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TMI Blog2015 (9) TMI 846X X X X Extracts X X X X X X X X Extracts X X X X ..... order to section 144C(4) or (13), then it would have made necessary changes in section 153 by substituting the term 'draft order' with the term 'order of assessment'. We are unable to read the term 'draft order' interchangeably with the term 'assessment order' in the context of section 153 or practically for any other purpose. It is a settled legal position that where no time limit is prescribed for passing an order, then such order should be passed within a reasonable time. The time limit for completion of assessment, or in other words, passing of the final assessment order pursuant to the order of the TPO, is contained in section 144C(4) and (13); the time limit given u/s 153 has no relation whatsoever with the passing of the draft order, which should be passed within a reasonable time; and the time limit given in section 153 is relevant for determining the time available with the TPO for passing order u/s 92CA(3). Turning to the facts of the instant case, we find that the AO passed the final assessment order on 29.1.2015, which is well within a period of one month from the end of the month in which direction was received from the DRP on 24.12.2014. As such, we hold that the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e TPO, which is again a mandatory procedure prescribed under the Act, would be a non-curable defect, having the consequence as if it was not passed. In such circumstances, though the final assessment order would be saved but the addition on account of transfer pricing adjustment arising from the determination of the ALP of the international transactions by the TPO as emanating from his time barred order, would be unsustainable. We hold accordingly and direct the deletion of addition on account of transfer pricing adjustment made in the final assessment order. - Decided in favour of assessee. - ITA No.1132/Del/2015 - - - Dated:- 15-9-2015 - SHRI R.S. SYAL AND SHRI A.T. VARKEY, JJ. For The Assessee Shri Deepak Chopra Shri Rohan Khare, Advocates. For The Department Shri Amrendra Kumar, CIT, DR, Ms Kavita Pandey, CIT, TP Shri Anurag Sharma, Addl.CIT ORDER PER R.S. SYAL, AM: This appeal by the assessee is directed against the final assessment order passed by the Assessing Officer u/s 143(3) read with section 144C of the Income-tax Act, 1961 (hereinafter also called 'the Act') on 29.1.2015 in relation to the assessment year 2010-11. 2. The first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Japanese Competent authority, the TPO passed order u/s 92CA (3) on 31.5.2014 proposing transfer pricing adjustment to the tune of ₹ 2,15,36,967. Draft order was passed by the AO on 11.7.2014 proposing the computation of total income at ₹ 7.27 crore, including addition on account of transfer pricing adjustment amounting to ₹ 2.15 crore. The assessee raised objections against the draft order before the Dispute Resolution Panel (DRP) through Form No. 35A filed on 13.8.2014, which were disposed of vide Direction u/s 144C(5) dated 24.12.2014. The final assessment order was passed by the AO on 29.1.2015 determining total income at ₹ 7.27 crore, which also includes addition of ₹ 2.15 crore on account of transfer pricing adjustment. 4. The assessee has set up a case that the final assessment order be declared null and void on the ground that the draft order of the AO as well as the order passed by the TPO u/s 92CA(3) of the Act, were passed beyond the time limit prescribed under the Act. We will espouse both the contentions one by one for determination. A. Time limit for passing of the draft order by AO 5.1 The ld. AR contended that the draft ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2013 in the instant case), the time limit for the passing of order of assessment shall be three years from the end of the assessment year in which the income was first assessable. Going by the 3rd proviso read with clause (a) of section 153(1), no order of assessment can be made after the expiry of three years from the end of the assessment year. It means that for the A.Y. 2010-11, an order of assessment can be made up to 31.3.2014. 5.6. Further, Explanation 1 to section 153 provides that in computing the period of limitation for the purposes of this section, the time taken in the circumstances given in clauses (i) to (ix) shall be excluded. Clause (viii), which is relevant for our purpose, reads as under:- 'Explanation 1.- In computing the period of limitation for the purposes of this section- . (viii) the period commencing from the date on which a reference or first of the references for exchange of information is made by an authority competent under an agreement referred to in section 90 or section 90A and ending with the date on which the information requested is last received by the Principal Commissioner or Commissioner or a period of one year, whichever i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extended period of one year should be taken into consideration. It was put forth that if the such period of one year is taken into consideration in terms of clause (viii) of the Explanation 1 to section 153, then the time limit will get extended to 31.3.2015 and hence the draft order as well as the final assessment order and also the order of the TPO will be saved by the limitation. On a specific query that if the information sent by the Japanese Competent authority was not complete as desired, then did the TPO seek any further information or clarification in this regard from the Japanese competent authority through proper channel, the ld. DR contended that no further information was called for from the Japanese Competent authority but the TPO took upon himself the hazardous task of completing the assessment in such circumstances with the necessary handicap. 