2025 (5) TMI 811 - AT - Income Tax

Validity of final assessment order passed by AO u/s 143(3) r/w section 144C(13) as time-barred - scope of DRP directions - HELD THAT - Hon ble Madras High Court in the case of Ramco Cements Ltd 2025 (5) TMI 622 - MADRAS HIGH COURT has clearly held that the limitation cannot depend on varying user functionalities which is an internal process that cannot be entertained since the same would defeat the purpose of statutory limitation. As further held by the Hon ble High Court that the limitation cannot be reckoned in a manner so as to give rise to more than one interpretation where either party can take benefit of a later date. Thus we hold that the AO of the assessee has received the DRP direction on 30.06.2022 at 9.53 p.m. and therefore the final order of assessment which is passed on 24.08.2022 instead of 31.07.2022 is barred by limitation as per the provisions of section 144C(13) of the Act. Accordingly the addition made therein is not sustainable and liable to deleted being void ab-initio. Appeal of the assessee is allowed.

Summary

The core legal questions considered in this judgment are:

1. Whether the final assessment order passed by the Assessing Officer (AO) under section 143(3) read with section 144C(13) of the Income Tax Act, 1961 (the Act) is time-barred and therefore invalid, given the timeline for passing the final order after receipt of directions from the Dispute Resolution Panel (DRP).

2. Whether the directions issued by the DRP are deemed to have been received by the AO on the date the DRP order is digitally signed and uploaded on the Income-tax Business Application (ITBA) portal, or on the later date when the AO actually receives the order by email or physical delivery.

3. Whether the DRP directions themselves are time-barred if issued beyond the statutory time limit prescribed under section 144C(12) of the Act.

4. The legal effect of the faceless assessment scheme and the e-assessment scheme on the timelines and communication of DRP directions and assessment orders.

Issue-wise Detailed Analysis

Issue 1 & 2: Timeliness of Final Assessment Order and Date of Receipt of DRP Directions by AO

Legal Framework and Precedents: Section 144C(13) of the Act mandates that the AO shall complete the assessment in conformity with the directions issued by the DRP under sub-section (5), within one month from the end of the month in which such directions are received. The e-Assessment Scheme, 2019 (eAS) and the faceless assessment regime govern the procedure for communication and assessment.

Section 13 of the Information Technology Act, 2000 defines the time and place of dispatch and receipt of electronic records, which is relevant to determining when the DRP directions are deemed received by the AO.

Judicial precedents from the Bombay High Court, Delhi High Court, Madras High Court, and Telangana High Court have uniformly held that the DRP directions are deemed received by the AO on the date they are uploaded and digitally signed on the ITBA portal, which constitutes dispatch and receipt under the IT Act and the Income Tax Act. The AO cannot delay the commencement of limitation by claiming later physical receipt or email receipt dates.

Key cases cited include Vodafone India Ltd., Louis Dreyfus Company India Pvt. Ltd., Taeyang Metal India Pvt. Ltd., Rapiscan Systems Pvt. Ltd., and Ramco Cements Ltd.

Court's Interpretation and Reasoning: The Court examined the affidavits filed by revenue officers and the advisory issued by the ITBA team regarding the visibility of DRP directions to the AO and Jurisdictional AO (JAO) immediately upon uploading and digital signature. The Court rejected the Revenue's contention that the AO received the DRP directions only on a later date by email or physical delivery. The Court held that once the DRP directions are digitally signed and a Document Identification Number (DIN) is generated, the directions are immediately available on the ITBA portal to the AO having jurisdiction over the PAN.

The Court relied on the advisory stating that irrespective of the mode of uploading (online or manual), the DRP directions are visible in the "360 Degree" screen to the AO and JAO, ensuring immediate availability.

The Court further emphasized that limitation cannot depend on internal departmental procedures or user functionalities, as that would defeat the purpose of statutory timelines.

The Court also referred to the provisions of Section 282(1)(c) of the Act and Section 13 of the IT Act, which treat electronic communication as valid service and define receipt as the time electronic records enter the designated computer resource.

Key Evidence and Findings: The DRP directions in the present case were digitally signed on 30.06.2022 at 9:53 p.m. The final assessment order was passed on 24.08.2022. The Revenue claimed that the AO received the directions only on 01.07.2022 by email and 04.07.2022 by physical delivery, which would make the assessment order timely. However, the Court found that the directions were available on the ITBA portal to the AO on 30.06.2022 itself, and the Revenue's affidavits confirmed that the DRP lost control over the directions once uploaded.

The Court rejected the Revenue's explanation that the AO only noted receipt on 23.08.2023 in the case of Vodafone Idea Ltd. and drew adverse inference for failure to explain the delay in acknowledging receipt despite availability on the portal.

Application of Law to Facts: Applying the above principles, the Court held that the limitation period for passing the final assessment order under section 144C(13) started from 30.06.2022, the date of digital signature and upload of DRP directions. Therefore, the final order dated 24.08.2022 was passed beyond the one-month period ending 31.07.2022 and is time-barred.

