Second Draft Assessment Order Invalid Under Section 144C | ITAT

Case Details: Marvell India (P.) Ltd. vs. DCIT Circle 4(1)(1) [2026] 186 taxmann.com 1255 (Bangalore-Trib.) 

Judiciary and Counsel Details

• Keshav Dubey, Judicial Member & Waseem Ahmed, Accountant Member
• Mukesh Bhutani, A.R. for the Appellant. 
• Dr Divya K.J., CIT D.R. for the Respondent.

Facts of the Case

The assessee, a subsidiary of a foreign company, engaged in providing software development services to its Associated Enterprise (AE). The assessee filed its return of income declaring a total income, which was taken up for scrutiny.
During the assessment proceedings, the AO passed the Draft Assessment Order (DAO) by adding the transfer pricing adjustments to the returned Income. Subsequently, the assessee filed objections against the DAO before the Dispute Resolution Panel (DRP).
After the filing of the objection to the DRP, another Show Cause Notice (SCN) was issued by the AO to the Assessee, which contained only the corporate tax-related adjustment. The Final Assessment Order made additions regarding corporate tax and transfer pricing issues. Aggrieved by the order, the assessee filed an appeal to the Tribunal.

The Tribunal Held

The Tribunal held that the AO passed two different DAOs: one dated 16.02.2021, incorporating the TP adjustment proposed by the TPO, and another dated 15.04.2021, proposing various corporate tax issues. According to section 144C(1), the AO shall, in the first instance, forward a draft of the proposed order of assessment (draft order) to the eligible assessee if the AO proposes to make any variation prejudicial to the interest of the assessee.
The section emphasises that the AO should forward a draft order to the assessee in the first instance. The phrase “in the first instance” explicitly indicates that the forwarding of the draft order is an initial and singular event. It sets in motion a specific procedural chain for that assessment year concerning the proposed variations.
Once this initial draft is forwarded, the subsequent steps, whether acceptance by the assessee or objections to the DRP, are all anchored to this one document. Therefore, the AO cannot issue two formal DAOs to an eligible assessee for the same assessment proceedings under Section 144C(1) of the Act, thereby initiating separate DRP processes. The statutory language, particularly “in the first instance” and “a draft order,” along with the structured procedural flow and the limited powers of the DRP, clearly indicate a singular, initial formal communication that triggers the DRP mechanism.
Accordingly, the subsequent DAO was illegal, bad in law and accordingly quashed.

List of Cases Referred to

• CIT (International Taxation) v. Cisco Systems Services B.V. [2023] 149 taxmann.com 486/293 Taxman 85/456 ITR 50 (Karnataka) (para 7.3)
• Pr. CIT v. Woco Motherson Advanced Rubber Technologies Ltd. [2017] 80 taxmann.com 63/246 Taxman 377/[2018] 406 ITR 375 (Gujarat) (para 7.3)