ITAT Quashes Assessment as Final Order Was Passed Beyond Section 144C(13) Time Limit

Achampet Solar Private Ltd. Vs ITO (ITAT Delhi)

The appeal challenged the final assessment order dated 22-02-2022 passed under Section 143(3) read with Section 144C of the Income Tax Act following the directions of the Dispute Resolution Panel (DRP) dated 14-12-2021. The assessee originally raised grounds against the transfer pricing adjustment relating to management fees of Rs. 1,03,95,878, the rejection of its transfer pricing study, application of the Comparable Uncontrolled Price (CUP) method, capitalization of the management fee, and retention of an adjustment relating to loan repayment despite the Transfer Pricing Officer’s consequential order.

During the proceedings before the Tribunal, the assessee filed an application under Rule 11 of the Income Tax (Appellate Tribunal) Rules, 1963, seeking admission of additional legal grounds. It contended that the final assessment order was barred by limitation under Section 144C(13) and that the assessment order had also been passed in non-conformity with the binding directions of the DRP. The assessee relied upon judicial precedents, including decisions of the Supreme Court, to submit that the Tribunal has the power to admit additional legal grounds where they arise from facts already on record and are necessary for correctly determining the tax liability. The Tribunal admitted the additional grounds.

The assessee had filed its return of income on 30-11-2017, declaring total income of Rs. 2,25,110. The case was selected for scrutiny because of international transactions. After examining the transfer pricing report in Form 3CEB, the matter was referred to the Transfer Pricing Officer (TPO) under Section 92CA. The TPO proposed transfer pricing adjustments of Rs. 1,03,95,878 towards management fees and Rs. 1,72,00,000 towards loan repayment. The DRP, by its order dated 14-12-2021, confirmed the TPO’s findings and directed the Assessing Officer (AO) to incorporate them. Acting on these directions, the AO passed the final assessment order on 22-02-2022, making additions aggregating Rs. 2,75,95,878, following which the assessee filed the appeal before the Tribunal.

The principal legal issue before the Tribunal concerned the limitation prescribed under Section 144C(13). The assessee argued that the DRP’s directions had been received by the AO on 14-12-2021, requiring the AO to complete the assessment within one month from the end of that month, i.e., by 31-01-2022. Since the final assessment order was passed only on 22-02-2022, it was contended that the assessment was barred by limitation and liable to be quashed. The assessee relied upon the decision of the Delhi High Court in PCIT v. Fiberhome India (P.) Ltd., along with other judicial precedents, in support of this contention.

To substantiate the date of receipt of the DRP directions, the assessee produced information obtained under the Right to Information Act, 2005. In response to the RTI application, the Income Tax Officer confirmed that, according to the ITBA module, the DRP directions had been received on 14-12-2021. The reply also stated that this fact had been incorporated in the assessment order dated 22-02-2022.

The Revenue relied upon the assessment order and submitted that it had been passed in accordance with the DRP’s directions. However, after considering the material on record, the Tribunal found that the DRP had issued its directions on 14-12-2021, and the Assessing Officer had received them on the same day through the ITBA module. The Tribunal observed that the final assessment order was passed only on 22-02-2022, after the expiry of the mandatory period prescribed under Section 144C(13). It held that the statutory requirement of completing the assessment within one month had not been complied with and, therefore, the assessment order was time-barred and liable to be set aside.

Following the judicial precedents cited before it, the Tribunal allowed the additional legal ground relating to limitation and set aside the assessment. Since the appeal was decided on this legal issue, the Tribunal held that the remaining grounds concerning the transfer pricing adjustments had become academic and left them open for adjudication. Accordingly, the appeal of the assessee was allowed.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal by the assessee is directed against final assessment order dated 22-02-2022 passed under section 143(3) r.w.s. 144C of the Income Tax Act (hereinafter referred “the Act”) in the pursuance of the DRP directions under section 144C(5) of the Act dated 14-12-2021.

2. The assessee has raised the following grounds in appeal:

1. The Learned (Ld.) assessing Officer (AO) /Ld. Dispute Resolution Panel (DRP) are erroneous in law and on the facts of the case.

2. The Ld. DRP/AO is not justified in making an adjustment of Rs.1,03,95,878/- in respect of management fees.

3. The Ld. DRP/AO erred in disregarding the transfer pricing study report and the information documents and clarification provided by the assessee to evidence the arm’s length nature of management fees.

