Validity of assessment order limitation calculation clarified: compute final assessment limitation under section 153(1) read with section 153(4), otherwise barred.

Challenge concerns the applicable limitation for passing final income-tax assessment orders under reassessment/appeal timelines. The note clarifies that statutory limitation must be computed in accordance with the provisions of section 153(1) read with section 153(4), not under the alternative timeline in section 144C(13). Consequently, where the limitation computed under section 153(1) read with section 153(4) expired before issuance, any final assessment order dated thereafter is time-barred and liable to be quashed; the example assessment dated after the computed expiry was held barred by limitation.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether purely legal additional grounds challenging the validity of the final assessment orders on limitation could be admitted at the appellate stage when based on facts already on record.

(ii) Whether the general extension of limitation granted by the Supreme Court during the Covid-19 period applied to extend the statutory time-limit available to the Assessing Officer for passing final assessment orders.

(iii) Whether, for an "eligible assessee" assessed through the draft order/DRP mechanism, the outer limitation for passing the final assessment order is governed by section 153 (including the extension under section 153(4) where a transfer pricing reference is made), or whether section 144C(13) operates as the sole limitation overriding section 153.

(iv) Consequence of the final assessment orders being passed beyond the applicable statutory limitation period.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Admission of additional legal grounds on limitation

Legal framework (as discussed by the Court): The Court considered the scope of its appellate powers under section 254 and the mechanism for urging additional grounds under Rule 11 of the ITAT Rules. It treated the governing principle as permitting consideration of a question of law arising from facts already on record and having a bearing on tax liability, subject to opportunity of hearing to the other side.

Interpretation and reasoning: The Court rejected the objection that additional grounds could be admitted only in narrowly defined situations. It held that the relevant Supreme Court principles relied upon are enabling, not restrictive: the appellate forum is not to be prevented from considering questions of law arising in assessment proceedings when the necessary facts are already on record. On Rule 11, the Court noted that leave can be granted and the only procedural safeguard is sufficient opportunity of hearing to the affected party, which was provided.

Conclusion: The additional grounds challenging the final assessment orders as barred by limitation were admitted as purely legal grounds arising from the existing record and bearing directly on tax liability.

Issue (ii): Applicability of Covid-19 limitation extension to time-limit for passing assessment orders

Legal framework (as applied by the Court): The Court evaluated the argument that Supreme Court orders extending limitation periods during Covid-19 extended the time available to the tax authority to pass assessment orders.

Interpretation and reasoning: Following an earlier co-ordinate bench decision on an identical contention, the Court held that the Covid-19 extension related to limitation for judicial/quasi-judicial filings (such as appeals and similar proceedings) and did not extend the statutory deadline for completion of assessments by tax authorities beyond the time prescribed under the Income-tax Act (including any statutory/notification-based extensions considered relevant there). Therefore, the revenue's reliance on the Covid-19 extension to save an otherwise time-barred final assessment was rejected.

Conclusion: The Supreme Court's Covid-19 limitation extension did not enlarge the Assessing Officer's statutory time-limit for passing the final assessment orders.

Issue (iii): Whether section 153 governs the outer limitation despite section 144C(13)

Legal framework (as discussed by the Court): The Court examined the interaction between section 153(1) (time limit for completion of assessment) read with section 153(4) (extension by 12 months upon a reference to the Transfer Pricing Officer), and section 144C(13) (requirement to pass the final order within one month from the end of the month of receipt of DRP directions, "notwithstanding" section 153).

Interpretation and reasoning: The Court rejected the revenue's contention that section 144C is a complete code that excludes section 153 for limitation. Relying on consistent reasoning adopted in earlier Tribunal orders (which in turn applied High Court reasoning), the Court held that sections 144C and 153 are not mutually exclusive; section 153 fixes the outer statutory boundary for completion of assessment, while section 144C(13) imposes an additional procedural requirement to pass the final order promptly after DRP directions, without enlarging the outer time-limit. The non-obstante clause in section 144C(13) was treated as operating for the limited purpose of ensuring the final order is passed within the prescribed one-month window after DRP directions, even if a larger balance time remains under section 153, and not as removing the section 153 outer cap.

Conclusion: The outer limitation for passing the final assessment order is governed by section 153(1) read with section 153(4) (where applicable), and section 144C(13) does not extend or replace that outer limitation.

Issue (iv): Effect of passing final assessment orders beyond limitation

Interpretation and reasoning: Applying the above limitation principle, the Court noted that the relevant last dates for completion under section 153(1) read with section 153(4) stood undisputed on record for the concerned assessment years, and the final assessment orders were passed after those dates. Since the statutory time-limit had expired, the Assessing Officer lacked authority to pass the final assessment orders.

Conclusion: The final assessment orders were held to be barred by limitation and were quashed. As the appeals were disposed of on this legal ground, the other grounds on transfer pricing/merits were kept open; the Court also permitted revival for adjudication on merits if a future Supreme Court decision on the limitation issue necessitates modification of the order.

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