METRIC STREAM INFOTECH (INDIA) PRIVATE LIMITED ,BENGALURU vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4(1)(1), BANGALORE

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ITTPA 1466/BANG/2024Status: DisposedITAT Bangalore13 February 2026AY 2015-1615 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessment order is barred by limitation. The Tribunal noted that the ITAT's order dated 24.04.2020 was received by the Assessing Officer (AO) on 07.10.2020, when a fresh reference was made to the TPO. According to Section 153(6)(i) of the Act, the assessment order should have been passed within twelve months from the date of receipt of the ITAT order, which would be 31.10.2021. Even if the second reference by the AO to the TPO on 07.10.2020 was considered valid, the timeline would extend to 31.10.2022. The impugned assessment order passed on 29.03.2023 (and the subsequent one on 30.06.2024) is therefore beyond the prescribed limitation period. The Tribunal quashed the assessment order on the grounds of limitation. Consequently, Ground No. 2 of the appeal was allowed, and other grounds were rendered infructuous and dismissed. The ratio decidendi is that if an assessment order is passed beyond the statutory time limits prescribed under Section 153 of the Income Tax Act, it is liable to be quashed.

What were the facts?

The assessee, MetricStream Infotech (India) Pvt. Ltd., filed an appeal for assessment year 2015-16 against the final assessment order dated 30.06.2024 passed under section 144 r.w.s. 260 r.w.s. 144B of the Income Tax Act, 1961, by the Assessment Unit of the Income Tax Department. The initial return was filed on 31.03.2016. A reference was made to the Transfer Pricing Officer (TPO) resulting in an adjustment of Rs. 27,73,44,760. After DRP directions, the adjustment was scaled down to Rs. 22,55,50,186, and a final assessment order was passed on 27.09.2019. The assessee appealed to the ITAT, which directed the AO to pass an order. A fresh reference was made to the TPO, who passed an order on 29.09.2022, reducing the adjustment to Rs. 14,13,00,714, leading to an assessment order on 29.03.2023. The assessee challenged this in the High Court, which directed the AO to follow the procedure under section 144C by passing a draft assessment order. A draft order was passed on 17.08.2023, DRP issued directions on 20.05.2024, and the final assessment order was passed on 30.06.2024, which is now under challenge.

What were the issues?

1. Whether the final assessment order dated 30.06.2024 is barred by limitation as per the provisions of Section 153(4) r.w.s 153(3) of the Income Tax Act, 1961. The assessee argued that the timelines prescribed for completing fresh assessment proceedings have expired. Specifically, after the ITAT order dated 24.04.2020, the time limit for passing an order under section 153(3) was initially 31.03.2022, extended to 31.03.2023 under section 153(4). The High Court's order on 13.07.2023 set aside the previous order, effectively meaning no order existed before 31.03.2023. The subsequent draft and final assessment orders dated 17.08.2023 and 30.06.2024, respectively, are therefore beyond the prescribed time limits. The assessee also referred to section 153(6) stating that an order should be completed within twelve months from the date of receipt of the ITAT order (24.04.2020), which would be 31.03.2022. The revenue did not record any specific arguments on the limitation issue in the provided text.

Which sections of the Income-tax Act were involved?

Section 153(4),Section 153(3),Section 153(6),Section 144,Section 260,Section 144B,Section 144C,Section 92CA,Section 254,Section 234B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C” BENCH : BANGALORE

Before: SHRI PRASHANT MAHARISHI & SHRI KESHAV DUBEY

For Respondent: Shri Padamchand Khincha, CA, Dr. Divya K J, Jt. CIT(DR)(ITAT), Bengaluru

Per Prashant Maharishi, Vice President 1. This appeal is filed by MetricStream Infotech (India) Pvt. Ltd. (The assessee/appellant) for the assessment year 2015-16 against the final assessment order dated 30.06.2024 passed u/s. 144 r.w.s. 260 r.w.s. 144B of the Income Tax Act, 1961 [the Act] by the Assessment Unit of the Income Tax Department.

2.