4. The Ld. TPO erred by applying CUP Method as the Most Appropriate Method and there by determining the ALP for the international transaction as Nil.

5. Without prejudice to the above the Ld. DRP/AO failed to appreciate the fact that the management fee of INR Rs.1,03,95,878/- was noy debited to the P&L Account as the same was capitalized during the year under consideration.

6. The Ld. AO erred in totally ignoring the order passed by Ld. TPO giving effect to directions of Ld. DRP wherein the adjustment of Rs. 1,72,00,000/- had been deleted and wrongly retained the adjustment in the Final Assessment order.

7. Any other ground that may be urged at the time of hearing with the prior approval of the Hon’ble Tribunal.

3. An application has been moved by the assessee to raise the additional ground of appeal under rule 11 of the Income Tax (appellate Tribunal) Rules 1963 and stated that the final assessment order dated 22-02-2022 passed by the Ld. AO u/s 143(3) read with section 144C(13) is barred by the time limitation. He further stated that tribunal has power to admit any additional grounds. Reliance is placed on the following decisions of the Hon’ble Supreme Court.

(i) Jute Corporation of India Ltd. Vs. CIT[1990]53 taxman 85.

(ii) CIT vs. Nellippan [1967] ITR722(SC)

(iii)CIT vs. Jai Parabolic Springs Ltd. [2008] ITR42(Delhi)

In the case of national Thermal Power Co. Ltd. Vs. CIT[1998]229 ITR 383 (SC) the Hon’ble Apex Court held as under

“The view that the Tribunal is confined only to issue arising out of the appeal before the Commissioner of Income Tax (Appeals) takes too narrow view of the powers of the Appellate Tribunal. Undoubtedly, the Tribunal will have the discretion to allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.

4. We have heard the parties and perused the material available on record. In the view of the above cited judgments the additional grounds raised by the assessee are admitted, which are under:

“8. On the facts and circumstances of the case & law, the final assessment order under section 143(3) r.w.s. 144(13) of the Income Tax- Act, 19961 (The Act) dated 22 February 2022 is barred by the time limitation provided under section 144C(13) of the Act and hence, deserves to be held as void -ab-initio, bad in law and time barred.

9. On the facts and circumstances of the case & law, the final assessment order dated 22 February 2022 having been made in non-conformity with the specific binding mandates and directions passed by the Ld. DRP dated 14 December 2021 in gross violation of provisions of section 144C(13) of the Act.; is erroneous without jurisdiction and deserves to be held null and void-ab-initio.”

5. The brief facts of the case are that the assessee company filed its return of income on 30-11-2017 declaring total income of Rs.2,25,110/-. The case of the assessee was selected for scrutiny under CASS for the following reasons; International transaction. Statutory notices were issued to the assessee. During the assessment year under consideration the assessee entered into international transactions as envisaged in section 92B of the Act. After considering the auditor’s report in Form 3CEB it was felt that case be transferred to the Transfer Pricing Officer (TPO) for determining Arm’s Length Price under section 92CA (1) of the Act. The Ld. TPO passed the order after considering the reply filed by the assessee and directed the AO to make the addition of Rs. 1,03,95,878/- as adjustment on account of Management Fees and RS. 1,72,00,000/- an adjustment on account of Loan repaid. Against the direction of the Ld. TPO the assessee filed the appeal before the DRP who by order dated 14-12-2021 confirmed the order of the Ld. TPO and directed the AO to incorporate the findings of the Panel. In the compliance of the Hon’ble DRP direction the Assessing Officer framed the Assessment order on 22-02-2022 after making the addition of Rs. 2,75,95,878/-. Aggrieved, by the action of the AO the assessee preferred this appeal before the tribunal.

