Final Assessment Ignoring DRP Directions Held Void; No Post-Limitation Cure Permissible

Spectro Analytical Labs Private Limited Vs AU Income Tax Department (ITAT Delhi)

The assessee challenged the final assessment order for AY 2021-22 on the ground that it was passed without giving effect to the binding directions of the Dispute Resolution Panel (DRP). Although the DRP had issued directions granting partial relief, the Assessing Officer passed the final order on 28.10.2024 merely repeating the draft assessment because the Transfer Pricing Officer had not yet passed an order giving effect to the DRP directions.

The Tribunal held that section 144C creates a mandatory and time-bound sequence: once DRP directions are issued, the final assessment must strictly conform to those directions. An order not in conformity with DRP directions is contrary to the statute and therefore void. Importantly, since even till the date of hearing the TPO had not passed any order to implement the DRP’s directions, the defect was continuing and could not be cured later.

Rejecting the Revenue’s plea to remand the matter for fresh compliance, the Tribunal ruled that such a remand would effectively extend the statutory time limit under section 144C(13), which neither the Assessing Officer nor the Tribunal is empowered to do. Following the Delhi High Court decision in ESPN Star Sports Mauritius and the coordinate bench ruling in Global One India Pvt. Ltd., it was held that a non-conforming final order is not a procedural irregularity but a jurisdictional defect rendering the assessment null and void. Later rectification or future compliance by the TPO/AO cannot revive a time-barred or void order.

Accordingly, the impugned final assessment order was quashed in entirety on this legal ground, and all issues on merits were left open as academic. The assessee’s appeal was thus allowed on the jurisdictional issue.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal is filed by the assessee against the order for the A.Y. 2021-22.

2. The Ld. Counsel for the assessee at the outset referring to ground No. 1 and 2 of grounds of appeal submitted that the impugned final assessment order dated 28.10.2024 is invalid null and void as the same was passed not in conformity with the directions issued by the Ld. DRP. The Ld. Counsel for the assessee submitted that provision of section 144C prescribes strict timelines for completion of assessment and there is no scope of curative action after that time lapses.

3. The Ld. Counsel for the assessee submits that the assessee is into business of material testing, inspection and certification services. It offered a complete range of testing services all under one roof for endless list of products and materials in the fields of chemical biological, mechanical, non-destructive, electrical and electronics. It is submitted that during AY 2021-22, the assessee had entered into the following international transactions with its Associated Enterprises (AEs)

Assessee’s Transfer Pricing Study (TPS) benchmarked the above international transactions. TPS concluded that above international transactions were at arm’s length.

4. It is submitted that vide order dated 31.10.2023 under section 92CA, Transfer Pricing Officer (TPO) proposed a cumulative upward adjustment of ₹1,12.97,371/- to arm’s length price of above transaction resulting in increase of returned income of Assessee and a draft assessment order dated 28.12.2023 was passed under section 144C(1), inter-alia, making transfer pricing addition as determined by Ld. TPO.

5. It is submitted that being an eligible assessee as defined under section 144C, Assessee filed detailed objections before Ld. DRP. Directions came to be issued by Ld. DRP on 30.09.2024. It is submitted that without prejudice to other contentions and grounds of appeal, it would show that Ld. DRP granted relief to Assessee. On the other objections where relief was not granted by Ld. DRP, Assessee has raised grounds of appeal on merits before the Hon’ble Tribunal.

6. Ld. Counsel for the Assessee submitted that post receipt of Ld. DRP’s directions, assessment was completed by order dated 28.10.2024 under section 143(3) read with section 144C(3) read with section 144 and attention is invited to paras 6 and 7 of the final assessment order at pg. 24. Ld. Counsel submitted that it is unambiguously accepted therein, that the additions made to returned income/loss is as per draft assessment order and that Ld. TPO’s order giving effect to DRP directions is not received.

