Final Assessment Made By AO After Expiry Of One Month Of Receiving Directions From Dispute Resolution Panel, Is Time Barred: Chennai ITAT

The Chennai ITAT recently held that the final assessment order dated Nov 21, 2017 passed after expiry of one month from the end of the month in which the DRP directions were received by the Revenue is barred by limitation and hence, “passed wholly without jurisdiction and therefore, null in the eyes of law”. Section 144C(13) of Income tax Act mandates the completion of the assessment within one month from the end of the month in which DRP directions are received. Rule 11 of the Dispute Resolution Panel Rules requires communication of directions to the assessee and the Assessing Officer. The Division Bench comprising Aby T. Varkey (Judicial Member) and Jagadish (Accountant Member) observed that “as per Section 144C(13), Revenue had to complete the final assessment without providing any further opportunity of being heard to the Assessee within one month from the end of the month in which such directions are received and hence, the last date to pass final assessment order, in the present case, is Oct 31, 2017”. The Bench therefore held that the final assessment order having been passed on Nov 21, 2017 is barred by limitation. As per the brief facts of the case, the Assessee is a company engaged in the business of providing audio, video, web conference to its customers. During the AY 2013-14, the Assessee had entered into international transactions with its Associated Enterprise (AE) and accordingly, a reference was made to the TPO to determine the ALP. Pursuant thereto, the TPO made a downward adjustment in respect of the international transactions. Subsequently, AO passed the draft assessment order making addition in respect of adjustment made by TPO to the value of international transactions. The Assessee filed objections before the DRP which were rejected. The DRP's directions were received by the AO on Sept 18, 2017 and Revenue issued notice dated Sept 21, 2017 requiring Assessee to furnish details in respect of a particular claim which was remanded by the DRP to the file of AO to verify the same. The AO then passed the final assessment order on Nov 21, 2017 u/s 143(3) r.w.s. 144C(1) r.w.s 92CA. The Bench rejected the Revenue's contention that DRP had given directions to verify a particular claim and as the directions were binding on the Revenue, it issued notice to Assessee to furnish details regarding the said claim and as the Assessee did not respond to the said notice, one more notice was issued in Nov 2017. The Bench observed that Section 144C(8) precludes DRP from setting aside any variation or issue any direction for further enquiry and passing of the assessment order and that DRP is empowered under Sections 144C(6) and (7), to make enquiry as it thinks fit. Relying upon the Bombay High Court judgment in Vodafone Idea wherein the High Court noting the reason for insertion of Section 144C held that if provisions of Section144C were not strictly adhered, the entire object of providing for an alternate redressal mechanism stood defeated, the Bench pointed out that any verification, had to be conducted within the time line given in Section 144C(13). The Bench clarified that “Once the statute has prescribed a limitation period for passing the final order, it is expected that the internal procedure of the Department should mould itself to give meaning to and act in aid of the provision…the failure on the part of Department to follow the procedure under section 144C of the Act is not merely a procedural irregularity, but is an illegality and vitiates the entire proceeding”. The ITAT therefore allowed Assessee's appeal and concluded that the assessment order passed beyond the time limit specified u/s 144C(13) was barred by limitation. Counsel for Taxpayer: Soumen Adhak Counsel for Department: A. Sasikumar Case Title: Conferencecall Services India Pvt. Ltd Vs Dy. Commissioner of Income Tax Case Number: ITA No.319/Chny/2018 Click here to read/download the Order

Final Assessment Made By AO After Expiry Of One Month Of Receiving Directions From Dispute Resolution Panel, Is Time Barred: Chennai ITAT

Pankaj Bajpai

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