Overview
The Finance Bill 2026 has introduced crucial, retrospective amendments to the Income-tax Act, 1961, to finally resolve the long-standing litigation regarding the time limits for issuing draft and final assessment orders under Section 144C. The amendments clarify that the general assessment time limits under Sections 153 and 153B apply only up to the stage of issuing the draft assessment order, while the subsequent finalization process is governed exclusively by Section 144C.
What is section 144C?
Section 144C applies mainly to:
Eligible assessees, including
- Foreign companies
- Cases involving Transfer Pricing adjustments
Under this section,
The Assessing Officer (AO) must first pass a Draft Assessment Order
The assessee can:
- Accept the draft, or
- Object before the Dispute Resolution Panel (DRP)
Only after DRP directions can the Final Assessment Order be passed
Key Aspects of the Clarification (Budget 2026)
Retrospective Application:
The changes apply retrospectively from 1 April 2009 for Section 153 and 1 October 2009 for Section 153B, effectively neutralizing past unfavorable judgments (like Roca Bathroom and Shelf Drilling), which previously argued that DRP proceedings must fit within the general limitation period.
"Notwithstanding" Clause:
The amendment explicitly states that regardless of any court judgment, the draft order can be made at any time up to the deadline in Section 153, and the final order is governed solely by Section 144C.
Removal of Doubt:
The amendments, including those in the new Income-tax Act, 2025 (effective April 1, 2026), ensure that when an eligible assessee invokes the Dispute Resolution Panel (DRP) route, the time consumed by the DRP (9 months) and the subsequent final order by the Assessing Officer (1 month) does not render the assessment void.
The Core Controversy: Draft vs Final Order Time-Limit
The confusion was around this
Section 153 prescribes the time-limit for completion of assessment, but:
Should this limit apply to:
- Draft Assessment Order? OR
- Final Assessment Order?
Two conflicting views emerged:
- Revenue’s view: Draft order within time is enough
- Assessee’s view: Final order must also be within limitation
This resulted in hundreds of appeals and writ petitions.
Judicial Clarity: Issue Finally Settled
Courts have now consistently held that:
The statutory time-limit applies to the Final Assessment Order, not merely the Draft Order.
Key takeaways from judicial rulings:
- Draft Assessment Order is only an intermediate step.
- An assessment is completed only when the Final Order is passed.
- Passing a draft order within limitation does not save a delayed final order.
Practical Impact on Pending & Future Assessments
Taxpayers can:
- Challenge belated final assessment orders
- Seek relief even if draft order was on time
Department must ensure:
- DRP proceedings + final order fit within Section 153 timelines
- This clarity brings certainty, predictability, and procedural discipline.
FAQs
Does Section 144C time-limit apply to Draft Assessment Order?
No. The limitation applies to the Final Assessment Order.
Is a delayed final order valid if draft order was within time?
No. Courts have held such orders to be time-barred and invalid.
Can taxpayers challenge old assessments on this ground?
Yes, if the final order was passed beyond the prescribed time-limit.
Has this issue been settled finally?
Yes. Judicial precedents have now consistently clarified the position.
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