2021 (4) TMI 355 - HC - Income Tax

Section 144C: self-contained code; 144C(13) limits AO to one month; DRP notices after four years time-barred under 153(2A)

MADRAS HC held that Section 144C is a self-contained code with inbuilt timelines for transfer-pricing assessments and that proceedings before the DRP must ... Time limits under Section 153 - procedure under Section 144C - remand to the Dispute Resolution Panel (DRP) - final assessment in conformity with DRP directions under Section 144C(13) - effect of Tribunal's order under Section 254 on time-barTime limits under Section 153 - remand to the Dispute Resolution Panel (DRP) - Proceedings before the DRP on remand are subject to the time limits prescribed by Section 153. - HELD THAT: - The Court found that although Section 144C constitutes a self contained code with inbuilt timelines, that scheme does not negate the overall time constraints embodied in Section 153 for completion of a fresh assessment pursuant to an order of the Tribunal. The Tribunal's orders in the two assessment years were received by the Department in specified financial years and the statutory periods for completion of reassessment under Section 153(2A) (for AY 2009 10) and Section 153(3) (for AY 2010 11) accordingly expired prior to the notices dated 06.01.2020. The Court observed that allowing proceedings on remand to the DRP to proceed without regard to Section 153 would defeat the objective of prompt finalisation and would be inconsistent with the statutory scheme governing time limits for fresh assessments after remand. [Paras 7, 15, 16, 24]Notwithstanding the procedural scheme of Section 144C, DRP proceedings on remand are circumscribed by the time limits in Section 153 and the notices issued on 06.01.2020 were time barred.Procedure under Section 144C - final assessment in conformity with DRP directions under Section 144C(13) - Section 144C does not operate as an absolute exclusion of Section 153 at all stages; the specific exclusion in Section 144C(13) applies only to the stage of passing the final assessment in conformity with DRP directions. - HELD THAT: - The Court analysed Section 144C and noted it provides distinct timelines for the draft order, filing of objections, disposal of objections by the DRP and for passing the final assessment once DRP directions are received. Sub section (13)'s explicit exclusion of Section 153/153B applies to the Assessing Officer's obligation to pass the final assessment within a short period after receiving DRP directions (and even without further hearing). That specific exclusion, however, cannot be read as a wholesale ouster of the time limits in Section 153 for purposes of giving effect to Tribunal orders or for proceedings on remand. The exclusion in Section 144C(13) reinforces the urgency in concluding the final assessment after DRP directions but does not licence unlimited time for remand proceedings before the DRP. [Paras 13, 14, 17, 18]Section 144C's exclusion of Section 153 is confined to the narrow context of passing the final assessment under Section 144C(13) and does not render DRP proceedings on remand immune from the time limits of Section 153.Final Conclusion: Writ petitions allowed: notices dated 06.01.2020 issued by the DRP in respect of AY 2009 10 and AY 2010 11 were held to be barred by limitation, the Court directing that the proceedings were time barred under the applicable provisions of Section 153. Issues Involved:1. Jurisdiction and limitation of notices issued by the Dispute Resolution Panel (DRP) for AY 2009-10 and AY 2010-11.2. Applicability of Section 153(2A) and Section 153(3) of the Income Tax Act, 1961 to the proceedings before the DRP.3. Whether Section 144C operates independently of the time limits prescribed in Section 153.Detailed Analysis:1. Jurisdiction and Limitation of Notices Issued by the DRP:The petitioner challenged the notices dated 06.01.2020 issued by the DRP for AY 2009-10 and AY 2010-11 as being bereft of jurisdiction and barred by limitation. The petitioner sought writs of prohibition to restrain the respondents from continuing with the assessment proceedings for these years. The High Court concluded that the notices were indeed barred by limitation as per the time limits prescribed under Section 153(2A) and Section 153(3) of the Income Tax Act, 1961.2. Applicability of Section 153(2A) and Section 153(3) of the Income Tax Act, 1961:The court examined the provisions of Section 153(2A) and Section 153(3) to determine the time limits for completing fresh assessments. For AY 2009-10, the Tribunal's order dated 18.12.2015 was received in FY 2015-16, making the deadline for assessment 31.03.2017. For AY 2010-11, the Tribunal's order was received in FY 2016-17, making the deadline 31.12.2017. The court found that the impugned notices dated 06.01.2020 were issued well beyond these deadlines, rendering them time-barred.3. Whether Section 144C Operates Independently of the Time Limits Prescribed in Section 153:The revenue argued that Section 144C is a standalone provision with its own timelines, independent of Section 153. However, the court noted that while Section 144C does have specific timelines for various stages of assessment, it does not exclude the applicability of Section 153's overall time limits. The court emphasized that the exclusion of Section 153 in Section 144C(13) is specific to the final assessment order stage and does not apply to other stages of the proceedings under Section 144C.The court referred to precedents, including the Bombay High Court's decision in PCIT V. Lion Bridge Technologies Pvt. Ltd. and the Delhi High Court's decision in Nokia India Private Ltd. V. DCIT, which supported the view that the time limits under Section 153 apply to proceedings under Section 144C. The court concluded that the DRP's inaction and the delayed issuance of notices were not justified and were barred by the limitation period prescribed under Section 153(2A) and Section 153(3).Conclusion:The High Court allowed the writ petitions, holding that the impugned notices issued by the DRP were barred by limitation. The court emphasized the importance of adhering to statutory time limits to ensure prompt and expeditious finalization of assessments, particularly in cases involving transfer pricing and international transactions. The court also noted that the proper course of action would have been for the Assessing Authority to give effect to the Tribunal's orders promptly and in accordance with the prescribed procedures.