2016 (5) TMI 1629 - AT - Income Tax

Validity of the assessment order passed u/s 144C(13) - period of limitation - HELD THAT - In the present case it is an admitted fact that the ITAT 2011 (8) TMI 1391 - ITAT DELHI directed the DRP to pass the order preferably within one year from the receipt of the said order. We therefore do not see any merit in this argument of assessee that the order passed by the DRP was not within the time limit of one year because the directions were given to pass the order preferably within one year but no time limit was fixed. Whether the order passed by the AO was within time limit as prescribed u/s 144C(13)? - AO shall pass the assessment order inconformity with the direction given by the DRP within one month from the end of the month in which such direction has been received. In the aforesaid provisions the use of the word shall makes it mandatory for the AO to comply with the directions of the ld. DRP and pass the assessment order within one month of the receipt of such directions. This sub-Section (13) of Section 144C of the Act has an overriding effect on the provisions contained in Section 153 of the Act because the sentence starts with non-obstante clause and it has been provided in Section 144C(13) of the Act that notwithstanding anything to contrary contained in Section 153 or Section 153B of the Act the assessment shall be completed within one month from the end of the month in which directions given by the DRP are received by the AO. Therefore the provisions contained in sub-Section (13) of Section 144C of the Act overrides the provisions contained in Section 153 or Section 153B. When a reference has been made by the AO u/s 92CA(1) of the Act the time limit for completion of the assessment is two years from the receipt of the order u/s 254 of the Act. But in the present case there was no such direction by the ITAT to the AO to make the reference again which he has already made to the TPO who passed the original order u/s 92CA(3) of the Act on 19.10.2009. In the present case as there was no such direction given by the ITAT in the order dated 18.08.2011 to the AO to make the reference again rather the directions were given to the ld. DRP who complied with those direction and passed the order on 17.01.2013 in the end of the said order it is clearly mentioned that the copy of the order is to be given to the AO i.e. Additional CIT Range-10 New Delhi. No merit in this contention of the department that the AO passed the assessment order only after receiving the directions of the DRP through TPO who is Technical Officer to decide the matter related to the arm s length price adjustments. Therefore as held assessment framed by the AO was barred by limitation. Appeal of the assessee is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

(a) Whether the assessment order passed by the Assessing Officer (AO) was barred by limitation under Section 144C(13) of the Income Tax Act, 1961 (the Act), given the timeline for passing the order after receipt of directions from the Dispute Resolution Panel (DRP).

(b) Whether the directions issued by the DRP were valid, considering the timeline prescribed by the ITAT in its earlier order directing the DRP to pass a speaking order within one year.

(c) The applicability and interplay of the limitation provisions under Section 144C(13) vis-`a-vis the extended time limits under Section 153(2A) of the Act, particularly in the context of references made to the Transfer Pricing Officer (TPO) and directions issued by the DRP.

(d) Ancillary issues raised by the assessee related to the merits of transfer pricing adjustments, benchmarking methods, and computation of arm's length price, though these were not adjudicated upon due to the decision on limitation.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Validity and limitation of the assessment order under Section 144C(13)

Relevant legal framework and precedents: Section 144C(13) of the Act mandates that upon receipt of directions from the DRP under sub-section (5), the AO shall complete the assessment in conformity with those directions within one month from the end of the month in which such directions are received. This provision contains a non-obstante clause overriding any contrary provisions, including Sections 153 and 153B, which deal with the time limits for assessment completion.

The ITAT had earlier, in its order dated 18.08.2011, directed the DRP to pass a speaking order preferably within one year from the date of receipt of the order, providing a timeline for the DRP's action but not a strict statutory deadline.

Court's interpretation and reasoning: The Tribunal emphasized the mandatory nature of the time limit under Section 144C(13), noting the use of the word "shall" and the non-obstante clause which overrides other limitation provisions. The AO was required to pass the assessment order within one month from the end of the month in which he received the DRP's directions.

The DRP passed its order on 17.01.2013, and the AO passed the assessment order on 24.07.2013. The AO's order was thus passed more than five months after the permissible period under Section 144C(13).

