Section153 Of The Income Tax Act Applies To Remand Under The Limitation Period: MADRAS HC

The Madras High Court ruled that the statute of limitations under Sections 153 (2A) or 153 (3) applies to remand proceedings before the Assessing Officer, Transfer Pricing Officer, or Dispute Resolution Panel. In accordance with Section 144C (12) of the Income Tax Act, all proceedings were required to be completed within nine months.

The bench of Justice R Mahadevan and Justice Sathya Narayana Prasad noted further that in matters of transfer pricing, when the matter was remanded to the DRP, the Assessing Officer was required to pass a denova draught and complete the entire proceedings within 12 months; otherwise, the purpose of the extension would be defeated.

The court also noted that Section 153's maximum time limit of 33 months would apply to the final order and not the draught order. Therefore, all proceedings had to be concluded within the allotted time frame. The non-obstante clause would not preclude the operation of Section 153 as a whole, but would imply that the final order must be issued within one month, regardless of the availability of additional time.

In cases where no statute of limitations was applicable, the court ruled that orders had to be issued within a reasonable timeframe and within three years.

In the appeals, the Revenue is the appellant. M/s. Roca Bathroom Products Private Limited, the respondent in these writ appeals, is a private limited company incorporated in August 1983 that is a subsidiary of Roca Sanitario S.A., Spain, and is in the business of manufacturing and marketing bathroom products. For the assessment year 2009-2010, they declared a total income of Rs. 21,44,96,661 in their tax return. Similarly, they filed a return for the assessment year 2010-2011 in which they reported a total income of Rs. 50,75,32,362. In accordance with Section 92CA of the Income Tax Act of 1961, the income tax returns were referred to the Transfer Pricing Officer (abbreviated "TPO").

The TPO issued orders that the Assessing Officer confirmed in his draught assessment order. Even though objections were raised with the Dispute Resolution Panel (DRP), they were rejected and section 144C directions were issued. Based on the same information, the second appellant issued the final assessment order and issued a section 156 demand.

Respondent filed appeals with the Income Tax Appellate Tribunal challenging the assessment orders pertaining to the assessment years 2009-2010 and 2010-2011. By a common order dated 18.12.2015, the Tribunal allowed the appeals by setting aside the assessing officer's orders and remanding the matter to the assessing officer with instructions to refer it to the DRP for a new examination, after affording the assesses an adequate opportunity to do so.

According to the respondent, they did not receive any notice pursuant to the Tribunal's orders; consequently, they sent a letter to the second appellant on 21 August 2019 stating that the remand proceedings have become time-barred under Section 153 of the Act and requesting a refund of the tax already paid by them for the assessment years 2009-2010 and 2010-2011, along with interest. The DRP then sent them separate notices, dated 06.01.2020, requiring them to appear for questioning on 10.01.2020.

The respondents stated that in accordance with the Tribunal's orders, the assessing officer should have issued fresh draught assessment orders within the time limit prescribed by section 153 of the Act, but he failed to do so, and as a result, the notices dated 06.01.2020 issued by the first appellant are time-barred.

They filed Writ Petitions to quash the notices dated 06.01.2020 and, as a result, to direct the second appellant to refund the tax amount with interest under section 244A of the Act, as well as to enjoin the appellants from proceeding further in relation to assessment years 2009-10 and 2010-11.

In opposition to the reliefs, the appellants argued that the writ petition was filed under the misconception that the proceedings initiated by the department for the assessment year 2009-2010 are time-barred. It is well-established that the challenge to the show-cause notice is not maintainable because it is merely a proposal to initiate action and has not definitively determined the parties' rights and liabilities. The respondent/assessee should have submitted objections to the show cause notice, and it is up to the appellants to determine whether or not the proceedings are time-barred. Therefore, it was argued that the writ petitions were filed in a rush and that the requested reliefs need not be granted.

In addition, it was argued that the Assessing Officer was directed to re-examine the issues by the DRP, and therefore the provisions of Section 153 of the Act would not apply to the present case, as the DRP is not an authority within the meaning of Section 153. In addition, Section 2 (7A) of the Act states that the DRP is not an assessor, and Section 144C (15) of the Act clarifies that the DRP is a collegium of three Principal Commissioners or Commissioners appointed by the Board to resolve disputes.

Examining the competing arguments, the single judge ruled that the entire proceeding was tainted by delay because the Assessing Officer did not resume the case within a reasonable time after the Tribunal's remand order.

The appellants argued that the limitation prescribed by Section 153 of the Act only applies to a draught assessment order and not the final assessment order passed under Section 144C, which is why draught assessment orders are issued within 33 months of the end of the relevant assessment year. Further, they argued that Valuation Officer would be consulted whenever assessment proceedings were contingent on extraneous data or extraneous proceedings, such as the grant of an interim stay of operation of the initiation of the assessment proceedings or where accounts are to be audited.

Section 153 is specifically silent regarding the limitation applicable to cases pending before the DRP, which demonstrates that the legislature purposefully refrained from including a limitation provision in Section 153 of the Act. Thus, the Single Judge erred in concluding that Section 144C (13) imposes a limitation on the Assessing Officer's ability to issue a final order within the timeframe provided by Section 153 of the Act.

Respondent relied on the Delhi High Court's decision in Nokia India Private Limited v. DCIT [(2018) 407ITR 20] to bolster their argument that the statute of limitations applied even to remand proceedings. Even if the law does not specify a statute of limitations, they argued, the authority was expected to carry out its responsibilities and conclude the proceedings within a reasonable time frame. In this case, there was an excessive delay in issuing the final order, which has caused the respondent severe harm.

The respondents also noted that the DRP is a specialised body charged with transfer pricing matters. The order of DRP was to ensure that the expert body would arrive at remedial measures as quickly as possible, but not to conduct its proceedings in an unrestricted manner.

The court concurred with the respondents' argument and noted that the DRP proceedings are a continuation of the assessment proceedings. Consequently, once section 144C (12) objections are filed, the DRP has nine months to issue directions, failing which any directions will be deemed null and void.

The court also noted that the exclusion of application of Section 153 or Section 153 B is for a limited purpose to ensure that dehors larger time is available, and that an order based on the directions of the DRP must be issued within 30 days of the end of the month in which such directions were received.

The statute's stipulated deadline must be strictly adhered to.

Even applying the principle of reasonable time and drawing a hint from Article 113 of the Limitation Act, the residual entry, the court believed it was reasonable to conclude that the action must be concluded within three years.

D.D: 09 JUNE 2022

The Commissioner of Income Tax Versus M/s. Roca Bathroom Products Private Limited