The Madras High Court recently observed that the period of limitation under the Sections 153 (2A) or 153 (3) was applicable even for remad proceedings before the Assessing Officer, Transfer Pricing Officer or the Dispute Resolution Panel. The entire proceedings had to be conducted within a period of 9 months as contemplated under Section 144C (12) of the Income Tax Act.
The bench of Justice R Mahadevan and Justice Sathya Narayana Prasad further observed that in matters of transfer pricing, when the matter was remanded to the DRP, the Assessing Officer had to pass a denova draft and complete the entire proceedings within 12 months as otherwise the very purpose of extension would become meaningless.
The court also observed that the outer time limit of 33 months provided under Section 153 would apply to the final order and nit the draft order. therefore, the entire proceedings had eto be completed within the prescribed time. The non-obstante clause would not exclude the operation of Section 153 as a whole but only implies that the irrespective of availability of larger time, the final order had to be passed within one month.
The court also held that in cases where a period of limitation was not prescribed, the orders had to be passed within a reasonable time and not beyond 3 years.
Background
The Revenue is the appellant(s) in the appeals. The respondent in these writ appeals M/s. Roca Bathroom Products Private Limited is a private limited company incorporated during August 1983 and a subsidiary of Roca Sanitario S.A., Spain and are engaged in the business of manufacturing and marketing bathroom products. For the assessment year 2009-2010, they filed their return declaring an income of Rs.21,44,96,661/-. Similarly, for the assessment year 2010-2011, they filed their return declaring an income of Rs.50,75,32,362/-. The returns of income were taken up for scrutiny and were referred to Transfer Pricing Officer (in short, "TPO") under Section 92CA of The Income Tax Act, 1961.
The TPO passed orders which were confirmed by the Assessing Officer in his draft assessment order. Though objections were raised with the Dispute Resolution Panel (DRP), the same was rejected and directions were issued under section 144C. Based on the same, the second appellant passed the final assessment order and raised a demand under section 156.
Assailing the assessment orders relating to the assessment years 2009-2010 and 2010-2011, the respondent approached the Income Tax Appellate Tribunal by filing appeals. By a common order dated 18.12.2015, the Tribunal allowed the appeals by setting aside the orders of the assessing officer and remanding the matter to the assessing officer to refer the same to the DRP for fresh examination, after giving sufficient opportunity to the assessee
According to the respondent, they did not receive any notice, pursuant to the orders of the Tribunal and therefore, they sent a letter dated 21.08.2019 to the second appellant stating that the remand proceedings have become time-barred under Section 153 of the Act and hence, requested for refund of the tax already paid by them for the assessment years 2009-2010 and 2010-2011 along with interest. Thereafter, they received separate notices dated 06.01.2020 from the DRP calling upon them to appear for enquiry on 10.01.2020.
The respondents stated that as per the orders of the Tribunal, the assessing officer ought to have passed the draft assessment orders afresh, within the time limit prescribed under section 153 of the Act, but he failed to do so, and hence, the notices dated 06.01.2020 were issued by the first appellant are barred by limitation.They filed Writ Petitions to quash the notices dated 06.01.2020 and consequently, direct the second appellant to refund the tax amount along with interest under section 244A of the Act and also restraining the appellants from proceeding further in relation to the assessment years 2009-10 and 2010-11.
Opposing the reliefs, the appellants contended that the writ petition was filed under a misconception that the proceedings initiated by the department are barred by limitation in respect of the assessment year 2009-2010. It is well settled that the challenge made to show cause notice is not maintainable inasmuch as it is only a proposal to initiate action and it has not finally determined the rights and liabilities of the parties to the writ. The respondent/assessee ought to have submitted their objections to the show cause notice and it is for the appellants to decide as to whether the proceedings are barred by limitation or not. Therefore, it was submitted that the writ petitions have been filed hastily and the reliefs sought for need not be granted.
It was also submitted that the Assessing Officer was directed by the DRP to re-examine the issues and therefore, the provisions of Section 153 of the Act would not be applicable to the present case, inasmuch as the DRP is not an authority within the purview of Section 153 of the Act. Further, as per Section 2 (7A) of the Act, the DRP is not an assessing officer and Section 144C (15) of the Act clarifies that the DRP is a collegium comprising of three Principal Commissioners or Commissioner constituted by the Board for the resolution of the disputes.
The Single Judge, on examining the rival submissions, held that The entire proceedings are vitiated by reason of delay since the Assessing Officer had not taken up the proceeding within a reasonable time after the order of remand was passed by the Tribunal.
The appellants submitted that the limitation prescribed under Section 153 of the Act applies only to a draft assessment order and not the final assessment order passed under Section 144C and that is the reason why the draft assessment orders are passed within a period of 33 months from the expiry of the relevant assessment year. They further contended that wherever assessment proceedings were dependent on extraneous data or extraneous proceedings like grant of interim stay of operation of initiation of the assessment proceedings or where accounts are to be audited, reference will be made to Valuation Officer.
Section 153 is specifically silent with respect to the limitation in respect of cases pending before DRP and this clearly shows that the legislature has consciously refrained from providing for limitation under Section 153 of the Act. Thus, the Single Judge had erred in concluding that Section 144C (13) imposes a restriction on the Assessing Officer to pass the final order within the time limit available under Section 153 of the Act.
To butress their argument that the period of limitation was applicable even to remand proceedings, the respondent relied on the decision of Delhi High Court in
Nokia India Private Limited v. DCIT [(2018) 407 ITR 20]. They further submitted that even assuming that the law does not specify any period of limitation, as per settled law, the authority was expected to discharge their duty and conclude the proceedings within a reasonable time. In the present case, there was an inordinate delay in passing the final order which has caused acute prejudice to the respondent. The respondents also highlighted that the DRP is a specialised body tasked with the matters of transfer pricing. The order of DRP was to ensure that a quickest remedial measures would be arrived at by the expert body, but not to conduct its proceedings in a leisurely manner without any set of limitation.
The court agreed with the submission of the respondents and observed that the the DRP proceedings is a continuation of assessment proceedings. Therefore, once the objections are filed under section 144C (12) a period of 9 months is prescribed, within which, directions are to be issued by the DRP, failing which any directions are to be treated as otiose.
The court further observed that the exclusion of applicability of Section 153 or Section 153 B is for a limited purpose to ensure that dehors larger time is available and an order based on the directions of the DRP has to be passed within 30 days from the end of the month of receipt of such directions.The timeline provided under the statute has to be strictly followed.
The court was of the opinion that even applying the principle of reasonable time, drawing a clue from Article 113 of the Limitation Act, the residual entry, it would be reasonable to conclude that action is to be concluded within 3 years.
Case Title: The Commissioner of Income Tax and Anr v. M/s. Roca Bathroom Products Private Limited
Case No: W.A No. 1517 of 2021
Citation: 2022 LiveLaw (Mad) 252
Counsel for the Appellant: Mrs. Hema Muralikrishnan Senior Panel Counsel and Mr. Prabhu Mukunth Arunkumar
Counsel for the Respondent: Mr.R.V. Eshwar, Senior Counsel for Mr. R. Sandeep Bagmar, Mr. Kamal Sawhney, Senior Counsel for Mr. Arun Karthick Mohan
