2025 (7) TMI 434 - AT - Income Tax

Validity of assessment order passed u/s 143(3) r/w Section 144C(13) - period of limitation - HELD THAT - As per section 144C(13) there is clear mandate that upon receipt of the directions issued u/s 144C(5) AO shall supposed to complete the assessment inconformity with the directions of the DRP without providing any further opportunity of being heard to the assessee within one month from the end of the month in which such directions was received and in the present case it is factually established that the DRP issued directions on 21.09.2021 and u/s 144C(13) AO was supposed to complete the assessment on or before 31.10.2021 but AO passed the impugned final assessment order on 18.11.2021 which is expressly time barred and as per judicial precedents mentioned hereinbefore where the time barred final assessment passed consequently assessment order itself reduced to be null and void and lost it s legal value. On the basis of foregoing fact situation and by following the principles of law laid down in the above cited judicial precedents we find that final assessment order dated 18.11.2021 has been framed beyond the prescribed time limit u/s 144C(13) of the Act and so it is time barred and accordingly the impugned final assessment order is quashed being void ab initio. Consequently the ground is hereby deserves to be allowed.

Summary

The core legal questions considered by the Tribunal in this appeal primarily revolve around the validity and legality of the final assessment order passed under the Income-tax Act, 1961, particularly focusing on the time limits prescribed under Section 144C(13) of the Act. The issues can be broadly categorized as follows:

1. Whether the final assessment order dated 18.11.2021 passed by the Assessing Officer (AO) under Section 143(3) read with Sections 144C(13) and 144B of the Act pursuant to directions of the Dispute Resolution Panel (DRP) is valid, given that it was passed beyond the prescribed time limit.

2. Whether the adjustments made by the AO and Transfer Pricing Officer (TPO) regarding international transactions, including the determination of Arm's Length Price (ALP) for provision of engineering support services, are justified.

3. Whether the AO erred in applying transfer pricing principles, including the selection and rejection of comparable companies, adjustments for risk profile differences, and treatment of inter-company receivables as loans for interest computation.

4. Whether the AO erred in disallowing late payment of employees' provident fund contributions and in not allowing credit for tax collected at source (TCS).

5. Whether initiation of penalty proceedings under Section 270A of the Act is justified.

Given the Tribunal's ultimate decision, the primary focus of the analysis is on the validity of the final assessment order under the time limits prescribed by Section 144C(13) of the Act, while other grounds have been rendered academic.

Issue-wise Detailed Analysis

1. Validity of Final Assessment Order Passed Beyond Prescribed Time Limit (Section 144C(13))

Relevant Legal Framework and Precedents: Section 144C of the Income-tax Act governs the procedure for assessment when objections are filed before the DRP against a draft assessment order. Sub-section (13) mandates that the AO must complete the assessment "in conformity with the directions" issued by 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 emphasize the mandatory nature of this time limit. The Tribunal relied on coordinate bench decisions such as APM Terminals India Pvt. Ltd. vs. DCIT and BBC World Service India Pvt. Ltd. vs. ACIT, which held that final assessment orders passed beyond the prescribed time limit under Section 144C(13) are void ab initio and liable to be quashed. The Tribunal also referred to the Hon'ble High Court of Bombay's decision in Shell India Markets (P.) Ltd. vs. ACIT, which clarified that extension notifications do not apply to Section 144C(13), reinforcing the mandatory nature of the timeline.

The Hon'ble High Court of Delhi's decision in Louis Dreyfus Company India Pvt. Ltd. vs. DCIT was also cited, which approved the Bombay High Court's interpretation that the timelines under Section 144C are mandatory and that the AO's role post-DRP directions is limited to completing the assessment within the prescribed time without further hearing or involvement of the TPO.

Court's Interpretation and Reasoning: The Tribunal examined the timeline of events: the DRP issued directions on 21.09.2021; thus, under Section 144C(13), the AO was required to complete the assessment by 31.10.2021. However, the AO passed the final assessment order on 18.11.2021, beyond the prescribed deadline.

The Tribunal also considered the mode of communication of the DRP's directions, relying on the Information Technology Act, 2000, and the faceless assessment scheme (E-assessment Scheme, 2019), which prescribe that the date of uploading the DRP order on the ITBA portal constitutes the date of service. The uploading date was established as 27.04.2022 in related cases, and the principles were analogously applied here to affirm the time bar.

