Draft Assessment Order Not Enforceable without Timely Final Order: Calcutta HC Sets Aside Income Tax Demand for Delay u/s 144C(13) [Read Order]
The Court ruled that a draft assessment order cannot crystallize tax liability, and any notice of demand issued alongside it is a nullity in law.
![Draft Assessment Order Not Enforceable without Timely Final Order: Calcutta HC Sets Aside Income Tax Demand for Delay u/s 144C(13) [Read Order]](https://images.taxscan.in/h-upload/2026/03/25/2130241-draft-assessment-orderjpg.webp "Draft Assessment Order Not Enforceable without Timely Final Order: Calcutta HC Sets Aside Income Tax Demand for Delay u/s 144C(13) [Read Order]")
In a recent ruling, the Calcutta High Court has quashed a tax demand and penalty notice and ruled that a draft assessment order cannot give rise to enforceable liability unless followed by a final order within the mandatory one-month window under Section 144C(13). The dispute arose from a draft assessment order dated March 16, 2021, which proposed a ₹41.13 crore transfer...
In a recent ruling, the Calcutta High Court has quashed a tax demand and penalty notice and ruled that a draft assessment order cannot give rise to enforceable liability unless followed by a final order within the mandatory one-month window under Section 144C(13).
The dispute arose from a draft assessment order dated March 16, 2021, which proposed a ₹41.13 crore transfer pricing adjustment for AY 2017–18. Almatis filed objections before the Dispute Resolution Panel (DRP), which later reduced the adjustment to ₹29.94 crore. However, the Assessing Officer failed to pass a final assessment order within the statutory one-month window after receiving the DRP’s directions in September 2021.
Despite this lapse, the department continued to pursue recovery, issuing multiple communications and adjusting ₹74,970 from a refund due for AY 2014-15.
The petitioner, Almatis Alumina Pvt Ltd, challenged the demand and stated that without a final order, the draft assessment and accompanying demand notice were legally void. Also they cited multiple High Court rulings (Bombay, Delhi, Telangana, Kerala) consistently holding that the time limit under Section 144C(13) is mandatory, and failure to comply results in lapse of jurisdiction.
They also objected to the department’s attempts to adjust the alleged demand against refunds due for other years, including the deduction of ₹74,970 from AY 2014–15 refunds, despite the absence of a valid final order.
On the other hand, the department stated that the failure to pass the final assessment order was due to a technical error in the ITBA system. They claimed that while issuing the draft order on March 16, 2021, the system mistakenly used the functionality meant for final orders, causing the assessment proceedings to be marked as closed.
The department argued that this was an inadvertent administrative lapse, not a deliberate violation of statutory timelines, and requested that a reasonable time be granted to pass the final order in conformity with the DRP’s directions.
After considering the submissions, the high court observed that the Assessing Officer was legally bound to pass the final assessment order within one month from the end of the month in which the DRP’s directions were received, but no such order was passed.
The court noted that statutory deadlines cannot be overridden by administrative or technical lapses, and once the deadline expires, the officer becomes functus officio.
Justice Kausik Chanda stated, “The language employed in the statute is mandatory and leaves no scope for extension of time on administrative or technical grounds,” and quashed the demand and penalty notices, directed refund of the adjusted amount with statutory interest, and restrained further recovery actions.
Accordingly, the writ petition was allowed.
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