The Court also noted that the eAS scheme mandates all communication to be through the National e-Assessment Centre (NeAC), and receipt by NeAC is deemed receipt by the AO.

Treatment of Competing Arguments: The Revenue's argument that the AO received the DRP directions only on a later date was rejected as contrary to statutory provisions, ITBA advisory, and judicial precedents. The Revenue's reliance on the Supreme Court decision relating to faceless assessment was distinguished as it pertained to different facts and procedural aspects.

The Court also rejected the Revenue's contention that internal departmental processes or user choices in uploading affect the limitation period.

Conclusion: The final assessment order dated 24.08.2022 is barred by limitation as per section 144C(13) of the Act and is invalid. Consequently, the additions made in the assessment order are not sustainable and liable to be deleted as void ab initio.

Issue 3: Limitation on DRP Directions under Section 144C(12)

Legal Framework: Section 144C(12) prescribes a time limit of nine months from the end of the month in which the draft assessment order is passed for the DRP to issue directions.

Court's Reasoning: The Revenue contended that if the DRP directions were received on 01.07.2022, they would be beyond the nine-month period from the draft order dated 29.09.2021 and thus time-barred.

The Court did not separately adjudicate this issue in detail as the primary ground of limitation on the final assessment order was sufficient to dispose of the appeal. The Court noted that the additional ground regarding limitation of DRP directions was not admitted for adjudication as the main ground succeeded.

Issue 4: Effect of Faceless Assessment and E-Assessment Scheme on Communication and Timelines

Legal Framework and Precedents: The eAS, 2019 and the faceless assessment scheme provide for centralized and electronic communication of notices, orders, and directions through the National e-Assessment Centre (NeAC) and the ITBA portal. Paragraph 4(2) of the eAS mandates all communication among units and with the assessee to be through NeAC.

Judicial pronouncements have held that once communication is uploaded on ITBA portal, it is deemed received by the AO, and the limitation period runs from that date.

Court's Interpretation: The Court extensively examined affidavits filed by revenue officers explaining the working of the ITBA portal and the faceless assessment regime. It was clarified that the DRP directions are uploaded on ITBA portal, assigned a DIN, and immediately visible to the AO and JAO having jurisdiction.

The Court noted that the Revenue's failure to forward physical copies to the Faceless AO was because the directions were already available on the portal, and the identity of the Faceless AO is not known to the DRP.

The Court held that the internal departmental processes or delays do not affect the statutory timeline and that the AO cannot claim ignorance of directions available on the portal.

Application to Facts: The Court found that the faceless assessment regime's procedural requirements were followed, and the DRP directions were uploaded timely. The AO had access to the directions on 30.06.2022 and was obligated to pass the assessment order within one month from the end of that month.

Conclusion: The faceless assessment regime and eAS scheme reinforce that the date of uploading and digital signature of DRP directions on ITBA portal is the operative date for limitation purposes under section 144C(13).

Significant Holdings

"The DRP directions once digitally signed and the Document Identification Number (DIN) is generated, are immediately available to the Assessing Officer (AO) and Jurisdictional AO (JAO) on the ITBA portal. The limitation period for passing the final assessment order under section 144C(13) of the Income Tax Act, 1961 commences from the date of such digital signature and upload, and not from the later date of physical receipt or email communication."

"Limitation cannot be made to depend on internal departmental processes or varying user functionalities in uploading DRP directions, as such an interpretation would defeat the statutory purpose of strict timelines under section 144C."

"The e-Assessment Scheme, 2019 mandates that all communications including DRP directions are to be made through the National e-Assessment Centre (NeAC) and once the NeAC receives the DRP directions, the AO is deemed to have received them for the purpose of limitation under section 144C(13)."

"Failure of the AO to pass the final assessment order within one month from the end of the month in which the DRP directions are received renders the order time-barred and void ab initio."

"The AO is bound to comply with the directions of the DRP within the prescribed time limit without providing any further opportunity of hearing to the assessee as per section 144C(13)."

"The internal procedural delays or non-communication of DRP directions by the Jurisdictional AO to the Faceless AO cannot be allowed to defeat the statutory scheme and timelines prescribed under section 144C."

"Where the final assessment order is time-barred under section 144C(13), the income declared by the assessee in the return of income is deemed to be accepted, and the assessee is entitled to refund of any excess tax paid."

"The principle of literal interpretation applies to section 144C(13), and the words 'upon receipt of directions' must be given their natural and precise meaning."

"The faceless assessment regime and the eAS scheme do not alter the statutory timelines but reinforce the immediate availability and deemed receipt of DRP directions upon their upload on the ITBA portal."

Accordingly, the Court held that the final assessment order dated 24.08.2022 is barred by limitation and the additions made therein are deleted. The appeal of the assessee is allowed on this ground, rendering other grounds academic and not admitted for adjudication.