2025 (10) TMI 156 - HC - Income Tax

Assessment order held time-barred as AO failed to verify draft order receipt under s.144C(2), objections deemed belated

The Pr. Commissioner of Income Tax, Bangalore, The Assistant Commissioner of Income Tax, Bangalore. Versus M/s. Yokogawa India Ltd.,

HC held the assessment order invalid as barred by limitation. The AO must verify receipt date of the draft order and ascertain whether objections to the ... Validity of assessment order passed u/s 144C(13) - period of limitation - The scope of sub-sections (2), (3), and (4) of Section 144C - HELD THAT:- In the present case, where an objection has been filed, the Assessing Officer has two obligations. First, upon passing the draft assessment order, the Assessing Officer must ascertain whether an objection has been filed before the DRP and second, whether such objection is within the thirty-day period prescribed under sub-section (2). The Assessing Officer cannot remain inactive upon the filing of an objection without fully applying the provisions of sub-section (2). He is duty-bound to verify both the date of service of the draft order and the date of filing of the objection to determine its validity. Only when objection is filed within the period specified under sub-section (2), the Assessing Officer is precluded from completing the assessment. If the objection is not filed within the prescribed period, mere filing before the DRP will not bar the Assessing Officer from completing the assessment. In other words, the Assessing Officer is entitled to disregard any objection not filed within thirty days from the date of receipt of the draft order, as contemplated under sub-section (2). A perusal of the communication dated 13.04.2016 to the AO regarding the filing of objections to the draft assessment order before the DRP indicates that the thirty-day period was computed from 14.03.2016, although service was effected on 12.03.2016. It appears that the AO relying on the date of service as 14.03.2016, was satisfied that the objection was filed within thirty days, without verifying the date of service from his own records. AO is not bound by the date of service as acknowledged by the assessee; what is required is the actual service of the communication, which the AO effectuated. The draft assessment order was communicated through speed post, and the date of delivery through speed post is the proper basis to compute the thirty-day period. There is no case from the Revenue that the AO was handicapped or lacked the means to verify the actual date of service, and it cannot be said that he had no alternative but to rely on the statement of the assessee. The postal tracking status of Indian Post was available to the AO to ascertain the correctness of the assessee’s claim regarding service. Had due diligence been exercised, the AO would have determined the actual date of service and assessed the validity of the objection filed on 13.04.2016. AO having failed to exercise such diligence, cannot rely on the date of service as stated by the assessee, and it is therefore not open to him to compute the thirty-day period from 14.03.2016. The question whether the assessee’s interpretation of the date of service is to be accepted, or whether the incorrect mention of the date was intended to mislead the AO and that the assessee cannot take advantage of its own mistake, is altogether a new aspect and is not relevant at this stage. Even if it were to be held that the assessee misled the Assessing Officer, the plain language of Section 144C(3) of the Act remains unaffected and must be given its ordinary meaning. We reiterate that if an objection before the DRP is not filed within thirty days from the date of receipt of the draft assessment order, the AO is not required to await the DRP’s disposal of the objection as belated. The mere pendency of an objection before the DRP, if not filed within the prescribed thirty-day period, does not constitute a legal impediment for the AO to proceed with the completion of the assessment. It is not the mere filing of an objection before the DRP, but its filing within thirty days, that restrains the AO from finalising the assessment. In the present case, the material on record clearly indicates that the objection before the DRP was filed beyond the thirty-day period. Had the AO properly applied his mind to determine the date of service, he ought to have proceeded with the final assessment disregarding the objection. Having failed to do so, the Tribunal was justified in holding that the final assessment order dated 31.08.2016 is barred by limitation. ISSUES PRESENTED AND CONSIDERED 1. Whether the final assessment order under section 144C(13) was beyond the period of limitation where the assessee stated an incorrect date of receipt of the draft assessment order and the Tribunal relied on an earlier Tribunal decision in holding the order time-barred. 2. Whether the Tribunal erred in giving priority to section 144C(4) over sections 144C(2)(b) & 144C(3)(b) when the assessee's alleged misrepresentation of the date of receipt of the draft order allegedly circumvented the prescribed regime for filing objections before the DRP. 3. Whether the Tribunal should have dismissed the assessee's appeal on equitable grounds because the assessee did not approach the authorities with clean hands by allegedly misinforming the DRP and the Assessing Officer about the date of receipt of the draft assessment order. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Time-bar under section 144C(13) where date of receipt of draft order disputed Legal framework: Section 144C(1)-(4)-(13) prescribes forwarding of draft assessment orders to eligible assessee, a 30-day window from date of receipt to accept or file objections (section 144C(2)), Assessing Officer to complete assessment if acceptance/notices not filed within that period (section 144C(3)), time for Assessing Officer to pass assessment where no objections/acceptance within one month from end of month in which period expires (section 144C(4)) and duty to pass final assessment within one month from end of month in which DRP directions are received (section 144C(13)). Precedent treatment: The appeal record records that the Tribunal placed reliance on an earlier Tribunal bench decision in reaching its conclusion. The Court examined the statutory text rather than expanding or overruling prior decisions. Interpretation and reasoning: The Court analysed the undisputed chronological facts: draft dated 10/03/2016; delivery to assessee (postal tracking) showing 12/03/2016; objections filed before DRP on 13/04/2016; DRP