ITAT Delhi: Final Assessment Order Without Draft Order Under Section 144C Is Vitiated

The Income Tax Appellate Tribunal (ITAT) Delhi Bench ‘D’ has firmly held that an assessment order passed against an eligible assessee without first issuing a mandatory draft order under Section 144C of the Income-tax Act, 1961 , is vitiated and cannot be sustained. The bench, comprising Judicial Member Vikas Awasthy and Accountant Member Naveen Chandra, dismissed the Revenue’s appeal and allowed the cross-objection filed by I Energizer Holdings Ltd. , a Mauritius-based foreign company.

A Search, Seizure, and a Missing Draft

The dispute originated from a search and seizure operation under Section 132 conducted on 22 March 2012 on the Focus Energy Group . During the search, incriminating documents relating to I Energizer were found. The case was subsequently centralized with the DCIT, Central Circle-10, New Delhi (later restructured as Central Circle-19 ). A satisfaction note under Section 153C was recorded, and a notice under Section 142(1) was issued.

The Assessing Officer (AO) treated I Energizer as a resident under Section 6(3) of the Act , holding that its control and management were wholly situated in India. Consequently, the AO assessed the company’s income at ₹3,83,53,140 on a protective basis , passing a final assessment order under Section 144 on 23 March 2014 .

Aggrieved, I Energizer appealed before the Commissioner of Income Tax (Appeals) [CIT(A)] , who granted relief. The Revenue then approached the ITAT. In its cross-objection , I Energizer raised a pivotal legal challenge: the assessment order was void because the AO had not followed the mandatory procedure under Section 144C.

The Mandate of Section 144C

Section 144C provides a special procedure for assessment in cases involving eligible assessees, which expressly includes any foreign company. Under sub-section (1), the Assessing Officer must first forward a draft of the proposed assessment order to the assessee if the AO proposes any variation prejudicial to the assessee’s interest . This draft gives the taxpayer an opportunity to either accept the variation or file objections before the Dispute Resolution Panel (DRP) . Only after receiving the DRP’s directions can the AO pass the final assessment order under Section 144C(13) .

The Revenue argued that the AO had correctly passed the order under Section 144 , relying on the merits of the case and the seized material. However, I Energizer’s counsel, Shri Amit Goel, CA , and Shri Pranav Yadav, Advocate , pointed to the ITAT’s own earlier decision for assessment years 2008-09 to 2011-12 , where the coordinate bench had held that final assessment orders passed without a draft order were unsustainable . They also relied on decisions of the Delhi High Court , including CIT vs. Rolland Enterprises Ltd. (ITA 556/2024) and Turner International India Pvt. Ltd. vs. DCIT ( 2017 ), which established that non-compliance with Section 144C(1) is a jurisdictional error .

Jurisdictional Error , Not a Mere Irregularity

The ITAT agreed with the assessee. It noted that the AO had passed the final order under Section 144 without first framing a draft order under Section 144C(1) . Relying on the Bombay High Court ’s decision in SHL India (P.) Ltd v. Dy. CIT ( 2021 ), the tribunal held that this failure is a jurisdictional error —a breach of a mandatory provision —and not a mere procedural irregularity that could be cured under Section 292B .

The tribunal quoted its own earlier reasoning: “Thus, on going through the provisions of Section 144C(1) of the Income Tax Act, 1961 mandating forwarding of a draft Assessment Order… we hold that the Assessment Orders passed by the Assessing Officer are bad in law , hence, unsustainable for not passing the draft Assessment Order as per the provisions of Section 144C(1) .”

Key Observations

“The failure by the AO to adhere to the mandatory requirement of Section 144C(1) of the Act, to first pass a draft assessment order and thereafter the Final order u/s 144C(13), has resulted in vitiating the impugned final assessment order .”

The tribunal further emphasized that the procedure under Section 144C is a “mandatory and statutory requirement of law” and that the assessee, being a foreign company, is an “ eligible assessee ” under Section 144C(15)(b)(ii) . The AO was therefore bound to follow the draft-order procedure.

Verdict and Implications

Having decided the legal issue in favor of the assessee, the ITAT held that the Revenue’s appeal on merits had become infructuous . It dismissed the Revenue’s appeal and allowed I Energizer’s cross-objection , effectively setting aside the assessment order.

The ruling reinforces the inviolability of the draft-order procedure under Section 144C. Tax authorities cannot bypass this mandatory safeguard, even if they believe the merits of the case justify a higher tax demand. For foreign companies and other eligible assessees, this decision provides strong protection against summary assessments that ignore the statutory process.