Assessment for AY 2011-12 set aside for non-compliance with s.143(3) r/w s.144C(10), (13); AY 2012-13 return accepted.

ITAT BANGALORE set aside the final assessment for AY 2011-12, holding the AO's order under s.143(3) r/w s.144C violated mandatory s.144C(10) and (13) by not following DRP directions; the matter is remanded to the AO/TPO to pass fresh orders in accordance with law and the appeal is allowed for statistical purposes. For AY 2012-13 the tribunal held the DRP objection was filed two days late, DRP lacked power to condone delay, and the s.144C(13) order dated 31/08/2016 was time-barred and ultra vires; the returned income was accepted as the assessee's income.

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Issues: (i) Whether the final assessment order for assessment year 2011-12, passed under section 143(3) r.w.s 144C, is invalid for not giving effect to binding DRP directions and for non-compliance with section 144C(10) and 144C(13); (ii) Whether the final assessment order for assessment year 2012-13, passed under section 143(3) r.w.s 144C, is time-barred and therefore ultra vires and void.

Issue (i): Whether the final assessment order for AY 2011-12 is valid where the AO did not follow DRP directions issued under section 144C(5) and did not comply with the time limits in section 144C(10) and 144C(13).

Analysis: The DRP issued directions under section 144C(5). Section 144C(10) makes those directions binding on the AO and section 144C(13) prescribes the timeframe for completing the final assessment. The AO retained adjustments from the draft order instead of giving effect to the DRP directions, thereby failing to pass the final order in conformity with the DRP within the statutory timeframe. Coordinate tribunal precedents dealing with identical statutory provisions and facts were followed in reaching this view.

Conclusion: The final assessment order for AY 2011-12 is quashed and the matter is remanded to the AO/TPO to pass an order in accordance with the DRP directions and statutory time limits in favour of the assessee on this issue.

Issue (ii): Whether the final assessment order for AY 2012-13 is time-barred because objections were filed outside the 30-day period and the AO completed assessment after the statutory period prescribed under section 144C.

Analysis: The draft assessment was communicated to the assessee and the 30-day period for filing objections under section 144C(2) expired. The assessee filed objections two days late; the DRP declined to condone the delay. Where objections are time-barred, section 144C(3)(b) requires the AO to complete assessment on the basis of the draft within the statutory period; completing the assessment beyond that period under section 144C(13) is therefore beyond the statutory limitation. Tribunal precedent dealing with the same statutory scheme supports declaring such assessments time-barred and void, resulting in acceptance of returned income.

Conclusion: The final assessment order for AY 2012-13 is time-barred and void; the returned income is to be accepted in favour of the assessee on this issue.

Final Conclusion: Both appeals are allowed on the identified legal grounds: the AY 2011-12 assessment is quashed and remanded for compliance with binding DRP directions and statutory timelines; the AY 2012-13 assessment is declared time-barred and the returned income is accepted. Other substantive grounds are left open as they have become academic in view of these primary legal rulings.

Ratio Decidendi: Where DRP directions under section 144C(5) are not given effect to and the AO fails to complete the final assessment within the statutory timeframe prescribed in section 144C(13), the resulting final assessment is invalid; similarly, an assessment completed beyond the statutory period after objections are time-barred under section 144C is ultra vires and void, with the consequence that the returned income stands accepted.

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