Delhi High Court quashes final tax assessments for MNCs, citing violations of Income Tax Act procedures

In relief to various MNCs, including Microsoft India, Sumitomo Corporation India and AT Kearney India, the Delhi High Court on Monday quashed the final tax assessment orders that were passed against them without there being any draft assessment orders as mandated under Section 144C of the Income Tax Act 1961.

It further said that the final assessment orders if framed after the prescribed time under Section 153 of the Act had expired are liable to be quashed on that ground additionally.

Failure to frame a draft assessment order by the assessing officer would “clearly be violative of the mandatory prescriptions of Section 144C and the final order of assessment framed in violation thereof is liable to be viewed as a nullity,” a Division Bench comprising justices Yashwant Varma and Ravinder Dudeja said.


“A failure to frame a draft order of assessment not only curtails the right of the assessee to adopt corrective measures, it also deprives it of a salutary right to challenge the draft in terms of the statutory mechanism laid in place,” according to the HC.

"We, on an independent analysis, find ourselves equally unable to view or accept Section 144C when mandating a draft assessment order being framed as being a mere procedural requirement,” it said, adding that a draft assessment order creates a right to challenge a decision at multiple levels, be it before the Dispute Resolution Panel, Commissioner of Income Tax (Appeals) or the Income Tax Appellate Tribunal.

"Once it is conceded that the period for completion of the assessment exercise in terms of subsections (3) and (4) of Section 153 has expired, it would be wholly impermissible for us to expand or enlarge the period prescribed for completion of assessment,” the judgment stated.