Assessee’s Contentions

Revenue’s Contentions

Tribunal’s Judgment

The assessee contended that since the TPO had made no variation to its returned income, it was not an “eligible assessee” under Section 144C(15)(b) and therefore no draft assessment order under Section 144C(1) could be passed.

The Revenue contended that the order dated 28.12.2019, although described as a draft assessment order, was actually intended to be the final assessment order under Section 143(3) and that the incorrect description was merely a procedural/human error.

The HC held that where the TPO makes no variation in the returned income, the assessee is not an “eligible assessee” under Section 144C(15)(b). Therefore, the AO had no jurisdiction to pass a draft assessment order under Section 144C(1).

The assessee further argued that the order itself clearly stated that it was a draft order, that the proposed addition was only a proposal, and that no final determination of tax liability had been made. Therefore, the subsequent demand and penalty proceedings were invalid.

The Revenue relied on the alleged human error in uploading/issuing the order and contended that the mistake could be protected/cured under Section 292B.

The HC rejected the Revenue’s contention and held that a draft assessment order cannot form the basis for raising demand or initiating penalty proceedings without a valid final assessment order. Accordingly, the draft order, demand notice and penalty notice were quashed.