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2025 (4) TMI 1625 - HC - Income TaxValidity of notices issued in light of the limitation period prescribed u/s 153(3) - Transfer pricing adjustments - HELD THAT - As the order of the Tribunal had come to be passed after 01 April 2019 and consequently the prescription of 09 months as appearing in the principal part of sub-section (3) would have to be read as 12. When 12 months are computed from the order of 21 October 2020 it is ex facie evident that the jurisdiction and authority inhering the respondents to frame an order of assessment pursuant to a direction framed by the Tribunal would have undoubtedly come to an end on 21 October 2021 and no longer exists today. We consequently allow the instant writ petition and render a declaration that any assessment that may be now proposed for AY 2010-11 would be clearly time barred and contrary to the mandate of Section 153(3) of the Act. As a consequence to the above the notices of 06 March 2023 and 19 March 2023 are hereby quashed and set aside.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court are: (a) Whether the notices dated 06 March 2023 and 19 March 2023 issued for assessment pertaining to Assessment Year (AY) 2010-11 are valid in light of the limitation period prescribed under Section 153(3) of the Income Tax Act, 1961 (the Act). (b) Whether the respondents have jurisdiction and authority to proceed with assessment for AY 2010-11 after the expiry of the limitation period computed from the date of the appellate Tribunal's order dated 21 October 2020. (c) Whether the failure to frame an order of assessment within the prescribed time limit under Section 153(3) results in the assessment being time-barred and liable to be quashed. (d) Ancillary issues relating to the correctness of the Tribunal's directions remitting the matter to the Assessing Officer (AO) for fresh consideration, including the treatment of transfer pricing adjustments, disallowances under Section 40A(2)(b), and double taxation concerns. 2. ISSUE-WISE DETAILED ANALYSIS Issue (a) & (b): Validity of Notices and Jurisdiction under Section 153(3) Legal Framework and Precedents: Section 153(3) of the Income Tax Act governs the time limit for completion of a fresh assessment or reassessment pursuant to an appellate or revisional order setting aside or cancelling an earlier assessment. The provision stipulates that such fresh assessment must be completed within nine months from the end of the financial year in which the appellate order is received by the relevant tax authority. Notably, for orders received on or after 1 April 2019, the nine-month period is substituted by twelve months. In the present case, the appellate Tribunal's order was passed on 21 October 2020, which falls after 1 April 2019, thereby invoking the twelve-month limitation period under Section 153(3). Court's Interpretation and Reasoning: The Court meticulously examined the timeline and concluded that the respondents' jurisdiction to frame a fresh assessment order pursuant to the Tribunal's direction expired on 21 October 2021, i.e., twelve months from the date of the appellate order. The issuance of notices in March 2023, well beyond this period, was held to be beyond the statutory time limit. The Court emphasized that the limitation period under Section 153(3) is mandatory and cannot be extended beyond the prescribed period except as explicitly provided in the statute. The principle of strict adherence to limitation periods in tax proceedings was underscored to prevent arbitrary or belated exercise of assessment powers. Key Evidence and Findings: The Tribunal's order dated 21 October 2020 was central, as it remitted the matter to the AO for fresh assessment. The fact that no assessment order was framed within the twelve-month period was undisputed. The notices issued in March 2023 were thus found to be issued after the expiry of the limitation period. Application of Law to Facts: Applying the statutory timeline to the facts, the Court held that the respondents' authority to proceed with assessment for AY 2010-11 had lapsed. The notices issued were therefore invalid and liable to be quashed. Treatment of Competing Arguments: The respondents did not dispute the timeline but presumably contended the continuation of jurisdiction or exceptions under the Act. The Court found no applicable exception or extension under Section 153(3) or related provisions that would validate the notices beyond the limitation period. Conclusion: The notices dated 06 March 2023 and 19 March 2023 are time-barred under Section 153(3) and hence invalid. Issue (c): Consequences of Failure to Complete Assessment within Limitation Period Legal Framework: The Income Tax Act's limitation provisions aim to ensure finality and certainty in tax assessments. Section 153(3) explicitly prescribes the time frame for completion of assessments following appellate or revisional orders. Failure to comply with these timelines results in the loss of jurisdiction to assess or reassess. Court's Reasoning: The Court reiterated that the limitation period is a condition precedent to the exercise of jurisdiction. Once the period expires, any assessment or reassessment order attempted thereafter is without jurisdiction and void. Application to Facts: Since the respondents failed to frame the assessment order within twelve months from 21 October 2020, their jurisdiction ceased to exist. Consequently, any attempt to proceed with assessment after this period is legally impermissible. Conclusion: The assessment for AY 2010-11 is barred by limitation and cannot be validly made. Issue (d): Tribunal's Directions on Remand and Related Substantive Issues Legal Framework and Precedents: The Tribunal's order dated 21 October 2020 remitted the matter to the AO for fresh consideration on several substantive issues including:
Court's Interpretation and Reasoning: The Court noted the Tribunal's detailed directions emphasizing the need for the AO to apply mind afresh to the taxpayer's submissions and facts specific to AY 2010-11 rather than mechanically relying on prior years' orders. The Tribunal also directed verification of payments to related parties to avoid double taxation and to respect natural justice principles in transfer pricing adjustments. Key Evidence and Findings: The Tribunal's order highlighted that the AO had failed to examine extensive submissions and had followed orders from AY 2009-10, which had been set aside. The Tribunal's directions to the AO to provide opportunity of hearing and to verify facts were integral to ensuring fair assessment. Application of Law to Facts: The Tribunal's directions were binding and mandated fresh assessment within the statutory time frame. However, since the respondents failed to act within the prescribed period, the substantive issues remain unresolved but are rendered moot by the limitation bar. Treatment of Competing Arguments: The respondents' failure to frame assessment within time cannot be remedied by substantive merits or procedural correctness of the assessment. The Court prioritized statutory limitation over substantive issues in this context. Conclusion: While the Tribunal's directions on remand were legally sound and aimed at ensuring just assessment, the respondents' failure to comply within the statutory period results in the assessment being time-barred. 3. SIGNIFICANT HOLDINGS "When 12 months are computed from the order of 21 October 2020, it is ex facie evident that the jurisdiction and authority inhering the respondents to frame an order of assessment pursuant to a direction framed by the Tribunal would have undoubtedly come to an end on 21 October 2021 and no longer exists today." "The limitation period under Section 153(3) is mandatory and cannot be extended beyond the prescribed period except as explicitly provided in the statute." "Any assessment that may be now proposed for AY 2010-11 would be clearly time barred and contrary to the mandate of Section 153(3) of the Act." "The notices dated 06 March 2023 and 19 March 2023 are hereby quashed and set aside." Core principles established include the inviolability of statutory limitation periods in tax assessments, the necessity of jurisdictional compliance before proceeding with assessment, and the invalidity of assessments made beyond the prescribed limitation period even if directed by appellate orders. Final determinations on each issue are as follows:
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