2024 (8) TMI 1618 - AT - Income Tax

Reassessment under s.144 r.w.s.144C(13) quashed as time-barred; s.153(4) extension unavailable for non-residents, assessment expired after s.148 notice

ITAT held the re-assessment order under s.144 r.w.s.144C(13) dated 19.01.2024 barred by limitation and quashed it. For non-resident cases (except TPO ... Validity of assessment passed u/s 144 r.w.s. 144C - period of limitation - extended time limit for completion of the assessment - HELD THAT:-Except the cases of the reference to the TPO, extended time limit of 12 months for completion of assessment is not available even in a case of Non-Resident assessment, even though the said assessment proceedings is covered u/s 144C of the Act. Since the extended time limit of 12 months is not valuable in the case of Non-Resident as per section 153(4) of the Act, in our considered view, the AO ought to have completed the assessment as per the provisions of section 153(2) of the Act which is one year from the end of the financial year in which notice u/s 148 was served. In the present case, if we go by date of notice issued u/s 148 of the Act i.e. 31.03.2022, the time limit for completing the assessment u/s 147 was available up to 31/03/2023 and thus, the final assessment order passed by the AO u/s 144 r.w.s. 144C dated 19.01.2024 is clearly barred by limitation. As following the decision of Shri Syed Gulam Mohiuddin [2024 (6) TMI 269 - ITAT HYDERABAD] we are of the considered view that the assessment order passed by the AO u/s.144 r.w.s. 144C(13) dated 19.01.2024 is barred by limitation and thus we quash the re-assessment order passed by the AO - Appeal filed by the assessee is allowed. 1. ISSUES PRESENTED and CONSIDERED 1. Whether the reassessment order passed under section 147 read with section 144C(13) of the Income Tax Act, 1961, for the assessment year 2018-19 is barred by limitation under section 153(2) of the Act. 2. Whether the extended time limit for completion of assessment under section 153(4) of the Act applies in cases where no reference is made to the Transfer Pricing Officer (TPO) during assessment proceedings involving a non-resident assessee subject to section 144C. 3. Whether the provisions of section 144C of the Act constitute a self-contained code superseding the general time limits prescribed under section 153 for eligible assessees, specifically non-residents. 4. Whether the procedure prescribed under section 144C, including issuance of draft assessment order, filing of objections before the Dispute Resolution Panel (DRP), and issuance of directions by the DRP, was followed and whether the Assessing Officer's final order was passed within the prescribed time limits. 5. Whether the additions made by the Assessing Officer and confirmed by the DRP, including additions under income from other sources, business income, long-term capital gains, and short-term capital gains, were justified and supported by proper reasons and evidence. 6. Whether the assessee was granted proper and effective opportunity of being heard before passing the draft and final reassessment orders, in accordance with principles of natural justice. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Limitation for Passing Reassessment Order under Section 153(2) and Applicability of Extended Time Limit under Section 153(4) Relevant Legal Framework and Precedents: - Section 147 empowers reopening of assessment where income chargeable to tax has escaped assessment. - Section 148 provides for issuance of notice for reassessment. - Section 153(2) prescribes that no order of reassessment shall be made after the expiry of twelve months from the end of the financial year in which the notice under section 148 was served. - Section 153(4) extends the time limit by a further twelve months where a reference is made to the TPO under section 92CA(1) during assessment proceedings. - Section 144C provides a special scheme for eligible assessees, including non-residents, involving draft assessment orders, objections before DRP, and directions by DRP. - Precedents establish that extended time limit under section 153(4) applies only when a reference to the TPO is made. Court's Interpretation and Reasoning: - The assessee is a non-resident individual and an eligible assessee under section 144C(15). - The notice under section 148 was issued on 31.03.2022; accordingly, the time limit for reassessment under section 153(2) expired on 31.03.2023. - No reference to the TPO was made; hence, the extended time limit under section 153(4) is inapplicable. - The final reassessment order was passed on 19.01.2024, which is beyond the prescribed time limit under section 153(2). - The Tribunal relied on a consistent line of decisions including a recent decision by the Hyderabad Bench, which held that in the absence of a TPO reference, reassessment orders passed beyond the 12-month period are barred by limitation. Key Evidence and Findings: - Dates of notices and orders as per record: notice u/s 148 on 31.03.2022, draft assessment order on 30.03.2023, DRP directions on 27.12.2023, and final order on 19.01.2024. - No reference to TPO under section 92CA was made during the assessment proceedings. Application of Law to Facts: - Since no TPO reference was made, the extended time limit under section 153(4) does not apply. - The final reassessment order was passed after the expiry of the 12-month period prescribed under section 153(2), rendering it time-barred. Treatment of Competing Arguments: - The Department argued that section 144C is a self-contained code that overrides