2025 (3) TMI 715 - AT - Income Tax

Validity of assessment u/s 144C beyond period of limitation - HELD THAT - From the perusal of sub-section (13) of section 144C it is clear that the final assessment order has to be passed by the Assessing officer within a period of one month from the end of the month in which the directions from the DRP are received. Further as per clause (xxviii) and (xxix) of sub-section 1 to section 144B provides that the Faceless Assessment Centre after receiving the directions of the DRP sent them to the Assessment unit who shall pass the final assessment order in accordance with section 144C(13). Thus in any case whether the assessment is completed by Jurisdictional Assessing officer or by Faceless assessing officer the final order should be passed within the time prescribed u/s 144C(13) of the Act. In the instant case one more facts is relevant to state that the draft assessment order was passed by the Faceless Assessment Centre and the Final assessment order was passed by the jurisdictional Assessing officer thus the department itself has deviated from the faceless assessment system. In the instant case the directions were given by Ld. DRP on 03/06/2022 which were received by AO/TPO on 07.06.2022 as is evident from the effect order passed by TPO dt. 14.07.2022. Further the TPO s effect order was also passed on 14.07.2022 and uploaded on ITBA portal. Thus for the AO for passing the final order the limitation expired on 31.07.2022. It is also relevant to state here that when DRP issued directions TPO has no power to resume jurisdiction and the TPO could only pass the effect order which in no case extended the time limit for passing the Final Assessment Order available to Assessing Officer in terms of section 144C(13) of the Act. Accordingly in the present case the limitation for passing final order by AO expired on 31.07.2022 thus the final assessment order passed on 28.02.2023 is barred by limitations and is void and invalid order. Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

1. Whether the final assessment order dated February 28, 2023, is void-ab-initio, bad in law, and barred by limitation under the provisions of the Income Tax Act, 1961.

2. Whether the final assessment order should have been passed by the National Faceless Assessment Centre as per Section 144B(1)(xxix) of the Act, thus questioning the jurisdiction of the Jurisdictional Assessing Officer.

3. The validity of the Transfer Pricing adjustments related to Advertisement, Marketing, and Promotion (AMP) expenditure and other international transactions, including royalty payments and intra-group services.

4. The applicability of corporate tax provisions concerning fees for buying agency services under the India-Netherlands Double Taxation Avoidance Agreement (DTAA).

ISSUE-WISE DETAILED ANALYSIS

1. Jurisdiction and Limitation of the Final Assessment Order

- Relevant Legal Framework and Precedents: The legal framework involves Section 144C of the Income Tax Act, which mandates that the final assessment order must be passed within one month from the end of the month in which the directions from the Dispute Resolution Panel (DRP) are received. Section 144B relates to the faceless assessment scheme.

- Court's Interpretation and Reasoning: The Tribunal noted that the final assessment order was passed on February 28, 2023, which was beyond the prescribed timeline as per Section 144C(13). The directions from the DRP were received on June 7, 2022, and the final order should have been passed by July 31, 2022.

- Key Evidence and Findings: The Tribunal found that the effect order was passed by the Transfer Pricing Officer (TPO) on July 14, 2022, and was uploaded on the IT portal. However, the final order was delayed and passed by the Jurisdictional Assessing Officer instead of the Faceless Assessment Centre.

- Application of Law to Facts: The Tribunal applied the statutory timelines strictly, concluding that the final order was time-barred and therefore invalid.

- Treatment of Competing Arguments: The Department argued that the final order was within the limitation period, but the Tribunal dismissed this, citing the mandatory nature of the timelines.

- Conclusions: The Tribunal concluded that the final assessment order was void due to being passed beyond the statutory period, and the jurisdictional issue was rendered academic.

2. Transfer Pricing Adjustments

- Relevant Legal Framework and Precedents: The legal framework involves the determination of international transactions and their arm's length pricing under the Income Tax Act and related rules.

- Court's Interpretation and Reasoning: The Tribunal did not delve into the merits of the Transfer Pricing adjustments due to the primary issue of the order's invalidity on jurisdictional and limitation grounds.

- Key Evidence and Findings: The Tribunal noted that the adjustments were made based on the directions of the DRP and involved significant sums related to AMP expenses and royalty payments.

- Application of Law to Facts: The Tribunal did not apply the law to the facts of the Transfer Pricing issues due to the resolution of the appeal on jurisdictional grounds.

- Treatment of Competing Arguments: The Tribunal acknowledged the assessee's arguments regarding the incorrect characterization of transactions and the disregard of previous judicial pronouncements but did not adjudicate these due to the procedural invalidity of the order.

- Conclusions: The Tribunal did not make a determination on the Transfer Pricing issues, rendering them academic due to the quashing of the final order.

3. Corporate Tax Grounds

- Relevant Legal Framework and Precedents: The legal framework involves the interpretation of fees for technical services under Section 9(1)(vii) of the Act and Article 12(5) of the India-Netherlands DTAA.

- Court's Interpretation and Reasoning: Similar to the Transfer Pricing issues, the Tribunal did not adjudicate the corporate tax grounds due to the primary issue of the order's invalidity.

- Key Evidence and Findings: The Tribunal noted the assessee's arguments concerning the mischaracterization of payments and the disregard of previous ITAT decisions.

- Application of Law to Facts: The Tribunal did not apply the law to the facts of the corporate tax issues due to the procedural invalidity of the order.

- Treatment of Competing Arguments: The Tribunal acknowledged the competing arguments but did not adjudicate these due to the procedural outcome.

- Conclusions: The Tribunal did not make a determination on the corporate tax grounds, rendering them academic due to the quashing of the final order.

SIGNIFICANT HOLDINGS

- The Tribunal held that the final assessment order was void and invalid due to being passed beyond the statutory period prescribed under Section 144C(13) of the Income Tax Act.

- The Tribunal emphasized the mandatory nature of the timelines for passing the final assessment order, citing precedents that reinforced the strict adherence to statutory timelines.

- The Tribunal concluded that the jurisdictional issue regarding the faceless assessment scheme was academic due to the quashing of the final order on limitation grounds.

- The Tribunal did not adjudicate the substantive issues related to Transfer Pricing adjustments and corporate tax grounds due to the procedural invalidity of the order.