedings involving transfer pricing adjustments. The Transfer Pricing Officer (TPO) passed an order proposing adjustments to the returned income.

However, instead of first issuing a Draft Assessment Order (DAO) as mandated under Section 144C(1) of the Income-tax Act, 1961, the Assessing Officer (AO) straightaway passed a final assessment order, accompanied by a notice of demand under Section 156 and penalty initiation notices.

The Petitioner challenged the said final assessment order before the Delhi High Court by way of a writ petition, contending that the action of the AO was jurisdictionally invalid.

 

Issues Involved

Whether the Assessing Officer can pass a final assessment order without issuing a draft assessment order under Section 144C of the Income-tax Act.

Whether such failure constitutes a jurisdictional defect rendering the assessment order void ab initio.

Whether the Petitioner, being an eligible assessee, was denied statutory rights to approach the Dispute Resolution Panel (DRP).

 

Petitioner’s Arguments

The Petitioner submitted that it qualified as an “eligible assessee” under Section 144C(15).

Issuance of a draft assessment order is a mandatory statutory requirement, not a procedural formality.

The AO’s failure deprived the Petitioner of the statutory right to file objections before the DRP, violating principles of natural justice.

Reliance was placed on settled judicial precedents, including:

Turner International India (P) Ltd. v. DCIT (Delhi HC)

Headstrong Services India Pvt. Ltd. v. DCIT

The final assessment order, demand notice, and penalty proceedings were therefore non est and unenforceable in law.

 

Respondent’s Arguments

The Revenue contended that the assessment proceedings were substantially compliant with the Act.

It was argued that the omission to issue a draft assessment order was a curable defect and did not invalidate the final assessment.

The Department sought to justify the assessment by placing reliance on the faceless assessment framework.

 

Court Order / Findings

The Delhi High Court categorically rejected the Revenue’s submissions and held:

Section 144C is mandatory in nature, and non-compliance goes to the root of jurisdiction.

A final assessment order passed without first issuing a draft assessment order is void ab initio.

The defect is not curable and cannot be salvaged by subsequent proceedings.

The Court reiterated that the right to approach the DRP is a valuable statutory right, the denial of which vitiates the entire assessment process.

The Court followed and reaffirmed earlier binding precedents including Turner International India Pvt. Ltd.

Accordingly, the final assessment order, demand notice, and penalty proceedings were quashed.

 

Important Clarification by the Court

Even in remand proceedings or faceless assessment regimes, the obligation under Section 144C does not stand diluted.

Administrative convenience or technological framework cannot override statutory safeguards.

Issuance of a draft assessment order is a condition precedent to a valid final assessment for eligible assessees.

 

Final Outcome

Writ Petition Allowed
 Final Assessment Order Set Aside
 Demand and Penalty Notices Quashed
 No liberty granted to cure the defect through fresh proceedings where limitation had expired

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770191758_ATKEARNEYINDIAPRIVATELIMITEDVsDEPUTYCOMMISSIONEROFINCOMETAXCIRCLE11DELHIORS..pdf  

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