Tax Assessment Time-Barred: Court Upholds Petitioners' Income Returns Due to Delay in Assessment Under Income Tax Act.

The HC ruled that the final assessment order was time-barred as it was not passed within the prescribed limitation period under Section 153 of the Income Tax Act, 1961. Consequently, the Return of Income filed by the Petitioners was accepted. The court dismissed the related writ petitions, allowing the Petitioners' returns to be accepted and permitting the Revenue to pursue further actions in accordance with the law. The court emphasized the necessity for the Assessing Officer to adhere to procedural requirements and act promptly within the statutory time limits.

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Issues Involved:
1. Limitation period for passing the final assessment order.
2. Applicability of Section 144C and Section 153 of the Income Tax Act, 1961.
3. Validity of the draft assessment order.
4. Compliance with procedural requirements under the Income Tax Act.

Detailed Analysis:

1. Limitation Period for Passing the Final Assessment Order:
The primary issue is whether the final assessment order was passed within the limitation period prescribed under Section 153 of the Income Tax Act, 1961. The Petitioners argued that the limitation expired on 30th September 2021, and any final assessment order passed after this date is time-barred. The court agreed with the Petitioners, stating, "After 30th September 2021, the AO will have no authority to pass any final assessment order in this Case."

2. Applicability of Section 144C and Section 153 of the Income Tax Act:
The court examined whether the time limits prescribed under Section 153 are applicable when Section 144C is also involved. The court concluded, "the time limit prescribed under Section 153 of the Act would prevail over and above the assessment time limit prescribed under Section 144C of the Act." The court emphasized that the entire procedure, including the draft assessment order and final assessment order, must be completed within the twelve months period provided under Section 153(3) of the Act.

3. Validity of the Draft Assessment Order:
The court scrutinized the draft assessment order dated 28th September 2021 and concluded that merely passing the draft assessment order within the limitation period does not suffice. The court stated, "We cannot accept the submissions of Shri Suresh Kumar that passing of draft assessment order before 30th September 2021 would suffice."

4. Compliance with Procedural Requirements under the Income Tax Act:
The court examined whether the procedural requirements under the Income Tax Act were followed. The court found that the Assessing Officer (AO) did not act promptly and took almost two years to start the process, which led to the delay in passing the final assessment order. The court noted, "the AO has to be prompt in passing an order contemplated under Section 144C(1) of the Act and not wait to be reminded like in this case and still take almost two years to start the process."

Conclusion:
The court ruled that since no final assessment order was passed within the prescribed limitation period, the Return of Income as filed by the Petitioners should be accepted. The court stated, "since no final assessment order can be passed in the present case as the same is time-barred, the Return of Income as filed by Petitioner be accepted." This ruling applies to all the related writ petitions, including Writ Petition Nos. 2340 of 2021, 3059 of 2021, and 3060 of 2021. The court disposed of the petitions, allowing the Petitioners' returns to be accepted while permitting the Revenue to take any other steps in accordance with the law.

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