7. Ld. Counsel referring to section 144C(13), which also prescribes statutory time limit for completion of assessment submitted that it is well settled that even Hon’ble Courts cannot extend statutorily prescribed time limit and in present case time limit for completion of assessment has lapsed long back. The fact that impugned final assessment order is not in conformity with directions of DRP cannot be disputed.

8. Ld. Counsel submitted that though plain reading of section 144C itself makes it obvious that the impugned final order is invalid, null and void being not in conformity with express provisions of the Act and further that time for any corrective actions, if possible in law, has also lapsed, Appellant requests consideration of decision of coordinate bench of Hon’ble Tribunal in Global One India (P.) Ltd. vs DCIT, [2020] 182 ITD 355 (Delhi-Trib.). Ld. Counsel submitted that facts of Assessee are identical to the issue which was present before the coordinate Bench of this Hon’ble Tribunal in Global One (supra), in that case also as transfer pricing officer had failed to pass order giving effect to DRP directions within permissible timeline provided under section 144C(13), assessing officer had proceeded to pass final assessment order. Transfer pricing officer had later passed his order giving effect to DRP’s directions, which were incorporated by assessing officer by passing a rectified order u/s.154 of the Act.

9. Ld. Counsel submitted that the Hon’ble Tribunal at para 11 of its order held that since the final assessment order passed was not in conformity with the directions of DRP, same was in violation of mandatory process codified under the Act. Therefore, final assessment order was held to be null and void.

Hon’ble Tribunal further held that subsequent rectification would have no bearing on invalidity of final assessment order, otherwise the assessment becomes time barred, the Assessing Officer has followed the statutory provisions of Section 143(3) thereby passing assessment order. But as per the binding section 144C(10) of the Act, the mandatory provision was not followed by the Assessing Officer, thereby it is binding on the Assessing Officer to follow the directions of the DRP. Therefore, the assessment becomes null and void. As regards rectification, there is no mistake committed on part of Assessing Officer, in fact Assessing Officer was very well aware that the DRP has given certain directions so it could not be termed that there is a mistake apparent on record. When the Assessing Officer has deliberately chosen not to follow a binding provisions u/s.144C of the Act while passing the final assessment order, the Assessment Order, itself becomes null and void. The case laws referred by the Ld. AR are categorically highlighting the same position of law. The submissions of the Ld. DR that after passing assessment order, the Transfer Pricing Officer has given final effect to the DRP direction and thereafter the Assessing Officer u/s 154 has rectified the original assessment order well within time thereby deleting the entire Transfer Pricing adjustment, does not hold the test of legal sanctity as per the provisions of Section 144C(10) of the Act. Thus, assessment order itself was quashed by the Tribunal.

10. Ld. Counsel further submitted that assessee in the present case even better placed since till this day, TPO has not passed any order giving effect to ld. DRP’s directions dated 20.09.2024. Consequently, impugned final Order continues to be NOT in conformity with DRP’s directions.

11. Reliance is further placed on Hon’ble High Court of Karnataka’s judgment in the case of PCIT vs. Flextronics Technologies (India) (P) Ltd. [2023] 459 ITR 493 (Karnataka) wherein Hon’ble High Court upheld the order of Hon’ble Tribunal quashing final assessment order which was not passed in conformity of DRP’s directions. There also, similar to the case of assessee, assessing officer had not received order giving effect by transfer pricing officer within time and had proceeded to pass the final assessment order.

12. Thus, the impugned order deserves to be quashed being null and void and pass in violation of mandatory provisions of section 144C of the Act.

13. On the other hand the Ld. DR placing reliance on the following decisions submitted that failure on the part of the AO to incorporate direction given by the DRP in the final assessment order is not a fatal error for which the assessment order could be quashed. The Ld. DR submitted that instead of such orders have to be set aside to the AO to incorporate the directions of the DRP. The reliance has been placed on the following decisions :-

1. The Hon’ble High Court of Delhi in the case of Fiberhome India Pvt. Ltd. vs. national E-Assessment Centre, Additional /Joint /Deputy /Assistant commissioner of Income Tax, [2022] 136 taxmann.com260(Delhi).

