2019 (8) TMI 1128 - HC - Income Tax

Implementation of the directions issued by DRP by the TPO instead of AO - whether subsequent order passed by AO order is time barred? - direction to deal the objection of assessee was issued to DRP by ITAT in first round of litigation - HELD THAT - TPO implemented the DRP's directions, which, in turn, were given effect to by the AO. Thus, the assessee, having understood the factual and legal position in a proper manner, on their own volition, submitted before the TPO a representation dated 10.4.2014 requesting to take on record their submissions and give effect to the directions of the DRP. Further, the assessee undertook to provide any clarifications required. TPO took into consideration the modified order passed by the DRP and the submissions of the assessee, passed a giving effect to order dated 10.2.2015 and communicated the same to the AO, who, in turn, passed the final assessment order dated 26.2.2015. We are of the clear view that the Tribunal was right in holding that there is no jurisdictional error to invalidate the proceedings in toto and the communication of a copy of the directions of the DRP dated 12.3.2014 to the AO, stated to have been received by the AO on 21.3.2014, is not a direction within the scope of Sub-Section (5) of Section 144C. The directions issued by the DRP were to the TPO, who was, in turn, required to do the computation after considering the objections of the assessee and it is thereafter they mature into directions under Sub-Section (5) of Section 144C , which were required to be implemented in terms of Sub-Section (5) of Section 144C. Tribunal was right in rejecting the plea raised by the assessee before it. Furthermore, the case of the assessee has to be tested for its correctness in the light of the earlier proceedings and more particularly the order of the Tribunal, which remanded the matter for a fresh consideration. Thus, the assessee has not made out any ground to interfere with the order of the Tribunal.

Summary

Issues:
1. Assessment order time limitation under Section 144C(13) of the Income Tax Act, 1961.
2. Compliance with directions of the Appellate Authority under Section 144C(13) of the Act.
3. Curable defect in non-compliance with Appellate Authority's directions.

Analysis:
1. The main issue in this case is whether the assessment done by the Assessing Officer following the directions of the Disputes Resolution Panel (DRP) and Transfer Pricing Officer (TPO) was time-barred under Section 144C(13) of the Income Tax Act. The appellant argued that the final assessment order was passed beyond the prescribed time limit. The Tribunal rejected this contention, stating that the directions issued by the DRP were to the TPO, who was required to compute margins based on the objections of the assessee before the directions matured into implementable orders. The Tribunal's decision was upheld, emphasizing that there was no jurisdictional error to invalidate the proceedings entirely.

2. The appellant raised concerns about the compliance with the directions of the Appellate Authority, highlighting that the Assessing Officer received the DRP's directions on a specific date, and the final assessment order was passed beyond the statutory time limit. However, the court noted the sequence of events, where the TPO implemented the DRP's directions, which were subsequently communicated to the Assessing Officer for the final assessment order. The court found that the Tribunal was correct in rejecting the plea, as the directions were initially to the TPO for computation, not directly to the Assessing Officer under Section 144C(13) of the Act.

3. Additionally, the issue of whether non-compliance with the Appellate Authority's directions constituted a curable defect was raised. The appellant argued that the time limit prescribed under the Statute should not be unilaterally extended, and any delay in passing orders would prejudice the assessee. However, the court found that the Tribunal's decision was justified, as the directions were correctly followed by the TPO and Assessing Officer in subsequent rounds of litigation, and there was no ground to interfere with the Tribunal's order. The appeal was dismissed, and the substantial questions of law were answered against the assessee.

In conclusion, the High Court of Madras upheld the Tribunal's decision, emphasizing the proper implementation of directions by the TPO and Assessing Officer in compliance with the provisions of the Income Tax Act. The court directed the Disputes Resolution Panel to conclude the proceedings within a specified timeframe, considering the prolonged nature of the litigation and the assessment year involved.