directions dated 24/08/2016; final order under section 144C(13) dated 31/08/2016. The Court held that the critical trigger for computing the 30-day period is the actual date of receipt (delivery), not the date asserted by the assessee in its intimation. The Assessing Officer has an independent obligation to verify whether objections were filed within the statutory 30-day period by checking the actual date of service (postal tracking/records). Mere filing of objections before the DRP does not suspend the Assessing Officer's duty under section 144C(3) unless the objections were filed within 30 days. Where objections are filed belatedly, the Assessing Officer is entitled to disregard them and proceed to complete the assessment within the timelines prescribed by section 144C(4). The Assessing Officer's reliance on the assessee's stated date (14/03/2016) without verifying available records amounted to failure to apply due diligence; had he verified, he would have found delivery on 12/03/2016 and been entitled to proceed earlier, rendering the later final order time-barred. Ratio vs. Obiter: Ratio - The statutory limitation under section 144C is triggered by actual date of receipt of the draft order; Assessing Officer must verify the date of service and cannot be put out of time by an assessee's incorrect assertion of receipt date. Obiter - Comments rejecting the relevance of alleged subjective intent behind the assessee's incorrect date (i.e., whether the misstatement was intended to mislead) were ancillary to the primary statutory interpretation. Conclusions: The final assessment order dated 31/08/2016 was barred by limitation because the objection was effectively filed beyond thirty days from the actual date of receipt (12/03/2016). The Tribunal's conclusion that the final order was time-barred is correct and sustainable. Issue 2 - Priority of section 144C(4) vis-à-vis sections 144C(2)(b) & 144C(3)(b) when objection date dispute exists Legal framework: Section 144C(2)(b) permits filing objections with the DRP within thirty days of receipt; section 144C(3) requires completion of assessment where no objection is filed within that period; section 144C(4) prescribes time for completing the assessment where acceptance is received or objection period expires. Precedent treatment: The Court addressed the statutory hierarchy and interplay rather than relying solely on precedent; it emphasised the temporal operation of the subsections. Interpretation and reasoning: The Court held that the statutory scheme gives primacy to the assessed timelines: only an objection filed within the 30-day window engages the DRP process so as to restrain the Assessing Officer. The Assessing Officer must determine whether objections were filed within the period; if not, section 144C(3) and (4) permit completion of assessment without awaiting DRP disposal. Thus, the Assessing Officer could not lawfully suspend action under section 144C(4) merely because an objection was pending before the DRP if that objection was belated. The Assessing Officer's failure to verify the correct date of service and to act accordingly cannot be remedied by imputing priority to DRP proceedings over the statutory timelines; the correct statutory priority is to apply the 30-day rule first (sections 144C(2)-(3)) and then, only if applicable, follow the DRP timeline under section 144C(13). Ratio vs. Obiter: Ratio - The statutory scheme requires the Assessing Officer to verify the actual date of service and accord precedence to the operation of sections 144C(2)-(4) before deferring to DRP proceedings; a belated objection does not displace the Assessing Officer's duty to complete assessment within prescribed time. Obiter - Discussion of whether the assessee's alleged circumvention by misstatement could (in different facts) justify equitable estoppel against the assessee was not necessary to the decision. Conclusions: The Tribunal did not perversely misplace priority among subsections; it correctly upheld that the Assessing Officer should have applied section 144C(4) (and the earlier subsections) based on the actual date of receipt and could not defer completion on account of a belated objection. Issue 3 - Dismissal on equitable grounds for lack of clean hands due to alleged misrepresentation Legal framework: Equitable doctrines (clean hands) and principles of estoppel operate in appropriate circumstances, but statutory rights and mandatory limitation provisions govern the competence to pass assessment orders under section 144C. Precedent treatment: The Court confined itself to statutory interpretation and did not invoke or overrule any equitable precedents; it noted the question of misrepresentation but treated it as collateral to the statutory scheme. Interpretation and reasoning: The Court observed that the question whether the assessee intended to mislead or made an incorrect factual assertion is a separate inquiry and not material to the interpretation of section 144C(3). Even assuming misstatement, the plain language of section 144C(3) and related subsections determines the Assessing Officer's duties and the validity of the final assessment order. The statutory time limits cannot be negated on the ground of alleged misrepresentation by the assessee when the Assessing Officer failed to exercise available means to verify actual service date. The Assessing Officer's failure to exercise due diligence, not the assessee's subjective intention, produced the consequence that the final assessment order was passed beyond the statutory limitation. Ratio vs. Obiter: Ratio - The absence of 'clean hands' on the part of the assessee, while relevant in some contexts, did not furnish a legal basis to sustain a final assessment order passed beyond the statutory timeframes; the statutory limitation and procedural obligations of the Assessing Officer govern. Obiter - The Court's remark that whether the assessee misled the Assessing Officer is a 'new aspect' not material to the statutory interpretation is ancillary. Conclusions: The Tribunal correctly declined to dismiss the assessee's appeal on equitable grounds; alleged misrepresentation by the assessee did not validate a final assessment order that was, on the proper statutory analysis, barred by limitation when the Assessing Officer failed to verify the actual date of service. Cross-references See Issue 1 for the primary statutory analysis of sections 144C(2)-(4) and 144C(13); Issues 2 and 3 flow from that statutory construction and the Assessing Officer's duty to verify actual service dates before deferring to DRP proceedings or invoking equitable doctrines.