2023 (10) TMI 1468 - AT - Income Tax

Assessment order under section 144C time-barred as DRP directions received after limitation period expired

The ITAT Delhi held that an assessment order u/s 144C was barred by limitation. The tribunal applied the ratio from VRA Cotton Mills case regarding the ... Validity of Assessment Order u/s 144C beyond period of limitation - dispatch and receipt of electronic record as contemplated u/s 132 - HELD THAT:- As decided in VRA Cotton Mills Pvt Ltd Vs. UOI & Ors [2011 (9) TMI 611 - PUNJAB AND HARYANA HIGH COURT] referring to the provisions of section 143(2(ii) of the Act, which contemplates that no notice under the said clause shall be served on the assessee after expiry of six months. The Hon'ble court put to question what is the meaning of the expression “served”, whether such expression is to be used literally, so as to mean that actual physical receipt of notice by the assessee or the expression “served” is inter-changeable with the word “issue”. Though we are conscious about the fact that the aforementioned decision of the Hon'ble Supreme Court [supra] is in the context of service of notice u/s 143(2) of the Act, but the ratio decidendi squarely applies on the present controversy which relates to dispatch and receipt of electronic record as contemplated u/s 132 of the Information Technology Act, 2000, as discussed. Considering the peculiar facts of the case from all possible angles, we are inclined to accept that the DRP directions were communicated on 30.11.2021 making the assessment order dated 31.01.22 barred by limitation. Decided in favour of assessee. Issues Involved:1. Validity of Assessment Order and Jurisdictional Compliance.2. Time Limitation for Completion of Assessment Proceedings.3. Treatment of Advertisement, Marketing, and Promotion (AMP) Expenses as International Transactions.4. Methodology for Benchmarking AMP Function.5. Protective Adjustment and Corporate Tax Addition.6. Initiation of Penalty Proceedings.Detailed Analysis:1. Validity of Assessment Order and Jurisdictional Compliance:The primary issue raised by the assessee was that the assessment order was 'bad in law' as the Assessing Officer (AO) and Transfer Pricing Officer (TPO) did not adhere to the directions of the Dispute Resolution Panel (DRP). The contention was that the AO/TPO exceeded their jurisdiction by going beyond the DRP's directions, thereby rendering the assessment order invalid.2. Time Limitation for Completion of Assessment Proceedings:The core argument, as highlighted in Ground No. 4, was that the assessment proceedings were time-barred. The DRP's directions were issued on 26.11.2021, and the final assessment order was passed on 31.01.2022. According to Section 144C(13) of the Income Tax Act, the AO must complete the assessment within one month from the end of the month in which the DRP's directions are received. The tribunal found that the DRP's directions were communicated on 30.11.2021, making the assessment order dated 31.01.2022 time-barred and thus quashed it.3. Treatment of Advertisement, Marketing, and Promotion (AMP) Expenses as International Transactions:The assessee challenged the TPO's jurisdiction in treating AMP expenses as international transactions under Section 92B of the Act. The TPO's determination of the arm's length price for AMP expenses was contested due to the absence of machinery provisions in Chapter X of the Act applicable to AMP expenses. The tribunal did not delve into this issue due to the quashing of the assessment order on the grounds of being time-barred.4. Methodology for Benchmarking AMP Function:The assessee argued against the TPO's methodology, which involved multiple assessments using different methods, contrary to the 'Most Appropriate Method' (MAM) principle. The tribunal noted the contention but did not address it substantively due to the quashing of the assessment order.5. Protective Adjustment and Corporate Tax Addition:The tribunal acknowledged the assessee's argument against the protective adjustment made using the Brightline Test, which was deemed to have no legal existence. Additionally, the tribunal noted the corporate tax addition under Section 28(iv) of the Act, which the assessee argued was incorrectly applied as the issuance of share capital is a capital transaction, not taxable as revenue receipt.6. Initiation of Penalty Proceedings:The initiation of penalty proceedings under Section 270A read with Section 274 of the Act was contested by the assessee, who argued that there was no underreporting of income. The tribunal did not address this issue substantively due to the quashing of the assessment order.Conclusion:The tribunal quashed the assessment order as time-barred, emphasizing the importance of adhering to statutory timelines. The tribunal did not address the substantive merits of the other grounds raised by the assessee due to the quashing of the assessment order on procedural grounds. The appeal was allowed, and the stay application was disposed of as infructuous.