Case Note & Summary
The dispute involved a pharmaceutical company challenging assessment orders passed by the Income Tax Department for Assessment Years 2017-18 and 2018-19. The company had filed returns declaring losses, and its case was selected for scrutiny under CASS, with a notice issued under Section 143(2) of the Income Tax Act, 1961. The case involved international transactions, leading to a reference to the Transfer Pricing Officer, who passed an order under Section 92CA(3) making an upward adjustment. Initially, a draft assessment order was issued under Section 144C on 20.09.2021, but the company did not approach the Dispute Resolution Panel, resulting in a final assessment order on 29.10.2021. Subsequently, the Principal Commissioner of Income-tax set aside this order under Section 263, directing a fresh assessment de novo. The Assessing Officer then passed the impugned final assessment orders on 26.03.2025 and 27.03.2025 without issuing a fresh draft order under Section 144C. The core legal issue was whether the final assessment orders were valid despite non-issuance of a draft order under Section 144C, given that the company was an eligible assessee as per Section 144C(15)(b) due to the Transfer Pricing Officer's order. The petitioner argued that the omission rendered the orders void ab initio, citing precedents including Principal Commissioner of Income Tax vs. Sumitomo Corporation India Pvt. Ltd. The respondents contended that the remand under Section 263 authorized passing the final order directly, and that since transfer pricing issues were not re-referred, no draft order was needed. The court analyzed the facts, noting the admission by the respondent that the company was an eligible assessee under Section 144C(15)(b). It held that Section 144C(1) mandates issuance of a draft order before any prejudicial variation for eligible assessees, and this obligation persists even after a remand under Section 263. The court found the impugned orders invalid due to non-compliance, quashing them without remand, as the defect was jurisdictional. The decision emphasized the mandatory nature of Section 144C procedures to ensure fairness in assessment proceedings involving transfer pricing adjustments.
Headnote
A) Income Tax Law - Assessment Procedure - Mandatory Draft Assessment Order - Income Tax Act, 1961, Sections 144C(1), 144C(15)(b) - The petitioner, a pharmaceutical company, was an eligible assessee under Section 144C(15)(b) as variation arose from Transfer Pricing Officer order under Section 92CA(3) - The court held that issuance of draft assessment order under Section 144C(1) is mandatory for eligible assessees before passing final order, and non-compliance renders the final order void ab initio - The court quashed the impugned assessment orders dated 26.03.2025 and 27.03.2025 for Assessment Years 2017-18 and 2018-19 (Paras 10.1-10.3, 11). B) Income Tax Law - Revisionary Jurisdiction - Remand for Fresh Assessment - Income Tax Act, 1961, Section 263 - The Principal Commissioner of Income-tax set aside the original assessment order dated 29.10.2021 under Section 263 and directed fresh assessment de novo - The court held that remand under Section 263 does not exempt the Assessing Officer from complying with Section 144C requirements when the assessee remains eligible - The court rejected the revenue's contention that no draft order was needed due to the remand (Paras 4.1, 6, 8, 11). C) Income Tax Law - Transfer Pricing - Eligible Assessee Definition - Income Tax Act, 1961, Sections 92CA(3), 144C(15)(b) - The Transfer Pricing Officer passed an order under Section 92CA(3) making upward adjustment, and the respondent admitted the petitioner was an eligible assessee under Section 144C(15)(b) - The court held that this admission triggered the mandatory obligation under Section 144C(1) to issue a draft assessment order before final order - The court emphasized that the definition under Section 144C(15)(b) is clear and binding (Paras 4, 10.1, 10.2).
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Issue of Consideration: Whether the final assessment order passed without issuing a draft assessment order under Section 144C of the Income Tax Act, 1961 is valid when the assessee is an eligible assessee as per Section 144C(15)(b) and the assessment was set aside and remanded for fresh assessment under Section 263?
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Final Decision
The court allowed the writ petitions, quashed and set aside the impugned assessment orders dated 26.03.2025 and 27.03.2025, and ruled is made absolute with no order as to costs.
