A.O. Smith’s Tax Assessment Stays Quashed as Karnataka HC Finds No Revised Draft Order Preceded It

The Revenue sought review under Order XLVII Rule 1 CPC of the High Court’s order dated 15 December 2025 allowing the assessee’s writ petition and quashing the assessment order, demand notice and penalty notice.

The Revenue contended that the Court had overlooked a draft assessment order dated 8 April 2021, filed as Annexure K in the writ petition, and had therefore made a factually incorrect finding that no draft order had been passed.

The assessee maintained that the 8 April 2021 document was not the revised draft assessment order required under Section 144B(xxv) of the Income Tax Act, 1961, and that no such revised draft order had been passed before the final assessment order.

Order XLVII Rule 1 CPC permits review on specified grounds, including an error apparent on the face of the record.

Section 144B(xxv) of the Income Tax Act, 1961, as invoked by the assessee, required a revised draft assessment order before the final assessment order in the circumstances of the case.

The Court’s review analysis turned on the distinction between an initial draft assessment order and the revised draft order said to be statutorily required; the mere existence of the former did not establish that the latter had been passed.

The Court noted that the Revenue’s review petition relied on the existence of the 8 April 2021 draft order, but did not assert that a revised draft assessment order had been passed before the impugned final assessment order.

The parties’ pleadings were therefore consistent on the material point: no revised draft order had been issued.

In that context, the earlier order’s reference to the absence of a “draft assessment order” was a misnomer for the absence of the revised draft order required under Section 144B(xxv), not an error that undermined the basis for quashing the assessment.

The Court accordingly found no ground to review or set aside its earlier decision.

It disposed of the review petition without interfering with the earlier order, leaving the quashing of the assessment order, demand notice and penalty notice undisturbed.