2. The Hon’ble High Court of Delhi in the case of SRF Ltd. Vs. National Faceless Assessment Centre, Delhi [2021] 129 com174 (Delhi).

3. The Hon’ble High Court of Delhi in the case of Anand NVH Products (P.) Ltd. vs. National e-Assessment Centre Delhi. [2021] 130 com257(Delhi)

4. The Hon’ble ITAT, Delhi in the case of Hitachi Astemo Haryana (P.) Ltd. Vs. Deputy Commissioner of Income Tax [2024] 158 com25 (Delhi-Trib.)

5. The Hon’ble ITAT Delhi’s order dated 19.09.2024 in the case of Honda R & D India Pvt. Ltd. vs. DCIT Circle 11(1) New Delhi ITA No.3756/Del/2015 for A.Y. 2010-11

6. The Hon’ble ITAT Delhi’s recent order dated 19.09.2024 in the case of Jubilant Foodworks Ltd. vs. ACIT, Circle 5 (1)(1) Gautam Budh Nagar, Noida

14. In reply the Ld. Counsel for the assessee submitted that during the course of oral hearing, it was the submission of Ld. DR that non-compliance with DRP directions in Impugned Order is merely a procedural defect and the appropriate course of action would be to remand the case to the file of AO/TPO for passing necessary orders in conformity with DRP’s directions.

15. Ld. Counsel submitted that the above submissions of Ld. DR are against settled principles of law which hold that an order of assessment which is contrary to mandatory provisions of section 144C is without jurisdiction, null, void and unenforceable. Reliance in this regard is placed on the judgment of Hon’ble Delhi High Court in ESPN Star Sports Mauritius S.N.C. ET Compagnie vs Union of India, (2016) 388 (TR383 (Delhi) – Paras 30-31 and Zuari Cements vs ACIT, Circle 2(1), Tirupathi, WP 5557 of 2012.

16. Ld. Counsel submitted that similar prayer of the Department was also rejected by Hon’ble Tribunal in Flextronics Technologies (India) Pvt. Ltd. vs ACIT, IT(TP)A No. 832/BANG/2017 dated 31.12.2018 at Para 10 of its order which was subsequently upheld by Hon’ble Karnataka High Court in [2023] 459 ITR 493. Further, such request of the Department has been rejected by Hon’ble Courts in the following cases:

a. Mis Software Paradigms Infotech Pvt. Ltd. vs ACIT, IT(TP)A No. 150/BANG/2014-Paras 3.2 to 5

b. M/s Olympus Medical Systems Pvt. Ltd. vs ACIT, ITA No. 873/DEL/2021-Paras 12 to 15

c. M/s. July Systems & Technologies Pvt. Ltd. vs DCIT, IT(TP)A No. 358/Bang/2016-Paras 14 to 17

d. Uber India Research and Development Pvt. Ltd. vs DCIT, ITA-TP No. 106/HYD/2022 – Paras 5 to 9

17. Ld. Counsel further submitted that if the Ld. DR’s request is accepted then, not only will it be against the above line of judicial precedents but shall also be amounting to this Hon’ble Tribunal doing indirectly that which cannot be done directly viz., extension of statutorily prescribed time under section 144C(13) of the Act. Moreover, as coordinate Bench of this Hon’ble Tribunal noted in Global one (supra) when assessing officer has knowingly/ consciously not passed order in conformity with DRP directions, same cannot qualify as mistake apparent from record amenable to rectification.

