7 August 2023
Bombay High Court validates that Section 153 prevails over Section 144C for time limit for passing Final Assessment Order
Shelf Drilling Group companies had filed writ petitions1 with the Bombay High Court (HC), pleading that the limitation under Section 153(3) of the Income Tax Act, 1961 (the Act) read with the notifications for relaxations issued had expired on 30 September 2021. Therefore, no final assessment order could be passed as the proceedings were time-barred, and in view thereof, the Return of Income as filed should be accepted.
Petitioner's Key Contentions
  • The Honourable Income Tax Appellate Tribunal (ITAT) had passed its order on 4 October 2019 remanding the matter to the Assessing Officer (AO). Pursuant to this, the original time limit for the AO to pass the final order as given under Section 153(3) was 31 March 2021 (being 12 months from the end of the financial year in which the order was received). However, a relaxation was granted vide Notification no.10/2021 dated 27 February 2021. Therefore, the revised time limit for the AO to pass the final order was 30 September 2021.
  • However, the draft AO order was passed on 28 September 2021. Since the matter was time-barred on 30 September 2021 and the final assessment order had not been passed before the said date, the proceedings should be rendered to be barred by limitation and the Return of Income as filed should be accepted.
  • Furthermore, the Petitioner placed reliance on the divisional bench ruling of Madras HC in case of Roca Bathroom Products (P) Limited2 wherein it was held that the limitation provided in Section 153 is the outermost limitation to pass the final assessment order.
Revenue's Key Contentions
  • Section 144C of the Act is a Complete Code by itself and hence, it would prevail over all the provisions, including Section 153 of the Act.
  • The time limit prescribed under Section 144C of the Act does not get subsumed within the time limit prescribed under Section 153(3) of the Act. Section 153 of the Act is a general provision dealing with all assessees and all types of orders as compared to Section 144C of the Act which deals only with regard to matters pertaining to 'eligible assessees'. Hence, for matters covered by special provisions, the overlapping general provisions must yield ground to the special provisions.
  • The Revenue further held that the decision of Madras HC in the case of Roca Bathroom is 'per incuriam'. If Section 144C and Section 153 of the Act are considered mutually inclusive, then the order passed in the past years after disposal of objections by the Dispute Resolution Panel (DRP) are being held to be time-barred.
HC Ruiling

The HC, on analyzing Sections 144C and Section 153 in detail, held the following:
  • Section 144 of the Act is, in fact, a self-contained act of assessment, and time limits are in-built for each stage of the procedure. However, this does not lead to the conclusion that overall time limits have been abstained from in the process.
  • Furthermore, it is stated that wherever the legislature intended extra time to be provided, it is expressly provided in Section 153 of the Act. Moreover, explanation-1 below Section 153 of the Act provides for the period which should be excluded while computing the 12 months period mentioned in Section 153 (3) of the Act, wherein there is no mention about Section 144C of the Act.
  • The statute has set time limits at every step and hence, there is no reason to take a stand that proceedings on remand to the DRP may be done at leisure without the imposition of any time limit at all.
  • In light of the above, the HC agreed to the contention of the Petitioner and held that Section 153 of the Act would prevail over and above the assessment time limit prescribed under Section 144C of the Act. In addition, considering the language of the sections, it cannot be accepted that the provision of Section 153 is excluded from the operation of Section 144C.
  • The exclusion of applicability of Section 153 is specific to and only applies at the stage of passing of the final assessment order after directions are received from the DRP and not at any other stage of the proceedings under Section 144C.
Based on the above, the HC in support of the Roca Bathroom Case, held that since no final assessment order can be passed in the present case as the same is time-barred, the Return of Income as filed by the Petitioner be accepted. However, this does not preclude the Revenue from taking any other steps in accordance with the law.  
  1. Shelf Drilling J.T. Angel Limited – Writ Petition No. 2661 of 2021 (AY 2014-15) & Shelf Drilling Ron Tappmeyer Limited - Writ Petition No. 2340 of 2021 (AY 2014-15) & Shelf Drilling Trident XII Limited – Writ Petition No. 3059 of 2021 (AY 2018-19) & Shelf Drilling Offshore Resources Limited II – Writ Petition No. 3060 of 2021 (AY 2018-19)
  2. [TS-359-HC-2022(MAD)-TP] - (2021) 127 taxmann.com 332 (Madras)
Our Comments
Assessment timelines are crucial for both taxpayers and tax authorities to ensure fair and efficient tax compliance. The HC held that Section 144C and Section 153 of the Act are mutually inclusive as both contain provisions relating to Section 92CA. These are interdependent and overlapping provisions and hence, the period of limitation prescribed under Section 153(2A) or 153(3) is applicable, even when matters are remanded back, irrespective of whether it is to the AO or TPO or the DRP. The duty is on the AO to pass the final order within the timelines prescribed under Section 153 after following the procedures laid down. Hence, it means that the entire transfer pricing proceedings, including passing of the draft assessment order, DRP proceedings, and passing of final assessment order have to be completed within the time limits prescribed in Section 153.
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