5.11 We are unable to countenance the contention of the ld. DR urging the consideration of an extended period of one year for the purposes of exclusion from the time limit as given u/s 153. It is manifest from the language of the provision that the such period commences with the date on which a reference or first of the ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived by the DIT in one go on 2.4.2014. Neither any further information was required nor deficiency in the receipt of the desired information, as argued before us, was further pressed. In such circumstances, there is no warrant for considering the extended period of one year. When we consider the period from 24.1.2014 (being the date on which the Indian Competent authority sought information) to 2.4.2014 (being, the date on which the DIT received the information), the further time liable to be excluded comes to 68 days. 5.13 An overview of section 153(1)(a) read with 3rd proviso and also clause (viii) to the Explanation to section 153, brings out that in a case where reference is made by the AO to the TPO for determination of the ALP of international transactions undertaken by the assessee, who, in turn, also seeks information from the Competent authority of another country through the Indian competent authority, the period of limitation for passing of the order is three years from the end of the assessment year as increased by the period commencing from the date on which reference is made by the Indian competent authority for exchange of information ending with the date on wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Marginal note of a section can be taken help of to interpret a provision, if the language as per the body of the provision accords with the same. If of the other hand, the language of a section does not concur with its heading, then obviously it is the language of the section which rules rather than the marginal note. Reverting to the heading and language of section 153, we find that both are in complete harmony with each other. What has been mandated at both the places is the time limit for completion of assessment by means of passing an assessment order. An assessment can be said to be completed when an assessment order is passed determining the total income and also the amount of tax payable or refundable, as the case may be. The Hon'ble Supreme Court in Kalyan Kumar Ray v. CIT [1991] 191 ITR 634 (SC) has held that an assessment order involves determination of income and tax. It has been laid down that 'Assessment' is one integrated process involving not only the assessment of the total income but also the determination of the tax. The latter is as crucial for the assessee as the former . It transpires that any order which does not determine the total income couple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intimates to him the acceptance of variations or no objection is received within the stipulated time. The time limit for passing of the assessment order in such circumstances has been set out in sub-section (4) of section 144C, which provides as under:- '(4) The Assessing Officer shall, notwithstanding anything contained in section 153 or section 153B, pass the assessment order under sub-section (3) within one month from the end of the month in which,- (a) the acceptance is received; or (b) the period of filing of objections under sub-section (2) expires'. 5.18 This sub-section mandates that the AO shall pass the assessment order under sub-section (3) within one month from the end of the month in which either the acceptance is received to the proposed variations in the income as per the draft order or the period of filing objections under sub-section (2) expires. When we read sub-section (3) in conjunction with sub-section (4), the position which emerges is that the AO is obliged to pass assessment order within the stipulated time on happening of either of the events, namely, where the assessee accepts variation in the income and conveys the same to the AO or wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the DRP u/s 144C(5), then, the AO is obliged to complete the assessment in conformity with the directions issued by the DRP u/s 144C(5) within one month from the end of the month in which such direction is received in terms of sub-section (13). 5.21 It follows from the above discussion that where a draft order has been passed, then in all the possible options available with the assessee, that is, either accepting draft order or challenging it before the DRP or proposing to challenge the final order before the CIT(A), the final assessment order is invariably required to be passed within the time limit as prescribed under either sub-sections (4) or (13) of section 144C. Thus it is palpable that a draft order has to be necessarily followed by a final assessment order, which eventually determines the total income along with the computation of tax payable or refundable. This demonstrates that all orders passed prior to the final assessment order are interim in nature, namely, an order passed by the TPO cannot be characterized as completion of assessment as it simply determines the ALP of international transactions undertaken by the assessee; a draft order passed by the AO can also n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continued to be governed by section 153(1)(a) which stood at two years from the end of the assessment year. Section 92CA with the caption 'Reference to the Transfer Pricing Officer' was brought into existence by the Finance Act, 2002 w.e.f. 1.6.2002. Under this provision, the onus of computing ALP of the international transactions in certain cases was shifted to the TPO, who was supposed to pass his order under sub-section (3). There was no separate time limit for passing of the order by the TPO. The AO was obliged to pass the assessment order having regard to the ALP, within the overall time limit permitted by section 153, that is, two years from the end of the relevant assessment year. This position continued till the Finance Act, 2007, when sub-section (3A) to section 92CA was inserted w.e.f. 1.6.2007 providing a distinct time limit for the passing of the order by the TPO, being a period of sixty days prior to the date of completion of assessment as per section 153. Simultaneously, the time limit for passing of order u/s 153 in cases where a reference is made to the TPO, was also enhanced to thirty three months. Here, we would like to mention that later on this time lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame necessary for the legislature to remove the time limit for completion of assessment as contained in section 153. This could have been possibly done by omitting section 153, which was not possible as this section ab initio contains general time limit for completion of all assessments and reassessments and it is/was never confined only to the orders passed pursuant to the determination of the ALP by the TPO. Then the course open was either to insert a sunset clause in this regard in section 153 itself or add a non-obstante clause in section 144C(4) and (13). The legislature chose the second option and made it unequivocal by mentioning in sub-sections (4) and (13) that the provisions of section 153 shall not apply. There is a reason for not adding a sunset clause in section 153. The reason is that section 92CA mandating the TPO to pass order determining the ALP of international transactions, also contains sub-section (3A), which provides time limit for the passing of the order by the TPO. As per this provision inserted by the Finance Act, 2007 w.e.f. 1.6.2007, the TPO may pass order u/s 92CA(3) 'at any time before sixty days prior to the date on which the period of limitation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cally for any other purpose. 