2025 (5) TMI 622 - HC - Income Tax

Limitation under Section 144C starts when DRP directions appear on ITBA 360° screen, not on email notice

HC held for the assessee: limitation under s.144C begins when the DRP directions become visible to the assessing officer on the ITBA 360-degree screen, ... Limitation for passing a Final Assessment Order u/s 144C - HELD THAT:- Advisory makes it clear that the FAO would be able to view the DRP order in the 360 degree screen, since the assessment was pending with that officer. This feature has evidently been provided to ensure that an officer can access/receive the directions of the DRP as soon as it is uploaded by the Secretariat of the DRP and the pending proceedings would be completed within the statutory limitation provided. Hence, there is no protection available to the Department by the DRP user having selected the second manual option, as, an assessing officer, in order to ensure that the assessment proceedings are strictly in accordance with statutory limitation, has been given full and complete access to all inputs required for completion of the assessment including the directions of the DRP immediately on their uploading into the ITBA portal by the DRP. Clearly, limitation cannot be dependent on varying user functionalities which are nothing but internal processes. If this argument were to be accepted, the commencement of limitation would vary depending on the option exercised by the user which would defeat the purpose of statutory limitation apart from being an acceptable proposition. The starting point of limitation has thus to be reckoned from the earliest instance when the directions of the DRP would be visible to the officer and cannot be taken to fluctuate from one methodology to another depending on the option exercised by the user. Our understanding of the 360 degree view page is that on entering the details of the assessee including the PAN number and the assessment year, the form would auto populate in regard to all details relating to that assessee including present status of proceedings and all orders, letters and notices. We are supported by the concluding portion of the advisory that states that the DRP order would be visible in the 360 degree screen to the FAO for his ready access. Thus, all that is required to gain complete and up-to- date access to all relevant data in regard to an assessee's assessment would available on the 360 degree screen. Learned Standing Counsel draws attention to letter dated 12.12.2024 from the Secretariat of the DRP, specifically the portion where the DRP states that ‘no separate mail had been sent to AO or FAO’. The Assessing Officer thus appears to have been awaiting personal intimation of the order to his e-mail ID. The fact that the FAO has merely chosen to await intimation when the order had admittedly been uploaded on the ITBA by the DRP user, and his consequent belated response, cannot thus lead to a situation of disadvantage to the assessee, particularly when the Advisory provides a methodology by which the FAO can access the document uploaded by the DRP simultaneously, and real-time. Lastly, Section 144C is a Code by itself that provides for very strict timelines for completion of an assessment. Hence the stipulation in regard to limitation cannot be reckoned in a manner so as to give rise to more than one interpretation, where either party can take benefit of a later date. This issue has also attracted the attention in Vodafone Idea Limited [2023 (11) TMI 449 - BOMBAY HIGH COURT] and Louis Dreyfus Company India Private Limited [2024 (3) TMI 62 - DELHI HIGH COURT] In both the cases, the very submissions as made before us, were advanced and have been rejected by those Courts. Decided in favour of the assessee. The core legal questions considered by the Court in this tax appeal revolve around the determination of the date on which the Assessing Officer (AO) is deemed to have received the directions issued by the Dispute Resolution Panel (DRP) under Section 144C(5) of the Income Tax Act, 1961, for the purpose of computing the limitation period under Section 144C(13) of the Act. Specifically, the issues are:1. Whether the date of receipt of the DRP directions by the AO is the date of uploading the DRP order on the Department's portal/website (31.01.2022), or2. Whether the date of receipt is the later date reflected in the case history data (03.02.2022), which would affect the time limit for completion of the final assessment order by the AO.Issue-wise Detailed AnalysisIssue 1: Date of Receipt of DRP Directions for Limitation PurposesRelevant Legal Framework and Precedents: Section 144C(13) of the Income Tax Act mandates that upon receipt of directions from the DRP under sub-section (5), the AO must complete the assessment within one month from the end of the month in which such directions are received. The Income Tax (Dispute Resolution Panel) Rules, 2009, Rule 11, require the DRP to communicate its directions to both the assessee and the AO.Precedents cited by the assessee include decisions of the Bombay High Court and Delhi High Court, which hold that the date of uploading the DRP directions on the Income Tax Business Application (ITBA) portal constitutes the date of service on the AO.Court's Interpretation and Reasoning: The Court examined the procedural aspects of how DRP directions are uploaded and communicated within the ITBA system. The DRP directions were uploaded on 31.01.2022 on the ITBA portal. However, the AO contended that the directions were only received on 03.02.2022, based on case history notings, and thus the limitation period for completing the assessment should start from that date.The Court scrutinized affidavits filed by the AO and the IT Department, including an 'Unmasking Report' explaining the ITBA workflows. The report clarified that DRP proceedings can be initiated in two ways within the