2023 (3) TMI 1586 - AT - Income Tax

Validity of the final assessment order on the ground of limitation - violation of the mandate of sub-section (13) of section 144C -HELD THAT - No material has been placed on record by the Revenue to contend that DRP directions were received by the AO after 31/12/2022. Section 144C(13) of the Act mandates that on receipt of the directions issued under sub-section (5) the AO shall pass assessment order within one month from the end of the month in which such directions are received. Thus the AO was under obligation to pass final assessment order on or before 31/01/2022. AO passed the impugned assessment order on 28/02/2022. This is clearly in violation of the mandate of sub-section (13) of section 144C of the Act. The various Tribunal decisions on which the assessee has placed reliance and the decision of Renaissance Services BV 2022 (4) TMI 1393 - BOMBAY HIGH COURT it has been held that where the final assessment order is passed beyond prescribed time limit the same is liable to be quashed. Thus in view of undisputed facts of the case we hold that impugned assessment order is passed beyond the period of limitations hence the same is liable to be quashed we hold and order accordingly. Appeal by the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered by the Tribunal was whether the final assessment order passed under sections 143(3) read with 144C(13) and 144B of the Income Tax Act, 1961 for the assessment year 2017-18 was valid or barred by limitation. Specifically, the issue was whether the Assessing Officer complied with the time limit prescribed under section 144C(13) of the Act, which mandates that the assessment order must be passed within one month from the end of the month in which directions from the Dispute Resolution Panel (DRP) under section 144C(5) were received. The appellant challenged the final assessment order on the ground that it was passed beyond the prescribed time limit and was therefore null and void. The Tribunal also noted that if this primary ground was decided in favour of the appellant, the other grounds of appeal would become academic and need not be considered.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Validity of the final assessment order in light of limitation prescribed under Section 144C(13) of the Income Tax Act, 1961

Relevant legal framework and precedents:

Section 144C of the Income Tax Act provides a mechanism for dispute resolution between the Assessing Officer and the assessee through the Dispute Resolution Panel (DRP). Sub-section (5) mandates that the DRP issue directions within nine months from the end of the month in which the draft assessment order is forwarded to the assessee. Sub-section (13) requires the Assessing Officer to pass the final assessment order within one month from the end of the month in which the DRP directions are received. This statutory timeline is mandatory and designed to ensure timely disposal of assessment proceedings.

Judicial precedents relied upon by the appellant included decisions where it was held that an assessment order passed beyond the prescribed limitation period under section 144C(13) is liable to be quashed. Notable among these are Renaissance Services BV vs. DCIT, Adobe Systems India Pvt. Ltd. vs. DCIT, and Dentsply India (P) Ltd. vs. ITO, where the courts emphasized strict compliance with the limitation period and invalidated belated assessment orders.

Court's interpretation and reasoning:

The Tribunal examined the undisputed timeline of events as follows:

• The DRP directions under section 144C(5) were issued and uploaded on the ITBA system on 23 December 2021.
• Section 144C(13) mandates that the Assessing Officer must pass the final assessment order within one month from the end of December 2021, i.e., by 31 January 2022.
• The final assessment order impugned was dated 28 February 2022 and digitally signed on that date, but was received by the appellant only on 2 March 2022.

The Tribunal noted that the Department did not dispute the dates or provide any material to show that the DRP directions were received by the Assessing Officer after 31 December 2021. The communication from the DRP Secretariat confirmed directions were uploaded on 23 December 2021. Therefore, the Assessing Officer was statutorily bound to pass the assessment order by 31 January 2022.

Passing the order on 28 February 2022 was thus beyond the prescribed limitation period under section 144C(13). The Tribunal held that such delay violates the statutory mandate and renders the assessment order invalid.

Key evidence and findings:

The appellant furnished a detailed chart showing the timeline of events, including the dates of the transfer pricing order, draft assessment order, filing of objections to DRP, issuance of DRP directions, and final assessment order. The DRP directions were confirmed by an official email from the DRP office. The Department did not contest these facts or provide contradictory evidence.

Application of law to facts:

Applying the statutory timeline under section 144C(13) to the undisputed facts, the Tribunal concluded that the final assessment order was passed beyond the permissible period. The law requires strict adherence to the limitation period, and the Assessing Officer's failure to comply rendered the order void.

Treatment of competing arguments:

The Department contended that the assessment order was passed within limitation, but failed to produce any evidence to rebut the appellant's timeline or to show that the DRP directions were received after 31 December 2021. The Tribunal found the Department's argument unsubstantiated and rejected it.

Conclusions:

The Tribunal held that the final assessment order was barred by limitation and therefore null and void. The appeal was allowed on this ground, and the other grounds raised by the appellant were held to be academic and not adjudicated.

3. SIGNIFICANT HOLDINGS

The Tribunal succinctly stated the legal position as follows:

"Section 144C(13) of the Act mandates that on receipt of the directions issued under sub-section (5), the Assessing Officer shall pass assessment order within one month from the end of the month in which such directions are received. Thus, the Assessing Officer was under obligation to pass final assessment order on or before 31/01/2022. The Assessing Officer passed the impugned assessment order on 28/02/2022. This is clearly in violation of the mandate of sub-section (13) of section 144C of the Act."

The Tribunal further relied on the principle established in Renaissance Services BV vs. DCIT and other decisions that an assessment order passed beyond the prescribed limitation period under section 144C(13) is liable to be quashed.

Core principles established include:

• The limitation period prescribed under section 144C(13) is mandatory and non-extendable.
• Receipt of DRP directions by the Assessing Officer triggers the limitation period, and the final assessment order must be passed within one month from the end of that month.
• Failure to comply with this statutory timeline renders the assessment order invalid and liable to be quashed.

Final determination: The impugned assessment order dated 28 February 2022 was passed beyond the limitation period prescribed under section 144C(13) and was therefore quashed. The appeal was allowed on this ground, rendering other grounds academic.