Delhi High Court Dismisses Revenue's Appeal — Assessment Under Section 144C Held Time-Barred

Case Background

PCIT Vs Fiberhome India Private Limited (Delhi High Court)

The Delhi High Court was called upon to adjudicate upon an appeal filed by the Revenue challenging a ruling of the Income Tax Appellate Tribunal (ITAT) dated 13 March 2023. At the heart of this dispute was a straightforward yet critical question: whether the final assessment order passed by the Assessing Officer (AO) under Section 144C of the Income Tax Act, 1961 was barred by limitation on account of non-compliance with the prescribed statutory timeline.

The ITAT had affirmed the position taken by the Dispute Resolution Panel (DRP), holding that the assessment stood vitiated because it was not concluded within the time window mandated under the statute. The High Court, after examining the facts and the applicable legal framework, found no reason to interfere with this conclusion and dismissed the Revenue's appeal.

Factual Matrix

The sequence of events leading to the dispute is as follows:

  • The DRP issued its directions on 16 December 2021.
  • The AO passed the final assessment order on 26 March 2022.
  • The time gap between these two dates clearly exceeded the 30-day period stipulated under Section 144C(13) of the Income Tax Act, 1961.

This straightforward factual position was, in essence, sufficient to seal the fate of the Revenue's appeal. The assessment had been framed beyond the mandatory deadline, and neither the DRP nor the ITAT found any justification for this delay. The High Court concurred.

The Draft Assessment Order and Objection Mechanism

Section 144C of the Income Tax Act, 1961 establishes a structured dispute resolution mechanism specifically applicable to eligible assessees — particularly those involved in international transactions or specified domestic transactions. The process under this provision operates as follows:

  1. Draft Order Stage: The AO's initial determination is treated as a draft proposed order of assessment under Section 144C(1). This draft is not a final order and cannot be enforced independently.

  2. Assessee's Right to Object: Under Section 144C(2), the assessee has the right to file objections before the DRP within 30 days of receipt of the draft order. Once such objections are filed within this window, the AO's power to finalize the assessment on the basis of the draft order is immediately suspended.

  3. DRP's Role: The DRP takes up the objections and issues directions under Section 144C(5), guiding the AO on how the assessment is to be completed.

  4. Mandatory Compliance by the AO: Once the DRP issues its directions, Section 144C(13) comes into play. This provision mandates that the AO must complete the assessment in strict conformity with the DRP's directions within one month from the end of the month in which such directions are received.

Critical Note: Section 144C(13) leaves no room for discretion on the part of the AO. The provision explicitly states that the assessment must be completed without affording any further opportunity of hearing to the assessee. The AO is required to simply implement the DRP's directions within the prescribed time.

Precedent Relied Upon: Louis Dreyfus Company India Private Limited