2025 (6) TMI 60 - AT - Income Tax

Validity of assessment u/s 144C(13) as barred by limitation - HELD THAT - We are of the considered view that the final order passed by the ld. AO on 24.08.2022 is invalid as barred by limitation in terms of the provisions of section 144C(13) of the Act. Accordingly the same is hereby quashed. Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the final assessment order passed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961 ("the Act") is valid or barred by limitation, given the timeline prescribed for completion of assessment after receipt of directions from the Dispute Resolution Panel ("DRP")?

(b) Whether the Assessing Officer ("AO") complied with the mandatory statutory time limit of one month from the end of the month in which the DRP's directions are received, as prescribed under section 144C(13) of the Act?

(c) Whether the additional grounds of appeal relating to procedural and substantive errors in transfer pricing adjustments, including treatment of impairment loss, depreciation/capacity adjustments, custom duty adjustments, cash profit level indicators, and working capital differences, merit adjudication given the limitation issue?

(d) Whether the delay in reference of the case by the AO to the Transfer Pricing Officer ("TPO") invalidates the TPO's order?

(e) Whether penalty proceedings under section 271(1)(c) of the Act initiated for furnishing inaccurate particulars of income are justified?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity and limitation of the final assessment order under section 143(3) read with section 144C(13) of the Act

Relevant legal framework and precedents: Section 144C of the Act provides a special mechanism for resolution of disputes arising from transfer pricing assessments. Sub-section (13) mandates that the AO shall complete the assessment "in conformity with the directions" of the DRP within one month from the end of the month in which such directions are received, without providing any further opportunity of hearing to the assessee.

Judicial precedents relied upon include decisions of the Hon'ble Supreme Court and various High Courts, notably:

• NTPC Ltd. v. CIT (1998) - principles on admission of additional grounds.
• Louis Dreyfus Company India Pvt. Ltd. v. DCIT (Delhi High Court) - strict interpretation of timelines under section 144C(13).
• Vodafone Idea Limited v. CPC, Bengaluru (Bombay High Court) - mandatory nature of timelines under section 144C(13) and invalidity of orders passed beyond prescribed time.
• Taeyang Metal India Pvt. Ltd. v. DCIT (Madras High Court) - computation of limitation period from date of receipt of DRP directions.
• Cognizant Technology Solutions India Pvt. Ltd. v. ACIT (ITAT Chennai) - quashing of orders passed beyond limitation under section 144C(13).

Court's interpretation and reasoning: The Tribunal examined the date of receipt of DRP directions by the AO. The DRP's order was passed on 23.06.2022 and served on the assessee and TPO through the ITBA portal on 27.06.2022. The AO's own observation in the final assessment order recorded receipt of DRP directions on 29.06.2022.

Accordingly, the one-month limitation period prescribed under section 144C(13) expired on 31.07.2022. However, the final assessment order was passed on 24.08.2022, which is beyond the statutory period.

The Tribunal relied on the above judicial precedents which uniformly held that the timelines under section 144C(13) are mandatory and failure to comply renders the assessment order void and invalid. The object of section 144C is to provide a speedy alternative dispute resolution mechanism, which would be defeated if timelines are not strictly adhered to.

The Tribunal also noted that the internal procedural delays or transfer of assessment files within the department cannot extend or alter the statutory limitation period. The date of receipt by the National Faceless Assessment Centre or AO as per the ITBA portal is the relevant date for computation.

Key evidence and findings: The DRP order was uploaded on 27.06.2022; the AO acknowledged receipt on 29.06.2022; final order was passed on 24.08.2022.

Application of law to facts: The final order was passed beyond the one-month period from the end of the month in which the DRP directions were received, violating section 144C(13) of the Act.

Treatment of competing arguments: The Revenue contended that the AO may have received the DRP directions later, thus justifying the extended timeline. The Tribunal rejected this, holding that the date of uploading on the ITBA portal and AO's own admission in the order are conclusive for reckoning limitation.

Conclusion: The final assessment order dated 24.08.2022 is barred by limitation and is therefore void and invalid.

Issue 2: Admission of additional ground challenging limitation

Legal framework: The Tribunal admitted the additional ground of appeal challenging the validity of the assessment order on limitation grounds, relying on the Supreme Court decision in NTPC Ltd. v. CIT and other precedents allowing admission of pure legal questions affecting the validity of orders.

Reasoning: Since the limitation issue goes to the root of the validity of the assessment, the Tribunal admitted the additional ground and took it up for consideration as the first issue.

Issue 3: Procedural and substantive errors in transfer pricing adjustments

Context: The assessee challenged the AO/TPO/DRP's rejection of its economic analysis, including treatment of impairment loss as operating item, depreciation/capacity adjustments, custom duty adjustments, cash profit level indicators, and working capital differences.

Analysis: Since the Tribunal held the assessment order invalid on limitation grounds, it did not adjudicate these grounds on merits, deeming them academic.

Issue 4: Delay in reference to TPO

Context: The assessee contended that the TPO's order was invalid due to delay in reference by the AO.

Analysis: This ground was not adjudicated due to the limitation ruling.

Issue 5: Penalty proceedings under section 271(1)(c)

Context: The assessee challenged initiation of penalty for furnishing inaccurate particulars.

Analysis: This ground was also not adjudicated due to the primary ruling on limitation.

3. SIGNIFICANT HOLDINGS

"From the perusal of sub-section (13) of section 144C of the Act, it is clear that the final assessment order has to be passed by the Assessing officer within a period of one month from the end of the month in which the directions from the DRP are received."

"The final order passed u/s 143(3) r.w.s. 144C(13) is barred by limitations and is void and invalid order."

"Section 144C(13) of the Act is a self contained provision which carves out a separate class of assessee's, i.e.. 'eligible assessee'. The timelines prescribed therein are mandatory and failure to adhere to the same vitiates the entire proceeding."

"The AO is mandated to pass his order on or before the end of the month following the month in which the DRP directions are received. Any order passed beyond such period is time barred and cannot be sustained."

"The uploading of the directive of the DRP on the ITBA portal constitutes valid and sufficient service and the period of limitation as prescribed in Section 144C(13) of the Act would be liable to be computed bearing that crucial date in mind."

"The final assessment order dated 24.08.2022 is invalid as barred by limitation in terms of the provisions of section 144C(13) of the Act."

"Since the legal ground taken by the assessee on limitation is allowed, the other grounds of appeal taken on merits become academic and thus not adjudicated."