Final Assessment Without Draft Order Under Section 144C Invalid: ITAT New Delhi

The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) on 10 April, held that the Assessing Officer's failure to issue a draft assessment order under Section 144C(1) of the Income Tax Act renders the final order void.

The Bench comprising Judicial Member C N Prasad and Accountant Member M Balaganesh allowed the appeals filed by Sumitomo Corporation India Pvt. Ltd. against the assessment orders passed by the Deputy Commissioner of Income Tax.

The Tribunal held:

“the Final assessment order dated 20.06.2025 passed… without passing draft assessment order is bad in law and void ab initio and accordingly the same is hereby quashed.”

The dispute arose after the Assessing Officer passed final assessment orders following directions of the Dispute Resolution Panel. Sumitomo Corporation contended that once the Panel set aside the earlier proceedings and directed reconsideration in light of a Bilateral Advance Pricing Agreement, the Assessing Officer had to restart the process by issuing a draft assessment order.

However, the Assessing Officer bypassed this step and directly passed final orders, including transfer pricing adjustments and interest imputations.

The Tribunal held that Section 144C(1) requires the Assessing Officer to first forward a draft assessment order to the eligible taxpayer, enabling it to file objections before the Dispute Resolution Panel. It found that bypassing this requirement deprives the taxpayer of a statutory right and violates principles of natural justice.

Relying on the Delhi High Court's decision in the taxpayer's own case, the Tribunal reiterated that even in remand or fresh proceedings, the Assessing Officer must issue a draft assessment order before passing a final order.

Having quashed the assessment orders on this jurisdictional ground, the Tribunal left all other issues, including transfer pricing adjustments and interest on receivables, open for adjudication.

Accordingly, the ITAT allowed the appeal.