2026 (3) TMI 1193 - HC - Income Tax

Section 144C(13) time limit renders draft assessment notices unenforceable if final assessment is not passed within the prescribed period.

Section 144C(13) requires the assessing officer to pass a final assessment conforming to Dispute Resolution Panel directions within one month from the end ... Absence of a final assessment order passed within the period prescribed u/s 144C(13) - Mandatory time limit u/s 144C(13) - draft assessment order not creating enforceable demand - Mandatory time limit u/s 144C(13) - draft assessment order not creating enforceable demand - technical/administrative glitches to extend statutory limitation - Effect of failure to pass final assessment order within the time prescribed by Section 144C(13) and validity of demand issued with a draft order - HELD THAT: - The Court held that Section 144C(13) mandates completion of the assessment in conformity with the Dispute Resolution Panel's directions within one month from the end of the month in which those directions are received, and that this requirement is imperative and operates notwithstanding Section 153 or Section 153B. Because the directions were received in September 2021, the Assessing Officer was required to pass the final order by October 31, 2021; no such order was passed. Consequently the authority became functus officio on expiry of the statutory period and lost jurisdiction to complete the assessment. A draft assessment order and the notice of demand issued with it do not create an enforceable tax liability absent a valid final assessment; internal technical or administrative difficulties in the department cannot extend the statutory limitation or cure the absence of a valid final order. The Court applied these principles to hold that the demand and penalty notices relating to AY 2017-18 had no legal foundation and that the return must be treated as accepted. [Paras 6, 11, 12, 14] Failure to pass the final assessment within the period prescribed by Section 144C(13) rendered the Assessing Officer without jurisdiction; the draft order and the notice of demand issued with it were without legal basis and unenforceable. Final Conclusion: The writ petition is allowed - Notice of demand and penalty notice for AY 2017-18 are quashed, the amount adjusted against an earlier refund is to be refunded with applicable interest, and the respondents are restrained from enforcing the impugned demand. Issues: Whether a notice of demand issued along with a draft assessment order under the procedure of Section 144C can be enforced where no final assessment order has been passed by the Assessing Officer within the time prescribed under Section 144C(13) of the Income-tax Act, 1961.Analysis: The petition raises a single substantive question concerning the operation of Section 144C(13) which mandates completion of the assessment in conformity with the Dispute Resolution Panel's directions within one month from the end of the month in which the directions are received. The factual matrix shows that directions of the Dispute Resolution Panel were received in September 2021 and therefore the Assessing Officer was statutorily required to pass the final assessment on or before October 31, 2021. No final assessment was passed within that period. The statutory prescription in Section 144C(13) operates notwithstanding Sections 153 and 153B, and is intended to be mandatory to ensure expeditious completion of assessments following DRP directions. Authoritative precedents have held that failure to complete assessment within the period under Section 144C(13) results in lapse of jurisdiction and that internal administrative difficulties or technical glitches in departmental systems cannot extend a statutory limitation. The respondents' explanation that ITBA technical errors prevented passing the final order does not furnish a statutory basis for extending the period prescribed by Section 144C(13). As the final assessment was not completed within the prescribed time, the draft order did not crystallize any enforceable tax liability and the notice of demand issued with the draft order lacked legal foundation.Conclusion: The demand notice dated March 16, 2021 issued along with the draft assessment order and the penalty notice under Section 274 read with Section 270A are quashed and set aside; the petition is allowed and the decision is in favour of the assessee.