6. The ld. AR of the assessee raised the legal ground no 8 and submitted that the assessment order dated 22-02-2022 passed by the Ld. AO under section 143(3) r.w.s. 144C (13) of the Act is time barred. He submitted that as per the provisions of section 144C(13) of the Act the Ld. AO should passed the assessment order till 31-01-2022 from the receiving the direction of the Hon’ble DRP, which was received on 14-12-­2021. Reliance is placed on the decision of Hon’ble Jurisdictional High Court in case of PCIT v. Fiberhome India (P.) Ltd [2024] 159 taxmann.com 772(Delhi). The written submission for the assessee as under:

BEFORE THE HON’BLE INCOME TAX APPELLATE TRIBUNAL, NEW DELHI
BENCH ‘H’

In the matter of:
M/s Achampet Solar Private Limited (Appellant)
Assessment Year (AY): 2017-18
ITA No.: 834/Del/2022

Brief Synopsis – Additional Ground No. 8 (On Period of Limitation)

1. The instant appeal emanates from the final assessment order dated 22 February 2022 (at Pg. 4 of appeal set) passed under Section 143(3) r.w.s. 144C of the Income-tax Act, 1961 (“the Act”) in pursuance of the DRP directions under Section 144C(5) of the Act dated 14 December 2021 (at Pg. 15 of appeal set).

2. At the outset, it is respectfully submitted that the said final assessment order dated 22 February 2022 is barred by limitation under Section 144C(13) of the Act as the same has been passed after the mandatory timeline of one month from the end of the month in which the DRP directions were received (being contested by the Appellant vide Additional Ground No. 8).

This fact has duly been admitted by the Department/Ld. AO in its recent response to the RTI application dated 16 July 2025 (copy enclosed as Exhibit-1), wherein the Ld. AO responded that the DRP directions were received on 14 December 2021. The relevant extracts are reproduced below:

4. The Appellant, hence, at the very outset, is praying for admission of the aforesaid additional ground raised vide its separate application dated 11 September 2025 and its detailed contentions in respect of the aforesaid ground are provided as follows for your Honour’s kind consideration:

5. Additional Ground No. 8: Final assessment order dt. 22 February 2022 being time barred under Section 144C(13) of the Act:

5.1. It is humbly reiterated that the final assessment order dated 22 February 2022 (at Pg. 4 of appeal set) passed by the Ld. AO under Section 143(3) r.w.s. 144C(13) of the Act is barred by limitation, being passed beyond a period of one month from the end of the month in which the DRP directions were received, as stipulated under Section 144C(13) of the Act.

5.2. In this regard, the relevant provisions of Section 144C(13) of the Act read as follows:

“Reference to dispute resolution panel.

144C. (1)…

(13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153 or section 153B, the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received.”

5.3. Hence, the Ld. AO was required to complete the assessment in accordance with the aforesaid provision of Section 144C(13) of the Act within one month from the end of the month in which the DRP directions were received.

5.4. The relevant sequence of events is summarized hereunder for the sake of ready reference:

6. Therefore, based on the aforesaid sequence of events/dates (as also confirmed and admitted by the Ld. AO in response to the RTI application), it is evident beyond any iota of doubt that the final assessment order has been framed in the instant case on 22 February 2022, which is beyond the mandatory time limitation of 31 January 2022. Hence, the same is barred by limitation and liable to be quashed.

7. Reliance in this regard is placed on the decision of the Hon’ble jurisdictional High Court in PCIT v. Fiberhome India (P.) Ltd. [2024] 159 taxmann.com 772 (Delhi), wherein, on an identical fact pattern, the Hon’ble Delhi High Court upheld the quashing of the final assessment order passed beyond the statutory timeline provided under Section 144C(13) of the Act. The relevant extracts from the decision are reproduced as follows:

“1. The appellant seeks to question the validity of the order of the Income Tax Appellate Tribunal (“ITAT”) dated 13 March 2023. The ITAT has essentially upheld the view taken by the Authority below, i.e., the Dispute Resolution Panel (“DRP”), which found that the assessment made in terms of Section 144C of the Income-tax Act, 1961 (“Act”) would fall foul of the statutory limitation period as prescribed therein.

2. Undisputedly, the DRP had framed its directions in terms of the order dated 16 December 2021. A final order of assessment ultimately came to be framed on 26 March 2022 and thus evidently beyond the 30-day period as prescribed.

