2025 (12) TMI 1433 - HC - Income Tax

Transfer pricing adjustment after DRP directions: s144C(13) deadline applies; delayed effect order void, income recomputed

Section 144C(13) mandates that the AO give effect to DRP directions within the statutorily prescribed timeline; this time limit applies even where the ... Transfer pricing addition - proceedings to give effect to the DRP’s directions as barred by limitation - HELD THAT:- Directions passed by the DRP on 19th March, 2020, also include the direction to the 1st Respondent that the 1st Respondent shall give effect to the directions of the DRP as per the provisions of Section 144(C)(13) of the Act. The scheme of the Section clearly provides that the AO is bound by the directions and he has to complete the Assessment within the timelines provided by the Section. The reason for imposing a strict timeline in the Section is that the AO must follow the directions issued by the DRP, which are provided for his guidance in completing the Assessment. 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 ignore the mandatory nature of the provisions of 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 said section. Proceedings pending before the 1st Respondent concerning the transfer pricing addition of Rs. 10,54,04,393.00 are barred by limitation and now outside the purview of Section 144(C)(13) of the Act. The 1st Respondents cannot now invoke the provisions of Section 144(C)(13) of the Act and complete the assessment because the time frame mandated by the Section has already expired. It is accordingly so declared. Consequently, the transfer pricing adjustment is treated as non est and it is ordered accordingly. The 1st Respondent is ordered and directed to recompute the Petitioner’s total income for the A.Y. 2012-2013 by excluding the transfer pricing adjustment. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the time-limit prescribed by Section 144C(13) for completing the assessment in conformity with directions issued under Section 144C(5) is mandatory and applies even where such directions are issued in remand/second-round proceedings. (ii) If Section 144C(13) applies and the Assessing Officer does not complete the assessment within the stipulated time, whether the pending proceedings to give effect to the DRP's directions become barred by limitation, resulting in the transfer pricing adjustment being treated as non est, with consequential recomputation and refund with statutory interest. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Applicability and mandatory nature of Section 144C(13), including in remand/second-round DRP directions Legal framework (as discussed by the Court): The Court examined the scheme of Section 144C, including: (a) the draft assessment mechanism under Section 144C(1); (b) the assessee's option to file objections under Section 144C(2); (c) issuance of directions by the DRP under Section 144C(5); and (d) completion of assessment by the Assessing Officer under Section 144C(13). The Court reproduced and applied Section 144C(13), which requires that upon receipt of DRP directions under Section 144C(5), the Assessing Officer 'shall' complete the assessment 'in conformity with the directions' within one month from the end of the month in which such directions are received, and contains a non obstante clause overriding Sections 153 and 153B. The Court also noted Section 144C(10), under which DRP directions are binding on the Assessing Officer. Interpretation and reasoning: The Court held that the language of Section 144C(13) is clear, unambiguous, and mandatory. The use of 'shall' imposes a compulsory obligation to complete the assessment within the prescribed one-month period, and the non obstante clause restricts the Assessing Officer from relying on any more expansive timelines otherwise available. The Court rejected the Revenue's contention that Section 144C(13) timelines do not apply to remand/second-round DRP directions, reasoning that the statute makes no distinction between ordinary cases and remand cases; accepting the Revenue's argument would render the mandate of Section 144C(13) redundant. The Court emphasized that where a statute prescribes a manner and timeline for doing an act, it must be done in that manner and within that timeline, without deviation or waiver. Conclusions: Section 144C(13) applies to directions issued under Section 144C(5) even when issued in remand/second-round proceedings, and its timeline is mandatory; the Revenue's contrary submission was expressly rejected. Issue (ii): Consequence of failure to complete assessment within Section 144C(13) timeline-limitation, 'non est' transfer pricing adjustment, and consequential refund Legal framework (as discussed by the Court): Proceeding on the admitted position that DRP directions in the second round were issued and received by the Assessing Officer, the Court focused on the consequence flowing from non-compliance with Section 144C(13)'s one-month completion requirement. The Court also relied on the binding nature of DRP directions under Section 144C(10), and noted that the DRP's directions themselves required the Assessing Officer to give effect 'as per provisions of section 144C(13)'. The Court confined itself to Section 144C(13) and expressly kept open broader arguments regarding the interaction of Sections 144C and 153. Interpretation and reasoning: Given the strict statutory mandate, the Court held that the Assessing Officer could not, after expiry of the statutory period, invoke Section 144C(13) to complete the assessment in conformity with the DRP's directions. Since the required action was not taken within the prescribed time despite repeated reminders, the Court concluded that the proceedings to give effect to the DRP directions relating to the transfer pricing addition had become time-barred and were outside the purview of Section 144C(13). On that basis, the Court treated the transfer pricing adjustment as having no legal existence. Conclusions: The proceedings to give effect to the DRP's directions concerning the transfer pricing adjustment were declared barred by limitation; consequently, the transfer pricing adjustment was treated as non est. The Court directed recomputation of total income by excluding the transfer pricing adjustment and ordered payment of the resulting refund together with statutory interest under Section 244A, if any, within six weeks from uploading of the order.