The assessee has raised the following grounds of appeal :-

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“GENERAL GROUND 1. The Orders passed by learned Deputy Commissioner of Income Tax, Circle — 4(1)(1), Bangalore (hereinafter referred as "AO" for brevity), learned Deputy Commissioner of Income Tax (Transfer Pricing Officer) — 2(1)(1), Bangalore (hereinafter referred as "TPO" for brevity) and the Honourable DRP-2, Bengaluru ("AO", "TPO" and DRP collectively referred as "lower authorities" for brevity) are bad in law and liable to be quashed. GROUND RELATING TO LIMITATION PERIOD 2. The Draft Assessment Order dated 17.08.2023 and consequential final assessment order dated 30.06.2024 passed by the learned AO are beyond the time limit prescribed for completion of fresh assessment proceedings as per provisions of Section 153(4) r.w.s 153(3) of the Act and therefore, orders are bad in law and liable to be quashed. GROUNDS RELATING TO TP ADJUSTMENT IN SOFTWARE DEVELOPMENT SEGMENT 3. The learned TPO/AO has erred in making transfer pricing adjustment of Rs. 3,92,84,444/- towards international transactions in the software development segment. 4. The lower authorities have erred in: (i) The lower income tax authorities have erred in adopting Rheal Software Pvt Ltd as a comparable despite it being functionally different, having insufficient information and having fluctuating margins. (ii) The lower authorities have erred in including Sasken Communication Technologies Ltd as a comparable even though it fails upper turnover filter of Rs.200 crores. (iii) Rejecting the following comparables selected/proposed by the Appellant for unjustified reasons: • Sankhya Infotech Private Limited • Athena Global Technologies Private Limited • Maveric Systems Limited.

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(iv) Erred in incorrectly computing the operating margin of the following comparables: • Cigniti Technologies Ltd; • CG-VAK Software & Exports Ltd; • E-Zest Solutions Ltd; 5. The lower authorities have erred in not granting working capital adjustment. GROUNDS RELATING TO TP ADJUSTMENT IN MARKETING SUPPORT SEGMENT 6. The learned AO has erred in making transfer pricing adjustment of Rs. 4,21,97,920/- towards international transactions in the marketing support segment. 7. The lower authorities have erred in selecting ICC International Agencies Ltd (Segmental) as a comparable despite it being functionally different. 8. The lower authorities have erred in adopting Platinum Advertising Pvt. Ltd as comparable even though it is not comparable in respect of functions performed, risks assumed, assets utilized, size, turnover, RPT filter, despite having unusual business circumstances or high margins, etc. 9. The learned TPO have erred in rejecting Priya International Limited (Segmental) as a comparable despite directions of DRP for inclusion and applying new filter for rejection, which was not applied earlier. 10. The lower authorities have erred in computing incorrect operating margins of the following comparables: i. Kestone Integrated Marketing Services Pvt Ltd and ii. ICC International Agencies Ltd. (Seg). 11. The lower authorities have erred in not granting working capital adjustment. GROUND RELATING TO NOTIONAL INTEREST ON TRADE RECEIVABLES

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12.

The lower authorities erred in: i) Not appreciating that the receivable from AE is not a separate international transaction, from the transaction of provision of services from which it is arising; and ii) Not appreciating that under TNMM, working capital adjustment subsumes receivables/payables and separate adjustment for notional interest on receivables is not required. 13. Without prejudice to above, the lower authorities have erred in: i) Adopting 6 months LIBOR at 4.3807% as arm's length rate. The rate adopted is incorrect and excessive; ii) Adopting mark-up of 400 basis point without providing any basis. The mark-up adopted is excessive. iii) Not adopting only LIBOR as aim's length interest rate; iv) Adopting 60 days as reasonable credit period without considering any comparables. The credit period adopted is on lower side. GROUND RELATING TO INTEREST U/S 234B 14. The lower authorities have erred in levying interest of Rs. 3,99,08,022/- u/s 234B. In the facts and in the circumstances of the case, interest under section 234B is not leviable. The Appellant denies its liability to pay interest under section 234B of the Act. The Appellant submits that each of the above grounds/ sub-grounds are independent and without prejudice to one another.” The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Income-tax Appellate Tribunal to decide the appeal according to law. The Appellant prays accordingly.” 3. The brief history of the case are that the assessee company filed its original return of income for the impugned assessment year on

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31.3.2016 declaring total income of ₹ 327,315,740/–. The return was picked up for scrutiny and because of the international transactions, reference was made to the learned transfer pricing officer to determine arm's-length price [ALP] of the international transactions. The order u/s. 92 CA of the Act was passed on 26.10.2018 proposing an adjustment of Rs.27,73,44,760 on account of international transaction. It resulted into a draft assessment order dated 29/11/2018.

