The Delhi High Court has held that the failure of the assessing officer to comply with the "mandatory requirement" of Section 144C(1) of the Income Tax Act, 1961, will invalidate the final assessment order.
Section 144C(1) states that The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation which is prejudicial to the interest of such assessee
A division bench of Delhi High Court in the judgement of Principal Commissioner of Income Tax vs Headstrong Services India Pvt Ltd held that the provision was a "mandatory requirement" and the failure to comply with it will invalidate the final assessment order.
The bench observed :
"In the opinion of this Court, Section 144C is a self contained provision which carves out a separate class of assesses i.e. „eligible assessee‟ i.e. any person in whose case the variation arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of Sectiion (3) of Section 92CA. For this class of assesses, it prescribes a collegium of three commissioners, once objections are preferred. Dispute Resolution Panel‟s powers are co-terminous with the CIT(A), including the power to confirm, reduce or enhance the variation proposed and to consider the issues not agitated by the Assessee in the objections. In fact, under Section 144C, the Dispute Resolution Panel can issue directions as it thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment and the Dispute Resolution Panel can confirm, reduce or enhance the variations proposed in the draft order. It is specifically stipulated in Section 144C that every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. This is akin to the Assessing Officer giving effect to an order passed by the Appellate Authority or the Courts.
Consequently, Section 144C envisages a change of forum and it leads to complete cessation of the jurisdiction of the Assessing officer on passing of the draft order. Thereafter the Assessing officer is to give effect to either the direction of the Dispute Resolution Panel or pass an order on acceptance by the Assessee".
In the present case, the Court noted, in complete contravention of Section 144C, the Assessing Officer wrongfully assumed the jurisdiction and passed the final assessment order without passing a draft assessment order and without giving the assessee an opportunity to raise objections before the Dispute Resolution Panel.