Facts of the Case

The respondent-assessee, Headstrong Services India Pvt. Ltd., filed its return declaring income for AY 2007–08. The case was selected for scrutiny, and reference was made to the Transfer Pricing Officer (TPO) for international transactions with its Associated Enterprise.

The Assessing Officer (AO) completed assessment under Sections 143(3)/144C, making additions relating to transfer pricing adjustments and excess deduction under Section 10A.

On appeal, the ITAT remanded the matter back to the AO for fresh adjudication (de novo) directing proper procedure. However, during remand proceedings, the AO passed a final assessment order without following the mandatory procedure under Section 144C, i.e., without issuing a draft assessment order and without giving the assessee an opportunity to approach the Dispute Resolution Panel (DRP). 

Issues Involved

  1. Whether the Assessing Officer is required to follow the procedure under Section 144C even in remand (de novo) proceedings.
  2. Whether failure to issue a draft assessment order renders the final assessment order void ab initio.
  3. Whether such failure is a procedural irregularity or a jurisdictional defect. 

Petitioner’s (Revenue’s) Arguments

  • Section 144C applies only “in the first instance” and not during remand proceedings.
  • The case had already undergone DRP procedure earlier; hence repetition was unnecessary.
  • The defect, if any, was merely procedural and curable, not rendering the order void.
  • ITAT erred in annulling the assessment without examining merits.

 Respondent’s (Assessee’s) Arguments


  • ITAT had directed de novo adjudication, requiring complete compliance with statutory procedure.
  • Section 144C is mandatory for eligible assessees involving transfer pricing adjustments.
  • Failure to issue draft order deprived the assessee of statutory right to approach DRP.
  • Such violation renders the assessment null and void ab initio.Court’s Findings / Order

The Delhi High Court dismissed the Revenue’s appeal and held:

1. De Novo Proceedings Require Full Compliance

  • Once ITAT directs de novo adjudication, the matter must be treated as fresh proceedings.
  • AO must follow complete procedure under Section 144C, irrespective of earlier compliance.

2. Section 144C is Mandatory

  • Section 144C is a self-contained code applicable to eligible assessees.
  • It mandates issuance of a draft assessment order and reference to DRP.

3. Jurisdictional Error, Not Procedural Irregularity

  • Failure to follow Section 144C is not curable.
  • It renders the assessment without jurisdiction and void ab initio.

4. Change of Forum Principle

  • Section 144C shifts jurisdiction from AO to DRP after draft order stage.
  • AO cannot bypass DRP once objections are possible.

5. Legal Principle Applied

“When a statute prescribes a method, it must be followed in that manner or not at all.”

Final Order

  • Appeal dismissed.
  • ITAT order upheld.
  • Costs imposed on Revenue.

Important Clarifications

  • “In the first instance” in Section 144C refers to first procedural step, not exclusion from remand proceedings.
  • Remand does not dilute statutory safeguards available to the assessee.
  • Non-compliance with Section 144C results in complete invalidation, not remand for correction. 

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2020:DHC:3740-DB/MMH24122020ITA772019_202655.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.