4.

The assessee preferred objection before the ld. DRP, who issued directions u/s. 144C(5) on 20.8.2019 and accordingly TP adjustment of Rs. 27,73,44,760 was scaled down to Rs.22,55,50,186. . Based on this the order giving effect to the direction of the DRP was passed on 25/9/2019 wherein the transfer pricing adjustments were made to the extent of ₹ 220,283,261/–. Final assessment order was passed under section 143 (3) read with section 144C of the act on 27/9/2019 wherein the total income of the assessee was assessed at ₹ 553,736,358/–. The final assessment order was passed u/s. 143(3) of the Act.

5.

The assessee challenged the same before the Tribunal who passed an order dated 24.4.2020 allowing the argument of the assessee and directed the AO to pass an order. Pursuant to that, the AO made a fresh reference on 7.10.2020 to the TPO, who passed Order Giving Effect to the order of the Tribunal on 29.9.2022 whereby the adjustment was reduced to Rs.14,13,00,714. Pursuant to that the assessment order was passed on 29.3.2023.

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6.

The assessee challenged the same before the Hon’ble High Court of Karnataka challenging the assessment order that it was passed without issuing the draft order. The Hon’ble Karnataka High Court vide its order dated 13.7.2023 directed the AO to redo the procedure post the order of the Transfer Pricing Officer as per procedure u/s. 144C of the Act by passing a draft assessment order as the order of the TPO resulted into variation prejudicial to the interest of the assessee. Accordingly, the AO passed the draft assessment order on 17.8.2023. The assessee filed objections before the ld. DRP and the ld. DRP issued directions on 20.5.2024, according to which the total adjustment was restricted to Rs.8,43,02,549. Based on this, the assessment order was passed u/s. 144 r.w.s. 260 r.w.s. 144B of the Act on 30.6.2024. The same is under challenge before us.

7.

The ld. AR, Shri Padam Chand Khincha, CA, vehemently submitted that the impugned assessment order is barred by limitation. He put before us the several timelines and submitted that when the order of the ITAT was passed on 24.2.2020, due date for passing of an order u/s. 153(3) of the Act was 31.3.2022 which was extended in view of section 153(4) upto 31.3.2023. The TP Order was passed on 29.9.2022 and final assessment order was passed o 29.3.2023. The Hon’ble High Court passed the order on 30.7.2023, post-direction of the Hon’ble High Court, the draft assessment order was passed on 17.8.2023 and final assessment order which is under challenge was passed on 30.6.2024. He submits that when the ITAT has set aside the matter to the TPO, second reference by the AO is not warranted and therefore

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extension of 12 months as per section 153(4) of the Act is not applicable. He relied upon the decision of the Hon’ble Delhi High Court in the case of NDTV v. DRP, 465 ITR 687. He submits that even otherwise such extended time expires on 31.3.2023. He submits that the final assessment order was passed on 29.3.2023. The Hon’ble High Court has set aside the order as the same was in violation of section 144C of the Act and thus effectively there is no order before 31.3.2023. He referred to the decision of the Hon’ble High Court and submitted that order is only on the aspect of procedure not followed by the AO. He submits that the draft assessment order passed on 27.8.2023, final assessment order passed on 30.6.2024 are beyond time limit prescribed u/s. 153(3) of the Act and barred by limitation. Accordingly, he submits that the impugned assessment order is barred by limitation and therefore liable to be quashed.

8.