Key Findings and Application of Law: The Tribunal held that the AO's failure to complete the assessment within the prescribed one-month period from the end of the month in which the DRP directions were received renders the final assessment order null and void. The Tribunal emphasized that the AO has no discretion to extend this timeline or to provide further opportunities of hearing to the assessee once DRP directions are received.

Treatment of Competing Arguments: The Revenue's reliance on the impugned orders and the contention that the assessment order was valid despite the delay was rejected. The Tribunal gave significant weight to the consistent judicial pronouncements holding that the time limit under Section 144C(13) is mandatory and non-extendable.

Conclusion: The final assessment order dated 18.11.2021 was passed beyond the statutory time limit and is therefore void ab initio. The appeal on this ground was allowed, and the assessment order was quashed.

2. Transfer Pricing Adjustments and Determination of Arm's Length Price

Relevant Legal Framework and Precedents: The Transfer Pricing provisions under Sections 92 to 92F of the Income-tax Act and associated Rules govern the determination of ALP for international transactions. The TPO is empowered to make adjustments to ensure that international transactions are at arm's length.

Court's Interpretation and Reasoning: The assessee challenged the TPO's adjustments on several grounds, including the rejection of certain comparables, inappropriate application of search filters, incorrect functional comparability analysis, and inconsistent treatment of certain expenses and income items.

Key Evidence and Findings: The TPO initially made adjustments amounting to over Rs. 10.96 crores, which were revised to Rs. 6.06 crores after DRP directions. The Tribunal noted that since the entire assessment order was quashed on the ground of time bar, these transfer pricing issues became academic and were not adjudicated.

Application of Law to Facts: The Tribunal did not delve into detailed analysis of transfer pricing grounds due to the primary issue of limitation but acknowledged the grounds raised by the assessee.

Treatment of Competing Arguments: The Revenue defended the adjustments, but the Tribunal found it unnecessary to rule on these points given the quashing of the assessment order.

Conclusion: Transfer pricing grounds were not adjudicated as the assessment order was quashed on limitation grounds.

3. Disallowance of Late Payment of Employees' Provident Fund Contributions and TCS Credit

Relevant Legal Framework: Deductions for provident fund contributions are governed by the Employees' Provident Fund and Miscellaneous Provisions Act, 1952, and relevant circulars issued by the Employees' Provident Fund Organisation (EPFO). Tax credits for TCS are governed under the Income-tax Act.

Court's Interpretation and Reasoning: The assessee contended that late payments were made within the due date of filing the return and within the same financial year, and that a grace period granted by EPFO should be considered. The assessee also claimed credit for TCS which was denied.

Key Evidence and Findings: These grounds were raised but not adjudicated by the Tribunal as the assessment order was quashed on limitation grounds.

Conclusion: These grounds were left open due to the primary issue of limitation.

4. Initiation of Penalty Proceedings Under Section 270A

Relevant Legal Framework: Section 270A provides for penalty for under-reporting and misreporting of income.

Court's Interpretation and Reasoning: The assessee challenged the initiation of penalty proceedings as erroneous.

Conclusion: This ground was not adjudicated due to the quashing of the assessment order.

Significant Holdings

"As per section 144C(13), there is clear mandate that upon receipt of the directions issued u/s 144C(5), the Ld. AO shall supposed to complete the assessment in conformity with the directions of the Learned DRP without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such directions was received."

"The final assessment order dated 18.11.2021 has been framed beyond the prescribed time limit u/s 144C(13) of the Act and, so, it is time barred, and accordingly, the impugned final assessment order is quashed being void ab initio."

"The procedure of assessment as provided under Section 144C does not envisage or contemplate the interdiction or involvement of the TPO once a directive has been framed by the DRP. The role of the TPO comes to an end once an order as contemplated under Section 92CA(4) of the Act has come to be framed and remitted to the AO."

Core principles established by the Tribunal include the mandatory and non-extendable nature of the timeline under Section 144C(13) for completion of assessment after DRP directions, the binding nature of DRP directions on the AO, and the cessation of TPO's role post DRP directions. The Tribunal reaffirmed that failure to comply with these timelines renders the assessment order null and void.

Final determinations:

- The final assessment order passed beyond the prescribed time limit under Section 144C(13) is void ab initio and is quashed.

- Other grounds, including transfer pricing adjustments, disallowance of provident fund payments, TCS credit, and penalty proceedings, were not adjudicated as they became academic following the quashing of the assessment order.