Court’s decision
The Delhi High Court allowed a writ petition filed by Lindstrom Services India Private Limited and set aside a draft assessment order passed by the National Faceless Assessment Centre under Section 144C(1) of the Income Tax Act, 1961.
The Division Bench held that the impugned draft order dated 10.02.2026 had been passed during a communication gap, after the Court had already set aside the Transfer Pricing Officer’s earlier order in the same matter. The Court extended all timelines before the TPO, Assessing Officer, and Dispute Resolution Panel by 60 days and directed fresh proceedings in accordance with its earlier order .
Facts
The petitioner challenged a draft assessment order issued for Assessment Year 2023–24 under Section 144C(1). The dispute arose in the backdrop of transfer pricing proceedings.
Earlier, on 06.02.2026, the High Court had set aside the Transfer Pricing Officer’s order dated 05.01.2026 on the ground that copies of relied-upon agreements had not been furnished to the petitioner, violating principles of natural justice. The Court directed the TPO to supply the agreements (with redactions if necessary), allowed the petitioner to file its reply, and fixed fresh timelines.
However, due to a communication gap, the Faceless Assessing Officer proceeded to pass a draft assessment order on 10.02.2026.
Issues
The Court examined:
- Whether the draft assessment order passed on 10.02.2026 could survive after the earlier High Court order dated 06.02.2026.
- Whether the Faceless Assessing Officer acted in disregard of judicial directions.
- What remedial directions were required to preserve procedural fairness in transfer pricing proceedings.
Petitioner’s arguments
The petitioner submitted that the draft assessment order was issued after the High Court had already set aside the underlying Transfer Pricing Officer’s order for failure to provide relied-upon agreements.
It was contended that the draft order was passed because the Court’s order dated 06.02.2026 did not reach the Assessing Officer in time. The petitioner argued that once the foundational TPO order stood set aside, the consequential draft assessment order could not legally survive.
The petitioner sought quashing of the draft order and alignment of proceedings with the High Court’s earlier directions.
Respondents’ arguments
The Revenue fairly conceded that the draft order had been passed due to a communication gap. It acknowledged that the High Court’s order dated 06.02.2026 had not been brought to the notice of the Assessing Officer before issuance of the draft assessment order.
The Revenue did not contest the factual matrix and left the matter to the Court’s discretion.
Analysis of the law
The Court examined the sequence of events and noted that its earlier order had clearly set aside the TPO’s order dated 05.01.2026 for violation of natural justice. The draft assessment order was therefore premised on an order that no longer existed in the eyes of law.
Section 144C of the Income Tax Act provides a structured mechanism for draft assessment and objections before the Dispute Resolution Panel. However, the statutory scheme cannot operate in isolation from binding judicial directions.
Where a High Court sets aside the foundational order in transfer pricing proceedings, subsequent assessment steps based on it are rendered unsustainable.
Precedent analysis
Though the order is concise, it reinforces settled jurisprudence that administrative or faceless assessment mechanisms must comply with principles of natural justice and judicial orders.
The decision reflects consistent judicial oversight over transfer pricing proceedings and emphasizes that procedural safeguards cannot be diluted in the faceless assessment regime.
Court’s reasoning
The Bench observed that the Assessing Officer could not be faulted, as the draft order was passed due to delay in communication or uploading of the Court’s earlier order.
However, once it was undisputed that the earlier TPO order had been set aside, the draft assessment order dated 10.02.2026 could not stand.
The Court noted that the TPO had already supplied the relied-upon agreements to the petitioner on 12.02.2026. It therefore restructured the procedural timeline, directing the petitioner to file its reply by 16.03.2026 and requiring the TPO to pass a fresh order by 16.04.2026.
All timelines before the TPO, Assessing Officer, and Dispute Resolution Panel were extended by 60 days.
Conclusion
The Delhi High Court set aside the draft assessment order dated 10.02.2026 and aligned proceedings with its earlier directions.
The writ petition was allowed, and pending applications were disposed of .
Implications
This ruling underscores judicial control over the faceless assessment regime and reaffirms:
• Draft assessment orders cannot survive if based on quashed TPO findings.
• Communication gaps cannot justify continuation of defective proceedings.
• Natural justice in transfer pricing matters is non-negotiable.
• Courts may extend statutory timelines to balance fairness and efficiency.
The decision strengthens taxpayer safeguards in faceless assessments and ensures coherence between judicial oversight and digital tax administration.
Case law references
- Earlier Delhi High Court order dated 06.02.2026 (same petitioner) – Set aside TPO order for failure to supply relied-upon agreements; mandated fresh proceedings.
- Section 144C, Income Tax Act, 1961 jurisprudence – Emphasizes structured draft assessment and objection mechanism subject to natural justice and judicial directions.
FAQs
1. Can a draft assessment order be quashed if based on a set-aside TPO order?
Yes. If the foundational transfer pricing order is quashed, consequential draft assessments cannot survive.
2. Does the faceless assessment regime dilute natural justice?
No. Courts have consistently held that principles of natural justice apply equally to faceless assessments.
3. Can courts extend statutory timelines in tax proceedings?
Yes. Courts may extend timelines to ensure fairness and compliance with judicial directions.