The Bombay High Court on 30 October held that the Income Tax Department cannot pass a final assessment order against an eligible taxpayer without first issuing a draft assessment order, as mandated under Sections 144B and 144C of the Income Tax Act, 1961.
A Division Bench comprising Justices B.P. Colabawalla and Farhan P. Dubash quashed the final assessment order passed against Orpak Systems India Private Limited, after the Revenue admitted that it had not issued a draft assessment order. The judges held:
“These provisions clearly stipulate that in case of an eligible assessee, a Draft Assessment Order has to be served on the Petitioner to enable the Petitioner to approach the DRP.”
The case arose after Orpak Systems India's income tax return for Assessment Year 2022-23 was selected for scrutiny. Following a transfer pricing adjustment of approximately Rs. 2.41 crore, the Assessing Officer passed a final assessment order without first issuing a draft assessment order.
The company challenged the order, arguing that Section 144C required the Department to issue a draft assessment order before passing the final order, thereby allowing it to raise objections before the Dispute Resolution Panel (DRP).
The Revenue admitted that it had not issued a draft assessment order but contended that the omission was an inadvertent procedural lapse. It sought a remand to allow the Assessing Officer to rectify the defect.
The High Court rejected this contention and relied on its earlier decisions in Danfoss Fluid Power Private Limited v. Union of India and Barentz India Private Limited v. Assessment Unit, which had dealt with similar violations. It also refused to remand the matter to the Assessing Officer, observing:
“As far as the prayer for remand is concerned, we see no reason to remand the matter back to the Assessing Officer.”
However, the Bench clarified that the Department could initiate fresh proceedings by issuing a draft assessment order, if permitted under law. It left the question of whether such proceedings could be initiated open.
Accordingly, the High Court allowed the writ petition and quashed the final assessment order.
For the Petitioner: Advocates S.P. Chidambaram and Paras Savla
For the Revenue: Advocate Vikas Khanchandani