Regarding the ITAT's direction to the DRP to pass the order within one year, the Tribunal found that this was a preferred timeline and not a binding statutory deadline. Therefore, the DRP's order was not invalid merely because it was issued beyond one year from the ITAT's direction.

Key evidence and findings: The AO received the DRP's directions on 17.01.2013 but passed the assessment order on 24.07.2013, which was beyond the one-month period prescribed by Section 144C(13). The ITAT's prior order directing the DRP to pass the order within one year was complied with, as the DRP passed the order within that period.

Application of law to facts: The Tribunal held that the AO's delay in passing the assessment order after receipt of DRP directions was fatal to the validity of the assessment. The overriding effect of Section 144C(13) precluded reliance on extended time limits under Section 153(2A) in this context.

Treatment of competing arguments: The Revenue argued that Section 153(2A) allowed a two-year period for passing the assessment where a reference under Section 92CA(1) to the TPO was made following the ITAT's order. The Tribunal rejected this, noting that no fresh reference to the TPO was made after the ITAT's order, and the directions were only to the DRP. Hence, Section 153(2A) was not applicable.

Conclusions: The assessment order passed by the AO on 24.07.2013 was barred by limitation under Section 144C(13) of the Act and was therefore quashed. The DRP's order was valid as it was passed within the preferred timeline set by the ITAT.

Issue (c): Applicability of Section 153(2A) and interplay with Section 144C(13)

Relevant legal framework: Section 153(2A) provides an extended time limit of two years for completion of assessment where a reference under Section 92CA(1) to the TPO is made following an appellate order under Section 254. The fourth proviso to Section 153(2A) clarifies this extension.

Court's interpretation and reasoning: The Tribunal carefully distinguished the present facts from the scenario envisaged under Section 153(2A). It held that since the ITAT had not directed the AO to make a fresh reference to the TPO after its order dated 18.08.2011, the extended two-year period under Section 153(2A) was not attracted.

The Tribunal emphasized that the AO's assessment was to be completed in conformity with directions from the DRP, and the limitation under Section 144C(13) applied mandatorily. The non-obstante clause in Section 144C(13) overrides the provisions of Section 153 and 153B, including the extended time limits under Section 153(2A).

Application of law to facts: The AO had already made a reference to the TPO prior to the ITAT's order, and the TPO had passed an order on 19.10.2009. The ITAT's order restored the matter to the DRP, not the TPO, for passing directions. Hence, the extended limitation under Section 153(2A) was inapplicable.

Conclusions: The Tribunal held that the extended time limit under Section 153(2A) did not apply, and the AO was bound by the one-month limitation under Section 144C(13) to complete the assessment after receiving DRP directions.

Issue (d): Merits of transfer pricing adjustments and other grounds raised by the assessee

The assessee had challenged various aspects of the transfer pricing adjustments, including the benchmarking methods, rejection of the Internal TNMM applicability, treatment of comparable companies, and interest rate benchmarking.

The Tribunal observed that since the assessment order was quashed on the ground of limitation, it was unnecessary to adjudicate on these substantive grounds. No findings were given on the merits of those issues.

3. SIGNIFICANT HOLDINGS

"Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153 (or section 153B), the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received."

"The use of the word 'shall' in sub-Section (13) of Section 144C of the Act makes it mandatory for the AO to comply with the directions of the DRP and pass the assessment order within one month of the receipt of such directions."

"The provisions contained in sub-Section (13) of Section 144C of the Act override the provisions contained in Section 153 or Section 153B of the Act."

"Where no fresh reference is made by the AO to the TPO after receipt of the appellate order, the extended time limit under Section 153(2A) is not attracted."

"The assessment order passed by the AO beyond the prescribed time limit under Section 144C(13) is barred by limitation and liable to be quashed."

Core principles established include the mandatory and overriding nature of the limitation period under Section 144C(13) for completion of assessments following DRP directions, and the inapplicability of extended time limits under Section 153(2A) unless a fresh reference to the TPO is made post-appeal.

Final determination: The Tribunal quashed the assessment order dated 24.07.2013 as barred by limitation under Section 144C(13) of the Act. The directions issued by the DRP were upheld as valid. No adjudication was made on the substantive transfer pricing issues due to the limitation ruling.