ITAT Delhi Quashes Assessment Orders Against Sumitomo India for Want of Draft Order Under Section 144C

April 10, 2026 : The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that a final assessment order passed without first issuing a draft assessment order under Section 144C(1) of the Income Tax Act is legally untenable and void ab initio. The Tribunal set aside the assessment orders passed against Sumitomo Corporation India Pvt. Ltd. for Assessment Years 2020–21 and 2021–22.

The Bench comprising Judicial Member C.N. Prasad and Accountant Member M. Balaganesh was adjudicating appeals filed by the assessee challenging the validity of final assessment orders framed under Sections 143(3) read with 144C(13) of the Act.

At the core of the dispute was the Assessing Officer’s failure to comply with the mandatory procedure prescribed under Section 144C. Although the Dispute Resolution Panel (DRP) had issued directions in the matter, the Assessing Officer proceeded to pass final assessment orders without first issuing a draft assessment order to the assessee.

The assessee argued that this omission was not a mere procedural lapse but a substantive illegality that deprived it of the statutory right to raise objections before the DRP. It contended that Section 144C establishes a mandatory scheme requiring the Assessing Officer to first forward a draft assessment order, enabling the assessee to respond before a final order is passed.

Accepting this contention, the Tribunal examined the statutory framework and emphasized that the requirement under Section 144C(1) is obligatory. It noted that even in situations involving remand or fresh proceedings, the Assessing Officer cannot bypass the draft assessment stage.

The Tribunal also relied on the Delhi High Court’s ruling in the assessee’s own case, which had categorically held that failure to issue a draft assessment order vitiates the final assessment. Following this binding precedent, the Bench held that the final assessment order dated 20 June 2025 (for AY 2020–21) and the corresponding order for AY 2021–22 were unsustainable in law.

In clear terms, the Tribunal ruled that passing a final assessment order without adhering to the draft assessment mechanism renders the entire proceeding void. It observed that such non-compliance also violates principles of natural justice by denying the assessee an effective opportunity to contest proposed adjustments.

Having quashed the assessment orders on this legal ground, the Tribunal declined to examine the merits of the transfer pricing adjustments and other issues raised in the appeals, leaving them open for adjudication in appropriate proceedings.

Accordingly, the appeals filed by Sumitomo Corporation India Pvt. Ltd. were allowed.