2025 (10) TMI 235 - HC - Income Tax

Assessment order after ten-year delay on ITAT remand held time-barred under s.153(2A)/(3); refund with interest

HC held the assessment order passed after a ten-year delay following an ITAT remand was time-barred under s.153(2A)/(3) and therefore invalid. The court ... Validity of assessment order passed beyond period of limitation - scope of timeline prescribed under sub-section (2A) of Section 153 - matter was remitted to the AO/TPO, by the learned ITAT - determination of Time limit for completion of assessment, reassessment and recomputation - HELD THAT:- As per the timeline prescribed under sub-section (2A) of Section 153 of the Act, it could have been passed within a period of two years from the end of the financial year in which the order under Section 250 or 254 of the Act was received and that can be till 31.03.2017 counting two years period from the end of the financial year 2014-15. Even as per sub-section (3) of Section 153 of the Act, the timeline for giving effect to the order could be from the end of the financial year in which the order u/s 154 of the Act was received. In the present case, going by the periods prescribed under sub-section (2A) or sub-section (3) of Section 153 of the Act, the impugned order has been passed after ten years of the order of remand by the ITAT dated 13.06.2014 i.e., on 26.09.2024. No explanation worth its claim is evident from the stand of the respondent in the counter-affidavit to explain the time lag of ten years in passing the same order when strict timelines are prescribed u/s 153 of the Act to give effect to either passing fresh assessment order/reassessment order or to give effect to the order passed by the ITAT. In such circumstances, the impugned order being barred by time, cannot be upheld in the eye of law. As a result thereof, the petitioner would be entitled to refund, along with statutory interest, as per the return of income filed by it with the self-assessed taxes paid by it and refund, if any, for other assessment years adjusted against the demand raised by the relevant assessment year 2005-06. ISSUES PRESENTED AND CONSIDERED 1. Whether the Assessing Officer/Transfer Pricing Officer was obliged to issue a draft assessment order and follow the procedure under section 144C of the Income Tax Act before passing the consequential order giving effect to the Tribunal's remand directions. 2. Whether the consequential order passed by the Assessing Officer on 26.09.2024 (giving effect to the AO/TPO order dated 25.09.2024) is barred by limitation under section 153(2A)/153(3) of the Income Tax Act for giving effect to an order of the Appellate Tribunal remitting the matter for fresh consideration. 3. Whether, if the consequential order is time-barred, the original return of income should be accepted and refunds (including taxes paid and adjustments from other years) released, subject to statutory interest and any extant appeals by revenue. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of section 144C procedure (duty to issue draft order and opportunity to object) Legal framework: Section 144C provides for a statutory mechanism where draft variations (including transfer pricing variations) are communicated, the assessee may file objections, and the Dispute Resolution Panel (DRP) may issue binding directions to the Assessing Officer; directions of DRP are binding on the AO and upon receipt the AO completes assessment 'in conformity' without further opportunity to the assessee. Precedent treatment: The Court reviewed the statutory scheme of section 144C as a non-obstante provision that prescribes a mandatory consultative and DRP-oriented procedure for variations arising out of transfer pricing assessments. Prior decisions on the broader scheme (referenced in the grounds and submissions) were considered in context but not expressly overruled. Interpretation and reasoning: The Court examined the nature of the impugned order dated 26.09.2024 and the antecedent AO/TPO order dated 25.09.2024. It found that the AO's consequential order was passed in conformity with the AO/TPO order and characterized the 26.09.2024 order as a consequential order rather than a fresh draft assessment under section 92CA requiring separate draft-sharing under section 144C. The respondent's stance was that section 144C procedure applies to draft transfer pricing orders under section 92CA, whereas the order dated 25.09.2024 was not treated as a section 92CA order triggering the draft notice regime; therefore no draft was required to be supplied under section 144C before the consequential order was passed. Ratio vs. Obiter: This reasoning operates as ratio for the specific factual finding that the AO's consequential order (26.09.2024) flowed from a non-section-92CA characterization of the AO/TPO action (25.09.2024), and therefore did not mandatorily attract the section 144C draft/procedure in that instance. It is confined to the facts and characterization adopted by the AO/TPO and does not constitute a general dictum limiting section 144C's scope in other fact patterns (obiter if