The ld AR referred to provisions of section 153 (6) of the act and submitted that where there is finding or a direction by ITAT then on or before the expiry of twelve months from the date of receipt of the order should be completed. In this case the order of the ITAT was passed on 24/04/2020. Therefore, the time limit has ended on 31/3/2022. The ld AO passed the final assessment order on 29/3/2023. This order was challenged before the Honourable High court which held that such order is in violation of provision of section 144C of the Act, directed the ld AO to pass the Draft assessment order. Such order was passed on 17/8/2023 and final assessment order was passed on 30/6/2024. Thus, the order is barred by Limitation. He further referred

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to the Order of the Honourable High court which did not grant the time limit extension to the ld AO nor was it prayed before court by the Revenue. Thus, the order is barred by limitation.

9.

The ld. CIT(DR), Dr. Divya K J, submitted as under:-

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10.

We have carefully considered the rival contentions and perused the timelines on which the various orders are passed. In this case the coordinate bench in ITA A No. 2347/Bangalore/2019 for assessment year 2015 – 16 pronounced in order on 24 April 2020 wherein the appeal filed by the assessee was allowed setting aside the comparable is back to the file of "the learned AO/TPO." The assessee filed miscellaneous application in MA No. 127/Bangalore/2020 which was disposed of on 4 December 2020 wherein paragraph No. 17.9 of the order was amended and once again the issue was restored to the file of the learned/AO/TPO. Thereafter the learned assessing officer issued a fresh reference to the Deputy Commissioner of income tax transfer pricing 2 (1) (1), Bangalore on 7 October 2020. Thus, it is apparent that the order of the coordinate bench was received by the learned assessing officer on that date AO made a reference to the TPO. The timeline prescribed under section 153 (6) of the act will start from apparently 12 months from 31 October 2020. Thus, the assessment order should have been passed on or before 31 October 2021. Such is the mandate of the provisions of section 153 (6) (i) of the act. The learned transfer pricing officer passed an order under section 92CA read with section 254 of the income tax act on 29 September 2022. The final assessment order was passed on 29th of March 2023. The assessee challenged the assessment order dated 29 March 2023 stating that the assessing officer should have passed a draft of the proposed order of assessment to the assessee and not the final assessment order. The honourable High Court in writ petition No. 8816 of 2023 dated 13 July

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2023 and held that that the AO should have followed the procedure prescribed under section 144C of the act, thereby meaning that the assessing officer should have passed the draft assessment order. In the order of the honourable High Court the impugned assessment order dated 29 March 2023 was set-aside and the AO was directed to redo the procedure under section 144C of the act. Pursuant to that draft assessment order under section 144C (1) was passed on 17 August 2023 against which the direction of the learned dispute resolution panel were issued on 20th may 2024 and the order giving effect to the direction of the learned dispute resolution panel was passed by the transfer pricing officer on 10 June 2024 resulting into the final assessment order passed under section 144 read with section 260 read with section 144B of the act was passed on 30 June 2024.

11.

Thus based on the above timeline it is apparent that the assessment order should have been passed from the order of the ITAT dated 24 April 2020 which was received by the assessing officer on 7 October 2020 (as on that date the assessing officer made on a reference to the transfer pricing Officer in remand proceedings), the final assessment order should have been passed on or before 31 October 2021. Even if we presume that the second reference made by the learned assessing officer to the learned transfer pricing officer on 7 October 2020 is a valid reference, though we do not subscribe to that view, the timeline would be extended by a further one year and it will end on 31 October 2022. The impugned assessment order was passed on 29 March 2023 is therefore barred by limitation.

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12.

In view of the above facts we quash the assessment order is barred by limitation. Allowed Ground No 2 of the Appeal, Other Grounds do not need any adjudication and hence, Infructous, hence dismissed.

13.

In the result appeal of the assessee is allowed holding that the assessment order passed by the learned assessing officer is beyond the limitation prescribed and therefore is quashed.

14.

In the result appeal filed by the assessee is allowed.

Pronounced in the open court on this 13th day of February 2026.

Sd/- Sd/-

( KESHAV DUBEY ) ( PRASHANT MAHARISHI ) JUDICIAL MEMBER VICE PRESIDENT

Bangalore, Dated, the 13th February 2026.

/Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore.

By order

Assistant Registrar ITAT, Bangalore.

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