Section 144C was inserted by the Finance Act, 2009 w.e.f. from 01 April 2009. Section 144C(1) provides that on or after 01 October 2009 the AO shall issue draft assessment order in case of eligible assessee. The taxpayer can file objections before the DRP against the proposed draft order within 30 days from receipt of draft assessment order.
Section 144C(3) provides that the AO Officer shall complete the assessment on the basis of the draft order, if no objections are received within 30 days from receipt of draft assessment order by the Assessee. As per section 144C(4), such order shall be passed with one month from the end of the month in which the period of filing of objections expires.
Under Section144C(5), the DRP can issue such directions, as it thinks fit, for the guidance of the AO to enable him to complete the assessment. Under Section144C(8), DRP may confirm, reduce or enhance the variations proposed in the draft order.
However, section 144C or the Income Tax (Dispute Resolution Panel) Rules do not deal with a situation where there is delay in filing the objections by the assessee. No specific power has been given to the DRP to condone the delay in filing the objections.
In this context, the issue has arose before the Court as to whether the DRP can condone the delay in filing the objections. Also, the Courts had to deal with the validly of the final assessment order passed by the AO, post the directions of the DRP, wherein the DRP held that objections filed are not valid due to delay. The issue before the courts was whether such final assessment orders are barred by limitation, since time limit under section 144C(4) had lapsed.
These decisions are discussed below.
Inno Estates Private Limited v DRP-2 (2018) 96 taxmann.com 646 (Madras HC)
For AY 2012-13, assessee’s international transactions of payment of interest on Compulsory Convertible Debentures (CCD) at 15% and received loan/advance in USD from IIROF 4 Artemis Ltd, Cypress (AE) were referred to TPO. The TPO held that CCD could not be called debt and ALP of interest rate on CCD could not be determined only by adopting Prime Lending Rate (PLR) of Indian Banks. The TPO held that comparables from external database should be adopted for benchmarking. The TPO adopted the relevant LIBOR rates with risk premium of 2% to benchmark interest transaction and made TP-adjustment. The AO passed the draft assessment order.
The Assessee filed Objections before DRP. However, the objections were filed 1 day after the expiry of the 30 day time limit. The DRP held that section 144C did not empower the Dispute Resolution Panel to condone the delay in filing objections by an assessee. Thus, objections of the Assessee were dismissed. No directions were given on merits. Thereafter, AO passed the final assessment order incorporating the TP-adjustment.
The assessee filed a writ petition before Madras HC (Single Bench), which was dismissed and directed assessee to its alternative remedy of appeal before CIT(A). Aggrieved, assessee filed an appeal before HC (Division Bench).
Though HC (Single Judge) order dismissing assessee’s writ was challenged in its entirety, before HC (Division Bench) assessee contended that an appeal would not lie to the First Appellate Authority u/s 246(1)(a) but to the ITAT under the provisions of Section 253(1)(d) of the 1961 Act. Accordingly, HC observed that the question before it was whether the impugned final assessment order was an order in pursuance of DRP directions.
The HC observed that the DRP has no power and/or authority and/or jurisdiction to condone the delay in filing the objection and observed that “When an objection is filed before the Dispute Resolution Panel beyond the stipulated time of thirty days from the date of receipt of the order, there is no objection before the Dispute Resolution Panel in the eye of law.” The HC held that “An order of rejection of an objection on the ground of the same being barred by limitation is not a direction under sub-section 5 read with sub-section 6 to Section 144C of the 1961 Act” and therefore appeal lies before CIT(A).
TDK Electronics AG (Formerly known as EPCOS AG) v ACIT [TS-154-ITAT-2020(PUN)-TP]
The assessee, is a non-resident company having its head office in Germany. During AY 2015-16, assessee filed return of income declaring total income and reported certain international transactions. Thereafter, on reference, the TPO passed the Order and AO passed a draft order dated 21.12.2018. The draft order was served on the assessee on 24.12.2018.
The Assessee filed objections in Form No. 35A before the DRP on 24.01.2019. There was delay of one day. The DRP dismissed assessee’s objection in limine as time barred vide its direction dated 27.09.2019. Thereafter, AO passed the final assessment order on 24.10.2019 u/s.144C(13) r.w.s.143(3) determining the total income and tax thereon. Aggrieved, assessee filed an appeal before the ITAT.
The ITAT observed that draft order was received by the assessee on 24.12.2018 and time limit to file Objections expired on 23.01.2019. Thus, there was delay of one day in filing objections. The ITAT noted that Sec.144C(2) of the Act provides a period of 30 days for filing of objections before the DRP. The ITAT observed that “Unlike certain other provisions empowering the respective competent authorities/forums to condone the delay, no empowerment has been endowed upon the DRP to condone the delay and accept Form No. 35A beyond the prescribed period of 30 day.”
The ITAT held that “One needs to appreciate that either the power to condone the delay exists or does not exist. It cannot be a hybrid situation in the sense of conferring a bridled power of condoning the delay in favour of the competent authority/forum so that the delay may be condoned if it is up to a specific length of time.” The ITAT further observed that “If such a hypothetical delay of one year is allowed to be condoned, the DRP will run out of time to issue direction under sub-section (5) within a period of nine months from the end of the month in which the draft order is forwarded to the eligible assessee in terms of section 144C(12) of the Act.” Accordingly, ITAT finally held that “It is in view of such inter-weaving of the time limits that the legislature did not confer any power on the DRP to condone the delay in accepting the objections from the assessee beyond the prescribed period. The sequitur is that in the absence of any express provision, non-condonation of delay by the DRP in the facts of the extant case has to be held as perfectly justified.”
