2025 (10) TMI 708 - HC - Income Tax

Section 144C(13) requires AO to complete assessment within one month after receiving DRP directions; no extension allowed

The HC held that section 144C(13) mandates the AO to complete the assessment within one month from the end of the month in which the DRP's directions ... Failure to complete the assessment within the time frame as prescribed by Section 144(C)(13) - not completing the assessment within a period of one month from the end of the month in which the AO receives such directions from the DRP u/s 144(C) (5) - According to the Petitioner, if the AO fails to complete the assessment within the time frame as prescribed by Section 144(C)(13), the transfer pricing addition ought to be treated as non est on the ground that it becomes time barred - whether the TP addition should be treated as non-est on the ground that the proceedings to give effect to the DRP’s directions are now barred by limitation? - HELD THAT:- By clear language of Section 144(C)(13) of the Act, the 1st Respondent ought to have completed the assessment order within a period of one month from the end of the month in which such direction of the DRP is received. We agree with the submissions that the Assessing Office does not have any discretion after the DRP issues directions under section 144C(5), and he cannot deviate from the procedure envisaged under the Section. In the present case, despite repeated reminders, the 1st Respondent has not completed the assessment in conformity with the directions of the DRP, as passed on 19th March 2020. Submission of the Revenue that the provisions of the Act, and in particular Section 144(C)(13), do not prescribe a specific time limit for the 1st Respondent to complete the assessment within the specified time when the case is of a remand by the Tribunal - We are of the view that the submission is not sustainable in view of the clear and unambiguous language of Section 144(C)(13) of the Act. If the submission of the Revenue is accepted, then the entire scheme and mandate of Section 144(C)(13) of the Act will be made redundant. The Act does not make any distinction between ordinary cases and cases on remand. The provisions of Section 144(C)(13) apply equally to both situations. Therefore, 1st Respondent cannot act beyond the mandate of Section 144(C)(13) and also contrary to the directions given by the DRP in sub-section (5) of Section 144 (C) of the Act. The reason being, Section 144(C)(13) mandates that the 1st Respondent ought to complete the assessment in conformity with the direction of the DRP, that too within the strict timelines. It is a settled principle of law that, where a statute requires something to be done in a particular manner, it has to be done in that manner. The statutory provisions cannot be waived or deviated from. If the argument of the Revenue is accepted, then we will have to omit the mandatory provision from Section 144C(13) while reading the Section. Such a route of interpretation is not permissible. All the words in the statute will have to be read and given a meaning. Therefore, we reject the submission of the Revenue that in case of remand proceedings, the timelines provided by Section 144C(13) are not applicable and the assessment can be completed beyond the time limits provided by the section. ISSUES PRESENTED AND CONSIDERED 1. Whether Section 144C(13) of the Income Tax Act, 1961 imposes a mandatory obligation on the Assessing Officer to complete the assessment in conformity with directions of the Dispute Resolution Panel (DRP) within one month from the end of the month in which such directions are received. 2. Whether the mandatory timeline under Section 144C(13) applies to proceedings that arise on remand from an appellate forum (i.e., a 'second round' of proceedings) or whether remand proceedings are exempt from that one-month timeframe. 3. Consequentially, whether failure to complete assessment in conformity with DRP directions within the time prescribed by Section 144C(13) renders the challenged transfer-pricing addition time-barred (non est) and entitles the assessee to recomputation of income and refund with interest. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Mandatory nature of Section 144C(13): Legal framework: Section 144C sets out the DRP mechanism: 144C(1) requires forwarding draft assessment if AO proposes prejudicial variation; 144C(2) permits filing objections with DRP; 144C(5) empowers DRP to issue directions for guidance of AO; 144C(10) makes DRP directions binding on the AO; 144C(13) provides that 'Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete ... the assessment ... within one month from the end of the month in which such direction is received,' notwithstanding Sections 153/153B. Precedent treatment: The Court acknowledged prior decisions (Madras High Court single judge and division bench decisions and this Court's earlier decision) and noted that certain aspects of those authorities and their broader questions are pending before the Supreme Court in a split-judgment