3. We note that an identical question has been answered by us in [W.P.(C) 15381 of 2022, dated 30-1-2024], titled as “Louis Dreyfus Company India (P.) Ltd. v. Dy. CIT [2024] 159 taxmann.com 244 (Delhi)“ in favour of the assessee/petitioner. While dealing with this question, we had observed as follows:

“14. The determination which the AO makes in the first instance is recognized to be a draft of the proposed order of assessment by virtue of Section 144C(1) of the Act. If the assessee is aggrieved by the proposed order of assessment, it is entitled to file objections before the DRP in accordance with Section 144C(2) of the Act. The power of the AO to complete the assessment on the basis of the draft order stands interdicted in case objections have come to be preferred within the 30-day period as contemplated in Section 144C(2) of the Act. It is the DRP which thereafter proceeds to decide the objections and frame directions to enable the AO to complete the assessment in accordance with Section 144C(5) of the Act.

15. In terms of sub-section (13) of Section 144C of the Act, the AO is mandated to complete the assessment “in conformity with the directions” as framed by the DRP. That very provision commands the AO to complete the assessment within one month from the end of the month in which such a direction is received.

16. This is evident from Section 144C of the Act which is extracted hereinbelow:-

** ** **

17. As is manifest from a reading of sub-section (13) of section 144C of the Act, the AO is not accorded any discretion in the framing of an order of assessment once directions have come to be framed by the DRP. In fact, the provision requires the AO to frame an order of assessment in conformity with those directions and without providing any further opportunity of hearing to the assessee. This principle of law has been affirmed by the Bombay High Court in the aforenoted paragraphs of Vodafone Idea and in Shell India Markets Private Limited v. Additional Commissioner of Income Tax Officer, National Faceless Assessment Centre & Ors. The relevant paragraph of the decision in Shell India is extracted hereinbelow:

“10. Sub-section (13) of section 144C, therefore, is very clear inasmuch as the Assessing Officer shall, upon receipt of the directions issued under sub-section (5), in conformity with the directions, complete the assessment within one month from the end of the month in which such direction is received. Sub-section (13) also provides that the Assessing Officer can complete the assessment without providing any further opportunity of being heard to the assessee. This means that the moment the Assessing Officer receives the directions under sub-section (5), he has to straightaway complete the assessment and he does not even have to hear the assessee. The Assessing Officer shall simply comply with the directions received from the DRP within one month from the end of the month in which such direction is received.”

18. In this backdrop, we note that both the judgments of the Bombay High Court in Shell India and Vodafone Idea construe the timelines as provided in Section 144C to be mandatory in character. In our considered opinion, this interpretation is in accord with the intent behind insertion of that provision and the bare text and spirit of that section. Thus, we accord our approval to the interpretation as set out in the aforenoted decisions of the Bombay High Court.

19. Further, the procedure of assessment as provided under Section 144C does not envisage or contemplate the interdiction or involvement of the TPO once a directive has been framed by the DRP. The role of the TPO comes to an end once an order as contemplated under Section 92CA(4) of the Act has come to be framed and remitted to the AO. There was thus no occasion for the TPO having resumed proceedings post the passing of the direction by the DRP on 20 June 2022.

20. Undisputedly, the directive of the DRP came to be uploaded on the ITBA portal on 24 June 2022. It is additionally stated to have been dispatched through Speed Post to the third respondent (TPO) and the fourth respondent (Additional/Joint/Deputy/Assistant Commissioner of Income Tax, National Faceless Assessment Centre, New Delhi) on 27 June 2022. It is thereafter that the TPO appears to have passed the order dated 25 July 2022.

22. It is thus manifest that as per the provisions of E-Assessment Scheme, 2019, all orders, notices and decisions have to be necessarily uploaded on the ITBA portal and as part of the larger faceless assessment regime which now holds the field. The uploading of the directive of the DRP on the ITBA portal would thus constitute valid and sufficient service and the period of limitation as prescribed in Section 144C(13) of the Act would be liable to be computed bearing that crucial date in mind. Once the aforesaid position becomes clear, it is evident that the order of assessment, if at all could have been framed lastly by 31 July 2022. There has thus been an abject failure on the part of the first respondent to comply with the mandatory timelines as incorporated in the aforenoted provisions. Accordingly, the writ petition is liable to be allowed and the impugned order of assessment and the consequential penalty proceedings are thus liable to be set aside on this short score alone.

4. We, consequently, find no merit in the instant appeal and the same shall stand dismissed.

8. Reliance is also placed on the decision of the jurisdictional High Court in case of Louis Dreyfus Company India (P.) Ltd. (supra) as reproduced hereinabove and followed by the Hon’ble Delhi High Court in the case of Fiberhome India (P.) Ltd. (supra).

