2025 (8) TMI 1429 - AT - Income Tax

Under s.144C(13) AO must finalize assessment within one month after receiving DRP directions; December assessment held time-barred

Fresenius Kabi Oncology Ltd. Versus Income tax Officer, Ward-9 (3), Delhi

Fresenius Kabi Oncology Ltd. Versus Income tax Officer, Ward-9 (3), Delhi - TMI 1. ISSUES PRESENTED AND CONSIDERED 1. Whether a final assessment order passed after the time limit prescribed by section 144C(13) of the Income-tax Act is barred by limitation and therefore void. 2. Whether receipt of DRP directions by the Transfer Pricing Officer (TPO) or issuance of a rectification under section 154 by the DRP can alter or extend the time-limit under section 144C(13) for the Assessing Officer to pass the final assessment order. 3. Whether the faceless assessment regime under section 144B affects the computation of the time-limit in section 144C(13), specifically whether the date of receipt by the National Faceless Assessment Centre/assessment unit is the relevant triggering event for computation of the one-month period under section 144C(13). 4. Whether, having held the final assessment order invalid on limitation grounds, other substantive grounds relating to transfer pricing adjustments, disallowance of expenses, depreciation adjustment and penalty required adjudication. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Time-limit under section 144C(13): Legal framework Legal framework: Section 144C(5) empowers the Dispute Resolution Panel (DRP) to issue directions on objections; section 144C(13) mandates that upon receipt of such directions the Assessing Officer shall, in conformity with the directions, complete the assessment within one month from the end of the month in which the directions are received, without providing any further opportunity of being heard. Precedent Treatment: The Court refers to and follows High Court and Tribunal decisions holding the timelines in section 144C(13) to be mandatory (authority findings summarized from multiple decisions). Those decisions construe the time-limit as mandatory and that failure to comply vitiates the assessment order. Interpretation and reasoning: The statutory text of section 144C(13) imposes a clear, non-discretionary duty on the Assessing Officer to complete assessment within the prescribed one-month period; the AO must act 'in conformity with the directions' and cannot interpose further proceedings beyond that timeline. Allowing delayed completion would subvert the alternate dispute resolution objective embodied in section 144C. Ratio vs. Obiter: Ratio - timelines in section 144C(13) are mandatory and an assessment completed after the prescribed period is barred by limitation and liable to be quashed. This is applied as decisive reasoning for the present outcome. Conclusion: Final assessment orders passed after expiry of the period under section 144C(13) are time-barred and void; the appeal on limitation grounds succeeds. Issue 2 - Effect of TPO actions and rectification under section 154 on time-limit Legal framework: Section 92CA deals with transfer pricing and TPO reports; section 144C(5)-(13) detail the DRP role and timeline; section 154 permits rectification of mistakes in orders. Precedent Treatment: The Court relies on authorities that a TPO has no jurisdiction to resume proceedings after DRP directions are issued in respect of an eligible assessee and that rectification by DRP or AO under section 154 cannot be used to re-start or extend the one-month limitation under section 144C(13). A coordinate bench decision is cited supporting the proposition that rectification of DRP directions, if required, must be done by DRP and cannot be used to lengthen AO's time for passing the final order. Interpretation and reasoning: The role of the TPO is distinct and generally concludes once DRP directions are framed; the statutory scheme does not contemplate the TPO resuming jurisdiction in a manner that affects the computation of section 144C(13) timelines. Rectification under section 154 addresses errors but does not, by its nature, provide a fresh triggering event to reset the statutory limitation in section 144C(13). The Act prescribes a single, mandatory period from receipt of DRP directions; administrative or internal procedural steps cannot be used to defeat that prescription. Ratio vs. Obiter: Ratio - neither TPO effect orders nor DRP/AO rectification under section 154 can extend or re-trigger the one-month limitation period under section 144C(13); efforts to do so render subsequent final orders time-barred. Conclusion: The TPO's later effect order or a rectification by the DRP/AO does not validate a final assessment passed after the section 144C(13) deadline; the later final order is invalid for being time-barred. Issue 3 - Faceless assessment (section 144B) and computation of date of receipt for section 144C(13) Legal framework: Section 144B prescribes the faceless assessment procedure, including that where DRP directions are issued the National Faceless Assessment Centre shall forward those directions to the assessment unit which shall complete assessment as per section 144C(13). Precedent Treatment: Authorities cited by the Court (High Courts and Tribunals) hold that in the faceless regime the date on which DRP directions are uploaded/received by the National Faceless Assessment Centre (or assessment unit) is the operative date for computation of the one-month period under section 144C(13); upload on the ITBA portal constitutes valid receipt/service. Interpretation and reasoning: The faceless scheme does not exempt the Department from statutory timelines; the mechanics of communication prescribed by the faceless regime (uploading on ITBA, forwarding to assessment unit) fix the date of receipt for limitation purposes. Internal administrative transfers or delays within departments cannot alter that statutory computation. Ratio vs. Obiter: Ratio - under the faceless assessment framework, the date of upload/receipt by the National Faceless Assessment Centre/assessment unit is the relevant date for computing the one-month period in section 144C(13); failure to act within that period invalidates the assessment. Conclusion: The faceless assessment mechanism does not extend or modify the statutory time-limit; the period under section 144C(13) must be computed from the date DRP directions are received by the assessment unit/Faceless Centre, and orders passed after expiry are void. Issue 4 - Consequence of quashing final order on remaining substantive grounds Legal framework: When an assessment order is quashed for being void or time-barred, consequential relief follows and further adjudication on merits is ordinarily unnecessary unless the revenue chooses to reopen in accordance with law. Precedent Treatment: The Court references decisions where orders quashed on limitation grounds resulted in dismissal of consequent substantive reliefs as they became academic. Interpretation and reasoning: Because the final assessment order was held void for being time-barred under section 144C(13), all downstream adjustments and disallowances founded on that order (including transfer pricing adjustments, disallowance of remedial expenses, scrapping costs, depreciation reduction, and penalty initiation) could not be sustained and therefore were not adjudicated on merits. Ratio vs. Obiter: Ratio - once the final order is quashed on limitation grounds, substantive issues raised in appeal remain unadjudicated and are not decided; the quashing is dispositive of the appeal. Conclusion: The limitation ruling results in quashing of the final assessment order and the tribunal declines to adjudicate the other grounds; the appeal is allowed on limitation grounds alone.