matter; however, for present purposes the Court confined itself to independent interpretation of Section 144C(13). Interpretation and reasoning: The language of 144C(13) is clear, unambiguous and mandatory. The use of 'shall' and the non obstante clause indicate a statutory obligation on the AO to complete the assessment in conformity with DRP directions within the prescribed one-month period. The section prescribes the sequence of steps and excludes application of Sections 153/153B for purposes of that compliance. Where statute prescribes a manner and timeline, the AO must follow it and cannot deviate. The Court rejected any reading that would render mandatory words otiose. Ratio vs. Obiter: Ratio. The Court's holding that 144C(13) imposes a mandatory timeline and obligation on the AO is central to the decision. Conclusion: Section 144C(13) imposes a mandatory requirement on the Assessing Officer to complete the assessment in conformity with DRP directions within one month from the end of the month in which such directions are received; the AO has no discretion to ignore that timeline. Issue 2 - Applicability of Section 144C(13) to remand/second-round proceedings: Legal framework: The statutory language of 144C(13) contains no exception for remand proceedings; 144C(10) makes DRP directions binding; 144C(5) contemplates directions where objections are filed under 144C(2) (including cases remanded by appellate forums). Precedent treatment: The Court noted conflicting treatments in earlier decisions and that larger questions about interaction of Sections 144C and 153 are pending before the Supreme Court; nevertheless the Court declined to adopt any distinction for remand matters and chose to interpret 144C(13) on its text. Interpretation and reasoning: The statute makes no differentiation between original and remand proceedings. Accepting the Revenue's submission that remand exempts the AO from the one-month timeline would nullify the mandate of 144C(13) and render the provision redundant. The legislative scheme requires that DRP directions be given effect within the prescribed timeline irrespective of whether directions arise in original proceedings or on remand. Ratio vs. Obiter: Ratio. The Court's determination that remand/second-round proceedings are subject to the one-month mandate is decisive for the outcome. Conclusion: The one-month timeline under Section 144C(13) applies equally to remand/second-round proceedings; there is no statutory basis to treat remand matters as outside that timeline. Issue 3 - Consequences of non-compliance with Section 144C(13) and effect on transfer-pricing addition: Legal framework: Binding nature of DRP directions (144C(10)); mandatory completion within timeframe (144C(13)); non obstante clause excluding Sections 153/153B for purposes of compliance; statutory remedy implications (recomputation and refund with statutory interest under Section 244A where excess tax paid). Precedent treatment: Although other judgments dealing with these consequences were noted, the Court proceeded to govern the present matter by its interpretation of the relevant statutory provisions rather than rely on those authorities. Interpretation and reasoning: Where DRP directions are not given effect to within the mandatory period fixed by 144C(13), the AO cannot subsequently invoke the same section to complete the assessment. Non-compliance therefore places the contested addition outside the statutory time window prescribed by 144C(13). The Court reasoned that the transfer-pricing addition which the AO sought to give effect to after expiry of the timeline is therefore time-barred (non est) and cannot be sustained. Ratio vs. Obiter: Ratio as applied to the facts. The holding that the specific transfer-pricing adjustment is time-barred and must be excluded is a direct application of the statutory interpretation. Conclusion: Failure to give effect to DRP directions within the period mandated by 144C(13) renders the contested transfer-pricing adjustment time-barred; the AO is precluded from completing assessment under 144C(13) in respect of that addition and must recompute income excluding that addition. Where excess tax was paid, refund with statutory interest (Section 244A) is ordered. Additional points / Cross-references 1. The Court confined its decision to interpretation of Section 144C(13) and expressly kept open larger questions concerning interaction between Sections 144C and 153 that are pending before the Supreme Court; those larger issues were not decided and do not affect the present ratio. 2. The Court relied on the textual and structural interpretation of Section 144C, including subsections (1), (2), (5), (10) and (13), and emphasized statutory consistency-where a statute prescribes a mandatory mode and timeline, it must be followed. 3. Relief directed: the specific transfer-pricing addition was declared non est; the Assessing Officer was ordered to recompute total income excluding the addition and to pay refund with statutory interest within a fixed period; compliance reporting ordered.