R.A.K. Ceramics India Private Limited Vs DCIT (ITAT Hyderabad)
Section 144C can’t override 153: TP final order for AY 2018-19 quashed as time-barred by ITAT Hyderabad
The appeal before the Income Tax Appellate Tribunal, Hyderabad Bench, concerned Assessment Year 2018–19 and raised a purely legal issue relating to limitation for passing the final assessment order in a transfer pricing case governed by the Dispute Resolution Panel (DRP) mechanism. The material facts were undisputed.
For the relevant assessment year, the last date for passing the final assessment order, if computed under section 153(1) read with section 153(4) of the Income-tax Act, was 30 September 2021. The Assessing Officer (AO), however, passed the final assessment order on 20 July 2022. The draft assessment order under section 143(3) read with section 144C(1) was issued on 25 September 2021, and the DRP issued its directions under section 144C(5) on 6 June 2022. The central controversy before the Tribunal was whether the applicable limitation was 30 September 2021 under section 153, or 31 July 2022, being one month from the end of the month in which the DRP directions were issued, as per section 144C(13).
The Tribunal noted that an identical issue had already been examined in detail by the same Bench in an earlier case, where it was held that section 153 governs the outer time limit for completing an assessment, even in cases involving transfer pricing and the DRP procedure. Section 144C(13), according to that decision, does not extend or enlarge the limitation period prescribed under section 153 but merely prescribes a restricted window within which the AO must pass the final order after receiving DRP directions.
Relying extensively on judicial precedents, the Tribunal referred to the decisions of the Madras High Court and the Bombay High Court, which had examined the interplay between sections 144C and 153. These courts held that the two provisions are not mutually exclusive but mutually inclusive. Section 144C lays down a special procedure and internal timelines for draft orders, objections, and DRP directions, whereas section 153 prescribes the statutory outer limit for completion of assessment. The non-obstante clause in section 144C(13) was held to have a limited purpose: it ensures that once DRP directions are received, the AO must pass the final order expeditiously within one month, but it does not override or nullify the limitation prescribed under section 153.
The Tribunal emphasized that even in cases involving references to the Transfer Pricing Officer under section 92CA, the extension granted under section 153(4) merely enlarges the outer time limit by twelve months and does not permit the AO to go beyond that period. The entire chain of proceedings—draft order, filing of objections, DRP directions, and final order—must be completed within the statutory time frame under section 153. Passing a draft assessment order within limitation does not save a final order that is passed after the expiry of the prescribed period.
Applying these principles to the facts of the present case, the Tribunal held that the limitation for passing the final assessment order expired on 30 September 2021. Since the final order was passed on 20 July 2022, it was clearly beyond the statutory time limit and therefore barred by limitation. Consequently, the final assessment order was liable to be quashed.
The Tribunal also noted that the issue regarding the interaction between sections 144C and 153 was pending consideration before a Larger Bench of the Supreme Court due to divergent views expressed earlier. In line with judicial discipline and to safeguard the interests of both parties, the Tribunal allowed liberty to revive the appeal if the eventual decision of the Supreme Court necessitated modification of its order. The appeal was disposed of on this legal issue alone, and all other issues on merits were kept open.
In the result, the appeal was allowed on the ground of limitation, and the final assessment order was quashed as time-barred.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
