2026 (2) TMI 214 - HC - Income Tax

Reference to Transfer Pricing Officer held time barred; TPO order and draft assessment treated as without jurisdiction.

Validity of a reference to the Transfer Pricing Officer under the transfer pricing provisions was determined by applying the limitation regime: the ... Validity of order passed u/s 92CA(1) as barred by limitation - statutory period of limitation u/s 153(2) r/w 153(4) and Section 92CA(1) - difference between approval and reference - When was the reference to the Transfer Pricing Officer (TPO) made pursuant to Section 148 notice dated 24.02.2020? - Whether the reference to the 1st Respondent Transfer Pricing Officer (TPO) can be said to be time barred in view of the limitation u/s 153(2)? HELD THAT:- In view of the proviso to Section 153(2) of the Income Tax Act, 1961, where a notice u/s 148 is served on or after 01.04.2019, the period available for completion of assessment stands extended to twelve months i.e. till 31.03.2020. In the present case, the notice u/s 148 was served on 24.02.2020. Therefore, the limitation for completing the assessment would have expired ordinarily on 31.03.2021, it being twelve months contemplated under the proviso to Section 153(2) of the Income Tax Act, 1961. If the reference was made before the expiry of last date under Section 152(2) of the Income Tax Act, 1961 period for completing the Assessment gets extended by another 12 months in terms of Section 153(4) of the Income Tax Act,1961. The screenshot available along with the typed set of papers also indicates that a proposal was made by the AO / 2nd Respondent to PCIT/CIT for reference to Transfer Pricing Officer (TPO) on 08.02.2021 and approval was granted by the Commissioner of Income Tax (CIT) on 10.02.2021. Reference was made by the AO / 2nd Respondent to the DC/ACIT TPO -1 Hyderabad only on 11.01.2022. It was later transmitted to the Deputy Commissioner of Income Tax / 1st Respondent on 13.01.2022. A notice was issued on 13.01.2022 to the petitioner u/s 92CA(2) of the Income Tax Act, 1961 to produce the documents. In response to the notice the petitioner has raised the preliminary objection vide letter dated 18.01.2022. The aforesaid preliminary objection was disposed of vide letter dated 21.01.2022 of the by the 1st Respondent. After approval was granted to the 2nd Respondent Assessing Officer to make a reference to Transfer Pricing Officer (TPO) by the Principal Commissioner of Income Tax. On 10.02.2021, a reference should have been made under Section 92CA (1) of the Income Tax Act, 1961 on or before 31.03.2021 i.e. within the time prescribed for completing an Assessment u/s 153(2) of the Income Tax Act, 1961. Last date to pass Assessment Order would have ordinarily expired on 31.03.2021. However, during this period the country was still under the lock down due to outbreak of COVID-19 pandemic. Thus the last date for passing the Assessment Order would have expired on 30.06.2021, due to TOLA ordinance/ TOLA, 2020. The impugned order itself records that a reference under Section 92CA(1) of the Income Tax Act, 1961 in the case of the petitioner was received from the DC/ACIT TPO -1 Hyderabad only on 13.01.2022 and that as per the order sheet details available on ITBA portal, the DC/ACIT TPO -1 Hyderabad had received the case from AO-Technical Unit on 11.01.2022 and the case was referred for determination of the Arm’s Length Price (ALP) in respect of all the transactions reported in Form No.3CEB filed by the petitioner for the Assessment Year 2017-2018. Thus, the impugned order of the Transfer Pricing Officer (TPO) passed under Section 92CA(3) of the Income Tax Act,1961 on 27.01.2022 after issuing a show cause notice to the petitioner on 25.01.2022, pursuant to which the draft assessment order has been passed on 28.02.2022, is without Jurisdiction. Since the reference was not made within the period of limitation under Section 153(2) of the Income Tax Act, 1961, it is without jurisdiction. Issues: Whether the reference to the Transfer Pricing Officer under Section 92CA(1) was made within the period of limitation such that the order passed under Section 92CA(3) is valid, and whether the impugned TPO order dated 27.01.2022 is liable to be quashed for being founded on a time-barred reference.Analysis: The Court examined the timelines under Sections 148 and 153 of the Income-tax Act, 1961 and the effect of a reference under Section 92CA(1) on the limitation for completion of assessment. For a notice under Section 148 dated 24.02.2020 the ordinary limitation to complete reassessment fell within the period specified by Section 153(2) and the applicable proviso; a valid extension under Section 153(4) to add twelve months is available only if a reference under Section 92CA(1) is actually made during the course of the assessment proceedings before expiry of the original limitation. The material on record (ITBA entries and order sheets) showed that although approval for reference was accorded on 10.02.2021, the reference was transmitted to the TPO only on 11.01.2022 and received on 13.01.2022, after the relevant limitation had expired; pandemic-related statutory/notification extensions were considered but did not cure the fact that the reference itself was not made within the permissible period. An order passed by the TPO pursuant to a reference made beyond the statutory period is without jurisdiction and vitiates consequential proceedings.Conclusion: The reference under Section 92CA(1) was not made within the period of limitation required by Section 153(2); the TPO order dated 27.01.2022 under Section 92CA(3) is without jurisdiction and is quashed. The writ petition is allowed.Final Conclusion: The impugned TPO order dated 27.01.2022 (and any consequential proceedings) is set aside for want of a valid reference; the petitioner succeeds on the limitation and jurisdictional ground.Ratio Decidendi: A reference under Section 92CA(1) must be made during the course of assessment before expiry of the limitation under Section 153(2); only a reference actually made within that period can invoke the extension under Section 153(4), and a TPO order based on a reference made after that period is without jurisdiction.