Post the above observations, the ITAT adverted to another facet of the case. The ITAT observes that once it is held that filing of objections by assessee beyond the period of thirty days is barred by limitation and hence inconsequential, it must also meet the resultant effects as well.
The ITAT observed that if an assessee does not file objections against the draft order before the DRP within a period of thirty days as per section 144C(2), the AO, without waiting for anything else, will have to complete the assessment within one month from the end of the month in which the period for filing of objections under section 144C(2) expires.
The ITAT held that “Once the objections filed by the assessee are time barred, the natural corollary is that no valid objections were filed by the assessee. One cannot contemplate a situation that the objections are invalid for the DRP so as not to issue any direction u/s 144C(5) and valid for the AO so as to pass order u/s 144C(13) of the Act.” The ITAT held that “If the objections are invalid as time barred having not been filed within the time prescribed under sub-section (2) of section 1444C, the AO will have to act in terms of Section 144C(3)(b) and complete the assessment within the time prescribed u/s 144C(4)(b) of the Act, namely, within one month from the end of the month in which the period of filing of objections under sub-section (2) expires.”
In context of the given case, the ITAT noted that the period of 30 days for filing objections within Sec.144C(2) expired on 23.01.2019 and AO was supposed to complete the assessment on the basis of the draft order by February, 2019. However, the AO completed the assessment u/s. 144C(13) on 24.10.2019. The ITAT held that Order is beyond the limitation period is ultra vires and hence cannot stand. Accordingly, ITAT allowed assessee’s appeal by stating that “We declare the assessment order to be time barred and ex consequenti null and void, with the effect that the returned income will automatically get accepted as finally assessed income.”
The decision of Pune ITAT was followed in Yokogawa India Limited v ACIT [TS-124-ITAT-2021(Bang)-TP].
Lam Research (India) Private Limited v ACIT [TS-431-ITAT-2021(Bang)-TP]
The assessee is engaged in providing computer development services and ITeS for its AEs on a cost plus mark up basis. During AY 2012-13, on reference, the TPO made TP adjustment. Accordingly, the AO passed a draft assessment order on 23.02.2016. The assessee filed objections dated 30.03.2016 before the DRP. There was delay of 3 days. The DRP rejected the objections of the assessee in limine by stating that the DRP does not have power to condone the delay in filing the objections by the assessee before the Panel. Pursuant to the DRP’s rejection of objections, final assessment order was passed on 30.09.2016. Aggrieved, assessee filed an appeal before the ITAT.
Before the ITAT, the assessee raised additional grounds with two contentions, namely, (i) the DRP erred in dismissing the objections of the assessee in limine without condoning the delay of 3 days in filing the objections before the Panel; (ii) the assessment order dated 30.09.2016 was barred by limitation as mandated u/s.144C(2) r.w.s.144C(4).
The ITAT relied on the Madras HC decision in the case of Inno Estates (P.) Ltd (supra).
The ITAT noted that the DRP derives its authorities and powers from the provisions of Sec.144C and its procedures are governed by Income Tax (Dispute Resolution Panel) Rules, 2009. The provisions of the Act or Rule do not give power to the DRP to condone any delay in filing the objections by the assessee before the Panel. The ITAT held that the DRP does not have powers to condone the delay of filing objections by the assessee before the Panel. Reliance was placed on
With respect to contention that the final assessment order dated 30.09.2016 as barred by limitation, the ITAT noted that the DRP had not given any direction on merits and had rather rejected the objections in limine for the reason that the same was time barred. The ITAT observed that the DRP had only rejected the objections on the grounds of limitation and not issued any directions to the AO as contemplated u/s.144C(5). Accordingly, ITAT held that the final assessment order dated 30.09.2016 was hence not pursuant to the direction of DRP and thus “the correct course open for the assessee would have been to file an appeal before the CIT(A) and pursue the said issue.”
The ITAT distinguished the assessee’s reliance on coordinate bench ruling in Yokogawa India Ltd [TS-124-ITAT-2021(Bang)-TP] on the ground that the coordinate bench therein had not considered the judgment of Hon’ble Madras HC mentioned above.
Astra Specialty Compounds India Pvt Ltd [TS-509-ITAT-2023(Ahd)-TP] – TheAhmedabad ITAT quashed assessment order passed by AO being barred by limitation in case of assessee engaged in manufacturing of master-batch and additive systems and other allied items for AY 2018-19. The ITAT noted that pursuant to belated objections filed by assessee before DRP, assessee challenged that the assessment order passed by AO was beyond the time limit prescribed under the provisions of law. ITAT observed that the time limit for filing the objection by assessee before DRP expired on 29th October, 2021 and thus AO was required to frame assessment u/s.143(3) r.w.s.144C within 1 month from the time period when time period to file objections u/s.144C(2) expires i.e. 30th November, 2021. However, noting that assessment order has been passed on 18th July, 2022. Therefore, the ITAT quashed the same being barred by limitation.
Comments
Section 144C of the Act does not give power to the DRP to condone the delay in filing of objections before the Panel. Even a small delay, therefore, has led to dismissal of Objections. As can be seen from above decisions, all Courts have taken a view that the DRP does not have power to condone the delay. However, in some cases the Tribunal has held that subsequent final assessment order is barred by limitation. The Madras High Court directed the assessee to approach the CIT(A). From the facts, even in that case ultimately the final assessment order is barred by limitation. Same is the case of Lam Research (supra). Ultimately, the loss is of the Revenue, in turn, of the Country. The action of the DRP in taking a strict view that delay cannot be condoned has done more harm to the Revenue. It is a self-goal. Therefore, it is necessary that provisions be amended and DRP be given power to condone delay for reasonable time in appropriate cases.