AO lacks jurisdiction to pass final assessment under Section 144C(13) when DRP rejects objections on limitation grounds

The ITAT Delhi held that the final assessment order passed by the AO under Section 144C(13) was devoid of jurisdiction due to limitation issues. The DRP rejected the assessee's objections as time-barred but failed to issue proper directions under Section 144C(5). When DRP rejects objections on limitation grounds, it effectively confirms the draft order's merits but does not extend the AO's time limit for passing the final order. The assessment should have been completed under Section 144C(3)(b) read with Section 144C(4)(b). The appeals were allowed.

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Issues:
1. Validity of the final assessment order passed by the AO within the statutory period.
2. Compliance with the provisions of Section 144C(2) of the Income Tax Act regarding filing objections.
3. Interpretation of the role of the Dispute Resolution Panel (DRP) in deciding objections.

Analysis:

1. The appellant challenged the final assessment order dated 29.06.2023 passed by the AO, arguing that it was barred by limitation. The AO reopened the case due to non-filing of income tax returns by the assessee. The DRP examined the objections and noted that the assessee failed to file objections within the specified time frame. The AO was required to pass the final assessment order within one month from the end of the month in which the period for filing objections expired, as per Section 144C(4) of the Act. However, the AO did not pass the final order within the stipulated time, leading to a dispute regarding the validity of the assessment order.

2. Section 144C(2) mandates that the assessee must file objections within 30 days of receiving the draft order with both the DRP and the Assessing Officer. Failure to do so allows the AO to proceed with the assessment based on the draft order. The DRP's role is crucial in deciding objections, and the AO cannot pass the final order until the DRP issues a decision. In this case, the DRP rejected the objections due to delay, advising the Revenue to take further action. The appellant's argument that informing the AO of filing objections before the DRP was sufficient was countered, emphasizing the importance of timely filing with both authorities.

3. The DRP's rejection of objections on the grounds of delay did not provide directions to the AO, rendering the final order passed by the AO under Section 144C(13) devoid of jurisdiction. The DRP's decision did not extend the limitation period for passing the final order, as it did not issue any directions for the AO to complete the assessment. Consequently, the final order was deemed invalid, and the appeals were allowed. The judgment emphasized the importance of complying with procedural requirements and the distinct roles of the DRP and the Assessing Officer in the assessment process.

This detailed analysis highlights the key legal issues, procedural requirements, and the interpretation of relevant sections of the Income Tax Act in the context of the judgment delivered by the Appellate Tribunal ITAT Delhi.

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