ITBA system:By selecting the 'Draft Order under Section 144C' option, which creates an automatic linkage with the assessment proceedings, causing the DRP directions to automatically appear in the AO's case history.By manually entering the details of the DRP order, which does not create automatic linkage, and thus the DRP directions do not automatically appear in the AO's case history.In the present case, the DRP user had used the manual entry method, causing the DRP order uploaded on 31.01.2022 not to reflect automatically in the AO's case history. The AO first saw the order on 03.02.2022 when it was uploaded again using a different functionality ('Uploading of document based on DIN/PAN-AY').Despite this, the Court noted an ITBA Advisory which states that irrespective of the method of uploading, the DRP order is visible to the Faceless Assessing Officer (FAO) in the '360 degree screen' of the ITBA portal, provided there is a pending assessment proceeding linked to the relevant PAN. This feature ensures that the AO has real-time access to the DRP directions as soon as they are uploaded.Key Evidence and Findings: The Court relied on the following key evidence:The communication from the DRP Secretariat confirming the DRP directions were uploaded on 31.01.2022.The affidavit of the AO stating receipt of the order on 03.02.2022 based on case history notings.The Unmasking Report by the IT Department explaining the ITBA system's functioning and the two methods of DRP order uploading.The ITBA Advisory clarifying that the FAO has access to the DRP order via the 360 degree screen immediately upon upload.Precedents from Bombay and Delhi High Courts rejecting the contention that the date of receipt can be delayed based on internal processing delays.Application of Law to Facts: The Court held that the limitation period under Section 144C(13) must commence from the earliest date on which the DRP directions are accessible to the AO, which is the date of uploading on the ITBA portal (31.01.2022). The Court reasoned that allowing the limitation to start from a later date based on internal procedural delays or choice of ITBA functionality would undermine the statutory scheme and the strict timelines prescribed by Section 144C.Treatment of Competing Arguments: The AO's argument that the directions were only received on 03.02.2022 because the order did not appear in the case history until that date was rejected. The Court emphasized that the AO had access to the directions through the 360 degree screen from 31.01.2022, and the lack of automatic linkage due to manual entry by the DRP user cannot delay the limitation period. The Court also rejected the AO's reliance on the absence of separate email intimation, holding that the statutory provision and ITBA functionality suffice for communication.Conclusion: The Court concluded that the date of receipt of DRP directions by the AO is the date of uploading on the ITBA portal, i.e., 31.01.2022, and not the later date of 03.02.2022. Therefore, the final assessment order dated 22.03.2022 was passed beyond the prescribed limitation period and is void ab initio.Issue 2: Validity of the Final Assessment Order Passed on 22.03.2022Relevant Legal Framework: Section 144C(13) mandates completion of the final assessment order within one month from the end of the month in which the DRP directions are received. The final assessment order must conform to the DRP directions and is not to provide further opportunity of hearing to the assessee.Court's Interpretation and Reasoning: Since the Court held that the DRP directions were received on 31.01.2022, the limitation period expired on 28.02.2022. The final assessment order was passed on 22.03.2022, which is beyond the limitation period.Key Evidence and Findings: The final assessment order dated 22.03.2022 was passed by the FAO in faceless mode, as mandated by Section 144B of the Act, read with Section 143(3) and 144C(13).Application of Law to Facts: The Court held that since the final assessment order was passed after the limitation period, it is invalid. The statutory scheme under Section 144C is a self-contained code with strict timelines, and no ambiguity or alternate interpretation is permissible that would extend the limitation.Treatment of Competing Arguments: The AO's contention that the order was passed within time based on the 03.02.2022 date was rejected for reasons explained above. The Court also noted that the Department's internal procedural issues cannot be allowed to prejudice the assessee's rights.Conclusion: The final assessment order dated 22.03.2022 is barred by limitation and void ab initio.Significant Holdings'Limitation cannot be dependent on varying user functionalities which are nothing but internal processes. If this argument were to be accepted, the commencement of limitation would vary depending on the option exercised by the user which would defeat the purpose of statutory limitation apart from being an unacceptable proposition.''The starting point of limitation has thus to be reckoned from the earliest instance when the directions of the DRP would be visible to the officer and cannot be taken to fluctuate from one methodology to another depending on the option exercised by the user.''The statutory scheme under Section 144C is a Code by itself that provides for very strict timelines for completion of an assessment. Hence the stipulation in regard to limitation cannot be reckoned in a manner so as to give rise to more than one interpretation, where either party can take benefit of a later date.''The date of receipt of the directions of the DRP by the Assessing Officer is the date of uploading of the order of the DRP in the Department's portal/website and limitation as per Section 144C(13) commences from that date.''The final assessment order passed beyond the prescribed limitation period under Section 144C(13) is void ab initio.'