Further, reliance is also placed on the following decisions:

a) Microsoft Corporation (India) P. Ltd. v. DCIT, ITA No. 1862/DEL/2022 (Delhi – Trib.)

b) Rolls Royce India Pvt. Ltd. v. DCIT, ITA No. 252/Del/2022 (Delhi – Trib.)

c)Adidas India Marketing Private Limited v. ACIT [ITA No. 940/Del/2023] (Delhi – Trib.)

d) Hyundai Rotem Company Indian Project offices v. ACIT, International Taxation [2024] 169 taxmann.com 367 (Delhi – Trib.)

e)Honda R & D (India) (P.) Ltd. v. ACIT, [2024] 163 taxmann.com 147 (Delhi – Trib.)

f)Lubrizol Advanced Materials India (P.) Ltd. v. Assessment Unit, Mumbai ITAT, [2023] 156 taxmann.com 243 (Mumbai – Trib.)

10. Thus, in view of the above mentioned judicial pronouncements and facts and circumstances of the case, the final assessment order dated 22 February 2022 passed by the Ld. AO beyond a period of one month as prescribed under section 144C(13) of the Act is barred by limitation and liable to be quashed.

Prayer:

In view of the above, it is most humbly prayed that appropriate relief may kindly be allowed to the Appellant by the Hon’ble Bench.

For Achampet Solar Private Limited

(Authorized Signatory)

7. The information received by the assessee under RTI ACT 2005 is reproduced as under:

Office of the Income Tax Officer, Ward 1(1)
Room No. 199K, Central Revenue Building, I.P. Estate, New Delhi – 110002
Phone: 011-23708169
E-mail ID: delhi.ito1.1@incometax.gov.in

F. No. ITO/Ward-1(1)/RTI

Dated: 16.07.2025

1. Name & Address of the Applicant

Shri Arunprasadh Mohan
13th Floor, Baashyaam Pinnacle, Crest, 146, Rajiv Gandhi Salai,
Sholinganallur, Kancheepuram, Tamil Nadu – 600119

For Achampet Solar Private Limited

2. Date of Receipt: 05.06.2025

3. Date of Order: 16.07.2025

Order under Section 7(1) r.w.s. 11 of the Right to Information Act, 2005

An RTI application of Shri Arunprasadh Mohan dated 27.05.2025 bearing Registration No. CCACH/R/T/25/00156 was received from Income Tax Officer (Hqrs)(Coord), O/o Pr. CCIT, Tamil Nadu, Nodal Officer under RTI Act through e-mail on 05.06.2025. The applicant has sought the following information which is reproduced as under:

The RTI application is disposed of accordingly. In case the applicant is not satisfied with the reply/information given above, an appeal may be preferred before the First Appellate Authority within the prescribed time limit under the Right to Information Act, 2005 at the following address:

The First Appellate Authority

O/o The Addl. Commissioner of Income Tax, Range-1,
Room No. 368, C.R. Building, I.P. Estate,
New Delhi.

Yours Sincerely,

(Dhirendra)
Income Tax Officer,
Ward 1(1), New Delhi.

Copy to:

1. The Addl. Commissioner of Income Tax, Range-1, Room No. 368, C.R. Building, I.P. Estate, New Delhi, for kind information.

Income Tax Officer
Ward 1(1), New Delhi

8. The Ld. DR has relied upon the order of the Assessing Officer and submitted that order was passed as per the direction of the Hon’ble DRP. We have heard the parties and perused the material available on record. In this case the DRP issued the direction on 14-12-2021 which was received to the Ld. AO on the same day on the ITBA module. The Ld. Officer passed the final assessment order as per the direction of the Hon’ble DRP on 22-02-2022 which was passed after one month and mandatory requirement of the one month was not followed by the Ld. Assessing officer. Thus, the final assessment order is time barred and liable to be set-a-side.

9. Respectfully following the judicial pronouncements cited above we allowed the legal ground no 8 raised by the assessee and set-aside the assessment. Since we have decided the legal ground in favour of the assessee, the other grounds have become academic and keep them open for adjudication.

10. In the result the appeal of the assessee is allowed.

Order pronounced in the open court on 17.4.2026.