section 153, allowing extended timelines for non-resident assessees. - The Department emphasized the legislative intent to provide non-residents with adequate time and opportunity for dispute resolution through DRP proceedings. - The Tribunal rejected this argument on the ground that section 153(4) explicitly limits the extended time to cases with TPO references, which is absent here. Conclusion: - The reassessment order passed beyond the time limit prescribed under section 153(2) is barred by limitation and liable to be quashed. Issue 3 & 4: Applicability and Effect of Section 144C as a Self-Contained Code Relevant Legal Framework and Precedents: - Section 144C provides a special mechanism for eligible assessees including non-residents, involving draft assessment orders, objections before DRP, directions by DRP, and final assessment orders. - Section 144C(13) states that the Assessing Officer shall complete the assessment in conformity with DRP directions notwithstanding anything contrary in section 153 or 153B. - Judicial precedents recognize section 144C as a self-contained code for assessment proceedings involving eligible assessees. Court's Interpretation and Reasoning: - The Tribunal acknowledged that section 144C provides a distinct procedural framework for eligible assessees. - However, the Tribunal held that the limitation under section 153(2) still applies unless extended by section 153(4), which requires a TPO reference. - The Tribunal observed that section 144C(13) overrides section 153 only in procedural aspects after DRP directions are received, not the overall limitation for initiating reassessment. - The legislative amendment expanding the scope of section 144C to non-residents intends to provide expeditious dispute resolution but does not extend the limitation period beyond that prescribed by section 153(2) absent a TPO reference. Key Evidence and Findings: - The assessee filed objections before the DRP within prescribed time. - The DRP issued directions within nine months of draft order. - The Assessing Officer passed the final order within one month from receipt of DRP directions. Application of Law to Facts: - While the procedural steps under section 144C were followed, the overall limitation for passing the final order is governed by section 153(2) unless extended by section 153(4). Treatment of Competing Arguments: - The Department argued that the timelines under section 144C supersede section 153 and allow the final order beyond 12 months. - The Tribunal distinguished between procedural timelines under section 144C and substantive limitation under section 153(2). Conclusion: - Section 144C provides a procedural framework but does not extend the limitation period for reassessment beyond section 153(2) in absence of TPO reference. Issue 5: Justification of Additions Made by Assessing Officer and Confirmed by DRP Relevant Legal Framework and Precedents: - Additions under income heads must be supported by proper reasons, evidence, and justification. - The assessee challenged additions relating to income from other sources (bank credits), business income recomputation, long-term capital gains on sale of properties, and short-term capital gains. Court's Interpretation and Reasoning: - The Tribunal did not adjudicate the merits of these additions, as the primary issue of limitation barred the reassessment order. - Since the reassessment order was quashed on limitation grounds, the other grounds became academic and were not decided. Key Evidence and Findings: - The Assessing Officer made additions totaling over Rs.1 crore based on bank credits, re-computation of business income, and capital gains computations. - The DRP upheld these additions in its directions. Application of Law to Facts: - The Tribunal refrained from examining the validity of these additions due to the limitation bar on the reassessment. Treatment of Competing Arguments: - The assessee argued lack of proper reasons and justification for additions and challenged jurisdiction and procedure. - The Department supported the additions and procedural correctness. Conclusion: - No adjudication on the merits of additions was done due to limitation bar on reassessment order. Issue 6: Compliance with Principles of Natural Justice and Opportunity of Hearing Relevant Legal Framework and Precedents: - Principles of natural justice require that the assessee be given a proper and effective opportunity of being heard before passing any assessment or reassessment order. - Section 144C mandates issuance of draft assessment order and opportunity to file objections before the DRP. Court's Interpretation and Reasoning: - The Tribunal noted that the assessee filed objections before the DRP within the prescribed time. - The DRP issued directions after considering objections. - The Assessing Officer passed the final order in conformity with DRP directions. - No specific finding of violation of natural justice was made as the procedural steps under section 144C were followed. Key Evidence and Findings: - Draft assessment order passed on 30.03.2023. - Objections filed by assessee on 26.04.2023. - DRP directions issued on 27.12.2023. - Final assessment order passed on 19.01.2024. Application of Law to Facts: - The assessee had opportunity to contest proposed variations through DRP mechanism. Treatment of Competing Arguments: - The assessee contended lack of proper opportunity; the Department submitted full compliance with section 144C procedure. Conclusion: - Procedural compliance with natural justice principles was observed; no violation found.