ITAT Delhi: AO Must First Issue Draft Assessment to Eligible Assessee Under Section 144C

The Income Tax Appellate Tribunal (ITAT), Delhi, has ruled that the assessing officer must issue a draft assessment before passing a final order to an ‘eligible assessee’ under section 144C of the Income Tax Act.

The Revenue had filed several appeals from assessment years 2012-13 to 2017-18, challenging several issues.

Regarding four appeals filed for AYs 2012-13, 2013-14, 2014-15 and 2016-17, the tribunal noted that the tax effect was less than Rs 60 lakh, which makes the appeal non-maintainable as per CBDT Circular No.05/2024 dated 15.03.2024. Therefore, these four appeals were dismissed due to low tax effects.

In the remaining two appeals for 2015-16 and 2017-18, it was submitted by the assessee that she was a non-resident living in the United Kingdom. As a non-resident, she qualified as an eligible assessee under section 144C of the Income Tax Act. In such a case, even though the AO was required to first issue a draft assessment order under section 144C(1), he passed a final assessment order. This order was quashed by CIT(A).

The tribunal upheld CIT(A)’s order and rejected the department’s argument that non-issuance of a draft assessment order does not vitiate the final assessment.

The Tribunal held that Section 144C is a complete code and it first requires the AO to issue a draft assessment order to the eligible assessee. The eligible assessee has the option to either challenge it or accept it.

As a result, all appeals filed by the Revenue were dismissed.