extrapolated). Conclusions: On the facts, the Court accepted the revenue's contention that the order of 26.09.2024 was a consequential order in conformity with an AO/TPO action and not a draft assessment under section 92CA necessitating issuance of a draft under section 144C; accordingly the procedural challenge under section 144C did not invalidate the consequential order on those grounds alone. Issue 2 - Limitation under section 153(2A)/153(3) for giving effect to Tribunal remand and time-lag of ten years Legal framework: Section 153 prescribes time limits for completion of assessment and for making fresh assessment/reassessment in pursuance of orders under sections 250/254 etc. Sub-section (2A) allows one year from the end of the financial year in which the appellate order is received; sub-section (3) provides a period (nine months, now twelve months for orders received on/after 01.04.2019) for making fresh assessment/order under section 92CA in pursuance of appellate orders. Precedent treatment: The Court relied on and considered a coordinate-bench decision (M/s TNS India) which held that consequential orders could not be passed beyond the prescribed period under section 153(2A), and surveyed decisions including Nokia India and Dr. R.P. Patel to interpret the temporal limits applicable after an appellate remand. Decisions cited by the petitioner such as Shelly Products (Apex Court) and Aricent (Delhi High Court) were invoked for principles on refund/acceptance on failure to complete assessments; the Court applied these authorities in assessing consequences of time-barred action. Interpretation and reasoning: The Tribunal remitted the matter on 13.06.2014 to AO/TPO to re-examine and quantify risk adjustments and arrive at a revised ALP after affording opportunity to the assessee. The Court held that once remitted for fresh determination, consequential orders giving effect to the remand ought to have been passed within the timelines envisaged by section 153(2A) or section 153(3) - i.e., at latest by 31.03.2017 in the present chronology. The Court found no satisfactory explanation in the respondent's counter-affidavit for the ten-year delay in passing the consequential order on 26.09.2024. The Court followed the reasoning in TNS India that strict timelines under section 153 apply to give effect to appellate remands; therefore actions taken beyond the statutory period are time-barred. Ratio vs. Obiter: The finding that the consequential order is barred by limitation under section 153(2A)/153(3) is ratio: the Court applied statutory time limits to the remand facts and concluded the impugned order falls outside permitted periods. Observations on earlier case-law application (e.g., alignment with TNS India, Nokia India) are explanatory and supportive but not necessary to the single-point holding that the order is time-barred. Conclusions: The consequential order dated 26.09.2024 is barred by time as it was passed approximately ten years after the Tribunal's remand; absence of a credible explanation or compliance with the timelines in section 153 renders it legally untenable. Issue 3 - Consequences of time-barred order: acceptance of return and refunds subject to pending appeals Legal framework: Where the authorities fail to make a fresh assessment within prescribed time, the law and precedents recognize that the returned income may be accepted and taxes deposited by the assessee refunded; retention of such amounts without legal authority infringes Article 265 (levy only by authority of law). Precedent treatment: The Court considered apex authority (Shelly Products) that mandates refund where authorities fail to frame regular assessment after earlier order is set aside/nullified. The Delhi High Court's decision in Aricent was noted where acceptance of returned income and refund followed where assessment proceedings became time-barred. The Court applied these precedents to the present fact of ten-year delay. Interpretation and reasoning: Given the impugned consequential order is time-barred, the Court concluded that the return filed by the assessee must be accepted and the refunds (self-assessed taxes and other adjusted refunds) released with statutory interest. However, the Court recognized an important caveat: the department has preferred an appeal (I.T.A. pending) against the Tribunal's remand order; accordingly any refund admissible would be subject to the outcome of that pending appeal. Ratio vs. Obiter: The direction to accept the original return and grant refund (with interest) because the consequential order is time-barred is ratio. The qualification that refunds are subject to the result of the pending departmental appeal is an operative injunction tied to the existence of that appeal and is also ratio in context. Conclusions: The assessee is entitled to have the original return accepted and to receive refunds (including taxes paid and amounts adjusted from other assessment years) with statutory interest, but such refunds shall be made subject to the result of the departmental appeal pending before the Court. The writ petition is disposed accordingly.