5.25 Now we take up the next argument of the ld. AR that if the time limit prescribed u/s 153 is considered as relating to the completion of assessment, this will leave no other provision setting out the time-frame for passing of the draft assessment order. He argued that it cannot be contemplated that the legislature has given unlimited time frame to the AO for passing a draft order. We find that, in fact, no time limit has been prescribed for the passing of the draft order. It is also equally relevant to note that prior to the introduction of sub-section (3A) to section 92CA by the Finance Act, 2007, there was no time limit for the passing of the order by the TPO, though sub-section (3) requiring the passing of order by the TPO, was inserted by the Finance Act, 2002. It means that during the interregnum, though there was a requirement for the passing of order by the TPO, but there was no specific time limit for the passing such order. The mere fact that no time limit has been prescribed for the passing a draft order, does not and cannot mean that the time limit for the completion of assessment given u/s 153 should be inferred as that for passing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , that is, within a period of less than six months from the date of such receipt of information, can be construed as having been passed in an unreasonable time. As such, we jettison the view canvassed by the ld. AR that the time limit given u/s 153 should be read as relevant for the passing of draft order. 5.27 It is, therefore, summed up that the time limit for completion of assessment, or in other words, passing of the final assessment order pursuant to the order of the TPO, is contained in section 144C(4) and (13); the time limit given u/s 153 has no relation whatsoever with the passing of the draft order, which should be passed within a reasonable time; and the time limit given in section 153 is relevant for determining the time available with the TPO for passing order u/s 92CA(3). 5.28 Turning to the facts of the instant case, we find that the AO passed the final assessment order on 29.1.2015, which is well within a period of one month from the end of the month in which direction was received from the DRP on 24.12.2014. As such, we hold that the final assessment order passed by the AO is within the time prescribed u/s 144C(13). Further since the draft order has also been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.4 The ld. DR vehemently contended that the use of the word 'may' in this provision for the passing of the order by the TPO within a period of 60 days of the limitation set out in section 153 indicates that the adherence to this time limit is not mandatory. He contended that even if the order is passed after the period of 60 days from the period of limitation as given u/s 153, still it would be treated as having been passed within time. This argument was countered by the ld. AR. 6.5 There is no doubt that the legislature has used the word 'may' in sub-section (3A) of section 92CA. There is further no doubt that the ambit of the word 'may' is different from the word 'shall'. Whereas, ordinarily the use of the word 'shall' signifies mandatory compliance, the word 'may' signifies directory compliance. But at times, the word 'may' can also be read as 'shall' and vice versa. In fact, all depends upon the context and the background of the provision in which such a word is used. 6.6 Section 127 deals with the power to transfer cases. Sub-section (1) of this provision provides that 'The Director General or Chief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to the Valuation Officer. Settling the controversy, the Hon'ble High Court held that the word 'may' used in section 16A(1)(b), should be read as 'shall'. It held that if the legislative intent had been to accord total discretion to the WTO to make a reference to the Valuation Officer or not in cases which were covered by cls. (a) (b) of sub-s. (1) of s. 16A of the WT Act, then there was no necessity of providing the guidelines in cl. (a) or in sub-cls. (i) and (ii) of cl. (b) of sub-s. (1) of s. 16A. It was, therefore, held that the legislature by prescribing the contingencies, in which, by implication, it would not be necessary to make a reference, also again by necessary implication be taken to have intended that the reference to Valuation Officer was must if the given contingencies did not exist. In this regard, the Hon'ble High Court observed that 'There is no doubt about the fact that the use of expression may and shall to some extent serves an indicia to the intention of the legislature and helps in deciding as to whether the given requirement is directory or mandatory in character, but the use of expression may or shall is nev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same is required to be passed within a reasonable time and it has got no relation with the time limit given in section 153. When the position is such that the draft order has to be passed independent of the time limit given in section 153, there appears some logic in not continuing with the time limit for the passing of the order by the TPO tagged with the time limit given in section 153. It has led to incoherence in the provisions. This position can be set right only with a suitable legislative amendment. 6.10 Having held that the time limit given in sub-section (3A) of section 92CA is mandatory for the passing of the order by the TPO, let us find out the time available with the TPO for the passing of his order. It has been noticed above that the time limit as per section 153(1) read with the third proviso and clause (viii) of the Explanation to the section, comes at 7th June, 2014. Period of 60 days prior to such time limit coming as per section 153, available with the TPO for passing his order, comes to an end on 8th April, 2014. As against this, the order was actually passed by the TPO on 31st May, 2014. Thus, the order passed by the TPO is patently time barred. C. Con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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