Assessment order under section 144C quashed for exceeding one month statutory time limit after DRP direction
ITAT Mumbai held that an assessment order passed under section 144C was barred by limitation. The Dispute Resolution Panel's direction was communicated to the assessee on 14 June 2022, and the AO was required to complete the assessment within one month from receiving the direction per section 144C(13). Since the revenue did not dispute that the AO received the direction by 30 June 2022, the assessment order dated 1 August 2022 exceeded the statutory time limit. The ITAT quashed the assessment order and allowed the assessee's appeal on this ground.
ISSUES PRESENTED AND CONSIDERED
1. Whether the assessment order passed under section 143(3) read with sections 144C(3) and 144B of the Income Tax Act is time-barred under section 144C(13) where the assessing officer completed the assessment after the statutory one-month period from the end of the month in which DRP directions were received.
2. Whether, alternatively (and subject to limitation), the Transfer Pricing Officer's upward transfer-pricing adjustment and the Dispute Resolution Panel's confirmation/enhancement of that adjustment in respect of international transactions for provision of marketing support services (MSS) - including issues relating to method selection (TNMM vs CPM), selection and rejection of comparable companies, alleged cherry-picking, revenue/cost accrual treatment, and consistency with prior years - were justified.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Time bar under section 144C(13)
Legal framework: Section 144C(13) requires the assessing officer, upon receipt of directions from the Dispute Resolution Panel (DRP) under subsection (5), to complete the assessment within one month from the end of the month in which such directions are received; Rule 11 of the Dispute Resolution Panel Rules (and the Dispute Resolution Scheme) prescribes communication of DRP directions to the assessee and the assessing officer by placing an authenticated copy in the assessee's registered account or sending to the registered e-mail.
Precedent treatment: No external case law or contrary precedent was invoked in the judgment; the Tribunal applied the statutory time limit and the communication rule as the governing authorities.
Interpretation and reasoning: The DRP's direction was digitally signed and uploaded/sent to the assessee on 14 June 2022 (evidence: authenticated e-mail at 4:10 p.m. with DIN). There was no evidence from Revenue that the assessing officer did not receive the direction on or before 30 June 2022. The statutory computation period runs one month from the end of the month in which the directions are received - i.e., assessing officer had until 31 July 2022 to complete assessment. The assessing officer completed the assessment on 1 August 2022 (digitally signed on 2 August 2022), which falls outside the statutory period. In the absence of any proof that the DRP direction was received by the assessing officer after June, the statutory deadline was not met.
Ratio vs. Obiter: Ratio - The Tribunal held that where DRP directions are communicated in the manner prescribed and there is no evidence of later receipt by the assessing officer, completion of assessment after the one-month period under section 144C(13) renders the assessment order time-barred. This is a determinative legal conclusion binding on the matter at hand. Any discussion of other grounds becomes obiter since the order was quashed on limitation.
Conclusion: The assessment order passed on 1 August 2022 is barred by limitation under section 144C(13) and is quashed. Ground 1 of the appeal is allowed.
Issue 2 - Transfer pricing adjustments and related technical grounds (benchmarked but not adjudicated due to limitation)
Legal framework: Transfer pricing adjustments under section 92CA read with relevant provisions examine arm's-length pricing for international transactions. Common contested sub-issues include choice of method (TNMM vs CPM), selection and rejection of comparables, computation of profit level indicator (PLI) using operating profit/operating cost, treatment of accrued but uninvoiced revenue and corresponding costs, and consistency with benchmarking adopted/accepted in earlier years.
Precedent treatment: The Tribunal did not decide on these issues; the TPO had applied a comparable set leading to a high PLI and the DRP adjusted the computation; however, because the assessment was quashed on limitation, none of the technical TP contentions were adjudicated by the Tribunal, and no precedential disposition was made regarding these substantive TP matters.
Interpretation and reasoning: The record shows contested factual and methodological disputes - (a) the TPO retained three high-margin comparables producing an unadjusted weighted PLI of 30.73% (later recomputed to 37.02% by the AO per DRP direction), (b) the assessee relied on TNMM with operating profit/operating cost PLI of 10.79% using 17 comparables, (c) disputes over exclusion/inclusion of certain comparables, allegations of cherry-picking, and (d) claimed mismatch between revenue recognized for benchmarking and accrued but uninvoiced amounts with their corresponding costs. The Tribunal observed these contentions as raised but expressly refrained from adjudicating them because the assessment order was invalidated on limitation grounds.
Ratio vs. Obiter: Obiter - All discussions of the transfer-pricing substance are necessarily obiter since they were not decided; no legal or factual conclusions on the merits of the TP adjustments were rendered.
Conclusion: Substantive transfer-pricing grounds (method selection, comparable selection/rejection, PLI computation, accrued revenue/cost adjustments, consistency with prior years) were not adjudicated due to the quashing of the assessment on limitation grounds; resolution of these issues is left open for fresh proceeding consistent with law and time-limits.
Cross-references and consequential direction
The Tribunal's quashing of the assessment as time-barred (Issue 1) is dispositive; accordingly the Tribunal did not decide Issue 2 on merits and explicitly stated that adjudication on other grounds was not required. Any future action by the revenue must respect statutory time limits and the procedural safeguards in section 144C and the DRP Rules when re-initiating assessment proceedings.
TaxTMI 
AI Drafter ✕
TaxTMI 
