2025 (7) TMI 906 - HC - Income Tax

Assessment proceedings for AY 2007-08 barred by limitation after ITAT order, return accepted with refund ordered

Acuity KP Solutions (India) Private Limited Versus Deputy Commissioner Of Income-Tax Circle 1 (1), Delhi & Ors.

Acuity KP Solutions (India) Private Limited Versus Deputy Commissioner Of Income-Tax Circle 1 (1), Delhi & Ors. - 2025:DHC:5433 - DB 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in the present matter are:(a) Whether the assessment proceedings (upon remand) for the Assessment Year (AY) 2007-08 against the Petitioner have become time barred due to failure to pass the final assessment order under Section 143(3) of the Income-tax Act, 1961 ('Act') pursuant to the appellate order dated 20.07.2012 passed by the Income Tax Appellate Tribunal (ITAT).(b) Whether the Petitioner is entitled to the refund of Rs. 67,86,402 along with statutory interest due to the delay and non-finalization of assessment proceedings within the prescribed time limits.(c) The applicability of the principles of natural justice in the assessment proceedings, particularly in the context of transfer pricing adjustments and the need to provide the taxpayer with all relevant information to respond adequately.(d) The effect of the ITAT's remand order on limitation for completion of assessment proceedings and the consequences of non-compliance by the Assessing Officer (AO).2. ISSUE-WISE DETAILED ANALYSISIssue (a): Whether the assessment proceedings upon remand for AY 2007-08 have become time barred under Section 143(3) of the Income-tax Act.Relevant legal framework and precedents: Section 143(3) of the Income-tax Act mandates that the AO must complete the assessment within the prescribed time limit. The limitation period is generally 12 months from the end of the financial year in which the return is filed, subject to extensions in certain circumstances. The ITAT's appellate order dated 20.07.2012 directed a remand for fresh consideration, which effectively restarted the assessment process. However, the law is settled that limitation for completion of assessment must be adhered to even on remand. The Court relied on the precedent established in Nokia India (P) Ltd. v. Deputy Commissioner of Income Tax, which held that failure to complete assessment within time post-remand results in the proceedings becoming time barred.Court's interpretation and reasoning: The Court observed that the AO failed to pass any final assessment order pursuant to the ITAT's remand order dated 20.07.2012. Despite several adjournments and opportunities, the Revenue did not complete the assessment proceedings within the statutory time frame. The Court noted the Revenue's admission that relevant files were untraceable and that no appeal effect order had been passed. Consequently, the Court accepted the Petitioner's contention that the assessment proceedings have lapsed by limitation.Key evidence and findings: The Petitioner's return for AY 2007-08 was filed declaring nil income and claiming a refund. The AO issued a notice under Section 143(2) and initiated scrutiny. The TPO made an upward transfer pricing adjustment, which was challenged before the DRP and subsequently before the ITAT. The ITAT found violation of natural justice and remanded the matter for fresh assessment. No final order was passed after remand, and the limitation period expired.Application of law to facts: The Court applied the statutory limitation provisions and the binding precedent to conclude that the AO's failure to pass a final assessment order post-remand within the prescribed time barred further proceedings. The absence of a valid assessment order renders the proceedings null and void.Treatment of competing arguments: The Revenue sought adjournments and claimed inability to file counter affidavits due to missing files. However, these procedural delays were not accepted as sufficient cause to extend limitation. The Court emphasized strict adherence to limitation provisions to protect taxpayer rights.Conclusion: The assessment proceedings for AY 2007-08 upon remand have become time barred under Section 143(3) of the Act.Issue (b): Entitlement of the Petitioner to refund along with statutory interest.Relevant legal framework and precedents: Under the Income-tax Act, where an assessment order is not passed within the prescribed time, the return filed by the taxpayer is deemed accepted, and any refund due must be paid with interest. The statutory interest is payable under Section 244A of the Act for delayed refunds.Court's interpretation and reasoning: Since the assessment proceedings have lapsed by limitation, the Petitioner's return is deemed accepted. The Court directed the AO to refund the claimed amount of Rs. 67,86,402 along with statutory interest as per law. The Court mandated expeditious refund preferably within twelve weeks from the date of the order.Key evidence and findings: The Petitioner had claimed a refund in the original return, which remained unpaid due to pending assessment proceedings. The failure of the Revenue to finalize the assessment within time deprived the Petitioner of the refund and interest.Application of law to facts: The Court applied the statutory provisions to the facts, holding that the Petitioner is entitled to the refund along with interest due to the Revenue's failure to complete assessment within the time frame.Treatment of competing arguments: The Revenue did not file any counter affidavit or produce evidence disputing the refund claim or interest entitlement. The Court relied on the Petitioner's uncontested submissions.Conclusion: The Petitioner is entitled to refund of Rs. 67,86,402 along with statutory interest, and the AO is directed to release the refund expeditiously.Issue (c): Applicability of principles of natural justice in transfer pricing assessment proceedings.Relevant legal framework and precedents: Principles of natural justice require that a taxpayer be given a fair opportunity to present its case and respond to all material and information relied upon by the Revenue before passing an adverse order. This is especially critical in transfer pricing cases where complex adjustments are made based on comparables and arm's length pricing.Court's interpretation and reasoning: The ITAT had earlier held that the final assessment order was passed in violation of natural justice as the Petitioner was not provided with all information obtained during assessment proceedings, thereby denying a reasonable opportunity to respond. The Court upheld this reasoning and recognized the necessity of adherence to natural justice principles in such proceedings.Key evidence and findings: The ITAT's order dated 20.07.2012 explicitly found violation of natural justice and remanded the case for fresh consideration after providing the Petitioner a reasonable opportunity of hearing.Application of law to facts: The Court acknowledged that the ITAT's remand was premised on the fundamental requirement of natural justice, reinforcing that procedural fairness is mandatory in transfer pricing assessments.Treatment of competing arguments: No contrary submissions were made disputing the natural justice violation. The Court accepted the ITAT's findings as binding.Conclusion: The principles of natural justice are integral to transfer pricing assessments, and failure to comply renders the assessment order liable to be quashed, as was done by the ITAT.Issue (d): Effect of ITAT's remand order on limitation and consequences of non-compliance by AO.Relevant legal framework