18. It is also submitted by Ld. Counsel that Ld. DR, during the course of his oral submissions, has relied upon the coordinate Bench order in the case of Jubilant Foodworks Ltd. vs ACIT, ITA No. 2310/DEL/2022, wherein Hon’ble Tribunal has accepted the Department’s prayer for remand by relying on Hon’ble Delhi High Court’s judgment in SRF vs NFAC, Delhi, [2021] 129 taxmann.com174 (Del.) and Anand NVH Products Ltd. vs NE Assessment Centre, Delhi, WP(C) 7936/2021. Ld. Counsel for assessee submitted that Jubilant Foodworks (supra) does not lay down the correct law. Firstly, it fails to distinguish any of the judicial precedents relied upon by the assessee counsel, as mentioned in para 7 of said order. Further, judgments in the case of SRF (supra) and Anand NVH (supra) have been rendered in relation to a distinctly different issue/ facts. The issue before Hon’ble Delhi High Court in both of these cases as well as in Fiberhome India (P.) Ltd. v. Assessment Centre, (2022) 444 ITR 237 (Delhi) relied upon by Ld. DR, was about passage of final assessment order while the objections of assessee were pending before DRP. Without overly emphasizing on the fact that the above judgments were rendered in context of circumstances which existed during COVID-19 pandemic, it is submitted that Hon’ble High Court allowed assessing officer a second opportunity to pass final assessment order in conformity with DRP directions, solely as the limitation for doing the same was still running and had not expired. This is not the situation in the case of the present Assessee, as limitation for passing final assessment order in conformity with DRP’s directions has already expired. Ld. Counsel for the Assessee reiterated that transfer pricing order giving effect to DRP directions has not been passed till date.

19. It is submitted that Hon’ble Tribunal in Jubilant Foodworks (supra) relied upon order passed in Honda R&D Pvt. Ltd. vs DCIT, ITA No.376/Del/2015. It is submitted that Honda R&D (supra) was challenged before Hon’ble Delhi High Court in ITA 33/2025. The appeal is admitted by Hon’ble High Court vide order dated 04.03.2025 and Hon’ble Tribunal order and any pursuant proceedings have also been stayed by Hon’ble High Court.

20. Lastly it is submitted that in case relief is allowed as per Ground Nos. 1 and 2 raised by Assessee, the other grounds raised in appeal become academic and in the unlikely event of this Hon’ble Tribunal deciding Grounds 1 and 2 against the Appellant, it is respectfully prayed once again that Appellant may kindly be allowed opportunity to make oral and written submissions on grounds of appeal relating to merits of the matter.

21. Heard rival submissions, perused the orders of the authorities below and the submissions made before us. We find considerable merit in the submissions of the Ld. Counsel for the assessee that the final assessment order passed by the AO u/s.143(3) r.w.s. 144C(3) r.w.s 144B of the Act dated 28.10.2024 without incorporating the directions of the DRP is bad in law and null and void for the reason that even as on today the TPO did not carry out any exercise and pass any order as directed by the DRP. Since the TPO did not pass any order as per the directions of the DRP till date, the Tribunal cannot extend the time limit for passing any such order by setting aside the order of the AO for incorporating any such order to be passed by the TPO in future. Therefore, respectfully following the decision of the Hon’ble Jurisdictional High Court in the case of ESPN Star Sports Mauritius S.N. C. E. T. Compagnie V. Union of India (388 ITR 383) and the decision of the coordinate Bench in the case of Global One India Private Limited Vs. DCIT (182 ITD 355) we hold that the final assessment order passed by the AO u/s.143(3) r.w.s. 144C(3) r.w.s. 144B dated 28.10.2024 which was passed without incorporating the direction of the DRP is bad in law, null and void. Accordingly the same is hereby quashed. The case laws relied on by the Ld. DR are distinguishable on facts and, therefore, they are not applicable to the fact situation of the present assessee. Ground No.1 and 2 of grounds of appeal of the assessee are allowed.

22. Since we have quashed the final assessment order on legal issue all other grounds raised by the assessee on merits need not be gone into at this stage as they become only academic in nature and the same are left open.

23. In the result, the appeal of the assessee is partly allowed as indicated above.

Order pronounced in the open court on 28.01.2026.