Mandatory Issuance of Draft Assessment Order in International Transactions: Bombay High Court Quashes Defective Final Order

The procedural safeguards embedded within the Income Tax Act 1961 are designed to protect the substantive rights of an assessee, particularly in complex matters involving transfer pricing and cross-border transactions. In a significant judicial pronouncement, the Bombay High Court in the matter of Hansgrohe India Pvt. Ltd. Vs Assessment Unit Income Tax Dept. & Others reaffirmed the mandatory nature of issuing a draft assessment order before finalizing an assessment for an eligible assessee.

The Court unequivocally held that bypassing the draft assessment stage and directly issuing a final assessment order constitutes a fatal jurisdictional error. Such an omission deprives the assessee of the statutory right to approach the Dispute Resolution Panel (DRP), rendering the final order legally unsustainable.

Factual Matrix of the Case

The writ petition brought before the Bombay High Court by the assessee challenged the validity of a final assessment order passed on 2 February 2026. This impugned order was framed under Section 143(3) read in conjunction with Section 144B of the Income Tax Act 1961 for the Assessment Year 2023–24.

The core of the assessee's grievance rested on its classification under the tax statutes. The assessee asserted that it squarely fell within the definition of an "eligible assessee" as prescribed under Section 144C(15)(b)(i) due to its involvement in an international transaction.

According to the statutory mandate, whenever an assessing authority proposes any variation to the income or loss returned by an eligible assessee—which is prejudicial to the interest of such assessee—the authority is legally bound to first forward a draft of the proposed assessment order. This crucial procedural step is designed to afford the assessee an opportunity to file objections before the DRP. In the present scenario, the Assessing Officer completely bypassed this preliminary requirement and directly slapped a final assessment order on the assessee.

The Core Arguments Presented

The Assessee's Standpoint

The assessee argued that the failure to issue a draft assessment order was not a mere procedural hiccup but a gross violation of a mandatory statutory provision. By jumping straight to the final assessment order, the Assessing Officer unlawfully extinguished the assessee's right to seek alternative dispute resolution through the DRP mechanism. Consequently, the assessee contended that the final assessment order dated 2 February 2026 was void ab initio and deserved to be struck down.