Bombay High Court rules skipping draft assessment order is jurisdictional error

WHAT HAPPENED - The Bombay High Court delivered a judgment holding that passing an assessment order without first issuing a draft order under section 144C amounts to a jurisdictional error rather than a simple procedural mistake. The court observed that omitting this mandatory stage directly strips the assessee of their statutory right to seek redressal before the Dispute Resolution Panel (DRP). WHY IT MATTERS - In Indian income tax proceedings, section 144C provides a protective shield for eligible assessees, such as foreign companies and taxpayers facing transfer pricing adjustments, by allowing them to contest proposed variations before a specialized panel before final tax demands are raised.

When tax authorities bypass this safeguard, they violate the foundational principles of natural justice and statutory procedure. The legal distinction between a jurisdictional error and a procedural lapse is critical: a jurisdictional error renders the final assessment order void ab initio, whereas procedural irregularities can often be cured by authorities during proceedings. WHAT TO DO & WHAT TO WATCH - Tax professionals must scrutinize all recent assessment notices and final orders issued to eligible clients to verify whether a draft order preceded the final demand.

If authorities bypassed the section 144C stage, CAs should file writ petitions or appeals before the high court or appellate tribunals to quash the illegal assessment. Bottom line: strict adherence to statutory checkpoints protects taxpayers from arbitrary tax finalizations.