2024 (3) TMI 62 - HC - Income Tax

Delay beyond s.144C(13) deadline voids assessment; DRP directions trigger limitation, end TPO powers under s.92CA(4)

HC held that under s.144C(13) the AO has no discretion and must frame the assessment strictly in conformity with DRP directions within the prescribed ... Assessment proceedings u/s 144C - period of limitation - faceless assessment regime - Reference to Dispute Resolution Panel - determine the ALP in relation to the international or specified domestic transaction - HELD THAT:- As is manifest from a reading of sub-section (13) of Section 144C of the Act, the AO is not accorded any discretion in the framing of an order of assessment once directions have come to be framed by the DRP. In fact, the provision requires the AO to frame an order of assessment in conformity with those directions and without providing any further opportunity of hearing to the assessee. This principle of law has been affirmed by the Bombay High Court in Vodafone Idea [2023 (11) TMI 449 - BOMBAY HIGH COURT]and in Shell India Markets Private Limited [2022 (2) TMI 1149 - BOMBAY HIGH COURT] which construe the time lines as provided in Section 144C to be mandatory in character. In our considered opinion, this interpretation is in accord with the intent behind insertion of that provision and the bare text and spirit of that section. Thus, we accord our approval to the interpretation as set out in the aforenoted decisions of the Bombay High Court. The procedure of assessment as provided u/s 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 92 CA(4) of the Act has come to be framed and remitted to the AO. There was thus no occasion for the TPO having resumed proceedings post the passing of the direction by the DRP on 20 June 2022. Undisputedly, the directive of the DRP came to be uploaded on the ITBA portal on 24 June 2022. It is additionally stated to have been dispatched through Speed Post to the third respondent (TPO) and the fourth respondent (Additional/Joint/Deputy/Assistant Commissioner of Income Tax, National Faceless Assessment Centre, New Delhi) on 27 June 2022. It is thereafter that the TPO appears to have passed the order dated 25 July 2022. Thus as per the provisions of E-as, 2019, all orders, notices and decisions have to be necessarily uploaded on the ITBA portal and as part of the larger faceless assessment regime which now holds the field. The uploading of the directive of the DRP on the ITBA portal would thus constitute valid and sufficient service and the period of limitation as prescribed in Section 144C(13) of the Act would be liable to be computed bearing that crucial date in mind. Once the aforesaid position becomes clear, it is evident that the order of assessment, if at all could have been framed lastly by 31 July 2022. There has thus been an abject failure on the part of the first respondent to comply with the mandatory timelines as incorporated in the aforenoted provisions. Accordingly, the writ petition is liable to be allowed and the impugned order of assessment and the consequential penalty proceedings are thus liable to be set aside on this short score alone. Decided in favour of assessee. Issues Involved:1. Validity of the assessment order dated 24 August 2022.2. Validity of the penalty show cause notice issued under Section 270A read with Section 274 of the Income Tax Act, 1961.3. Validity of the directions issued by the Dispute Resolution Panel (DRP) under Section 144C(5) of the Act.Summary:1. Validity of the Assessment Order:The petitioner challenged the assessment order dated 24 August 2022 on the grounds that it was contrary to Section 144C(13) of the Income Tax Act, 1961. The petitioner argued that the Assessing Officer (AO) was required to frame the assessment order within one month from the end of the month in which the DRP's directions were received. The DRP's directions were issued on 20 June 2022 and uploaded on the ITBA portal on 24 June 2022. Thus, the AO should have framed the assessment order by 31 July 2022. However, the assessment order was framed on 24 August 2022, beyond the prescribed time frame.2. Validity of the Penalty Show Cause Notice:The penalty show cause notice issued under Section 270A read with Section 274 of the Act on 24 August 2022 was also challenged as a consequential proceeding to the impugned assessment order. Since the assessment order was framed beyond the mandatory time frame, the penalty proceedings initiated in terms thereof were also assailed.3. Validity of the DRP Directions:The DRP issued its directions on 20 June 2022, which were uploaded on the ITBA portal on 24 June 2022. The petitioner contended that the AO was bound by these directions and was required to frame the assessment order within one month from the end of June 2022. The respondents argued that the one-month period should be computed from 25 July 2022, when the TPO passed an order giving effect to the DRP's directions. However, the court found that the DRP's directions were binding on the AO and the period of limitation should be computed from the date the directions were uploaded on the ITBA portal.Court's Findings:The court held that the AO is mandated to complete the assessment in conformity with the DRP's directions within one month from the end of the month in which such directions are received, as per Section 144C(13) of the Act. The court noted that the DRP's directions were uploaded on the ITBA portal on 24 June 2022, and thus, the AO was required to frame the assessment order by 31 July 2022. The court found that the assessment order was framed beyond the prescribed time frame, rendering it invalid.Conclusion:The court allowed the writ petition, quashing the assessment order dated 24 August 2022 and the penalty show cause notice dated 24 August 2022. The court held that the return submitted by the petitioner would be deemed to have been accepted due to the failure of the respondents to implement the DRP's directives within the mandatory timelines.