TMEIC INDUSTRIAL SYSTEMS INDIA PRIVATE LIMITED,HYDERABAD vs. DCIT, CIRCLE -2(1), HYDERABAD

Capacity Utilisation adjustment not considered a) Not granting an economic adjustment on account of low capacity utilization while conducting the comparability analysis as clearly outlined in the provisions of Rule 10B b) Failed to consider the impact of high capital investment and low capacity utilization, which had a direct impact on the Appellant's profitability from its international transactions, and therefore not comparing the adjusted profitability while benchmarking the international transactions. c) Not considering the cost records as certified by the Cost Accountant for claim of the capacity utilisation by the Appellant.

Ground No.1 is regarding the validity of the assessment order passed by the Assessing Officer, beyond the period of limitation prescribed u/s 144(13) of the I.T. Act, 1961. The learned AR has submitted that, as per the provisions of section 144(13), the limitation to pass the final order expired on 31/07/2022. However, the Assessing Officer has passed the impugned order on 4th August, 2022 which is barred by limitation. The learned AR has submitted that the DRP passed the directions u/s 144C(5) on 17/06/2022 and were sent through mail on the same date i.e. 17/06/2022. He has filed the intimation letter dated 17/06/2022 whereby the directions of the DRP were also uploaded on the ITBA Portal on 17/06/2022 itself. Thus, the directions of the DRP are deemed to be received by the Assessing Officer on 17/06/2022 and the limitation provided u/s 144C(13) is only one month from the end of the month in which the directions of the DRP is received and hence, expires on 31/07/2022 whereas the impugned order was passed by the Assessing Officer on 4/8/2022 which is barred by limitation and liable to be quashed. In support of his contention, he has relied upon the judgment of the Hon'ble Delhi High Court in the case of Louis Dreyfus Company India (P) Ltd vs. Dy. CIT reported in (2024) 464 ITR 595 (Delhi) and submitted that the directions of the DRP would be regarded to be received by the Assessing Officer on the date when the same are uploaded and forwarded to the Page 5 of 14 National Faceless Assessment Centre. The date of receipt should be reckoned as the date on which the order is received by the NFAC. The learned AR has also relied upon the judgment of Hon'ble jurisdictional High Court dated 09/01/2025 in the case of Rapiscan Systems Inc. US vs. Asstt. Director of International Taxation in W.P No.44891 and 44915 of 2022. Thus, the learned AR has submitted that the impugned assessment order is not sustainable in law and liable to be set aside.

On the other hand, the learned DR has submitted that the provisions of section 144(13) provides the time limit, within which the Assessing Officer is required to pass the final assessment order, from the date of receipt of the directions issued by the DRP under sub-section (5). The said time limit is within one month from the end of the month in which the direction is received. Thus, the Legislature has specified the time period as the month in which such direction is received but limitation will be reckoned from the end of the said month. He has filed the report of the Assessing Officer showing that the directions were received by the Assessing Officer on 05/07/2022 and therefore, the limitation would expire on 31/08/2022.

We have considered the rival submissions as well as the relevant material available on record. There is no dispute that the DRP passed the directions on 17/06/2022 which were also Page 6 of 14 sent to the assessee through email and uploaded in the ITBA on 17/06/2022 itself vide intimation dated 17/06/2022 as under:

Thus, even as per these order sheet notings, the DRP order was uploaded on 29/06/2022 and sent to the Assessing Officer, Assessment Unit, Circle 2(1) Hyderabad. Though there is another entry of uploading of directions of the DRP on 05/07/2022, however, once the DRP directions were uploaded on ITBA Portal on 17/06/2022 and further, on 29/06/2022, then the same will be considered as communicated to the Assessing Officer, on the date of such uploading. The Hon'ble Delhi High Court in the case of Louis Dreyfus Company India (P) Ltd vs. Dy. CIT (Supra) has held in para 17 to 23 as under: “17. As is manifest from a reading of sub-section (13) of Section 144C of the Act, the AO is not accorded any discretion in the framing of an order of assessment once directions have come to be framed by the DRP. In fact, the provision requires the AO to frame an order of assessment in conformity with those directions and without providing any further opportunity of hearing to the assessee. This principle of law has been affirmed by the Bombay High Court in the aforenoted paragraphs of Vodafone Idea and in Shell India Markets (P.) Ltd. v. Addl. CIT, National Faceless Assessment Centre [2022] 139 taxmann.com 335/443 ITR 366 (Bom.)/ Judgment dated 14 February 2022 in WP No. 3298/2021. The relevant paragraph of the decision in Shell India are extracted hereinbelow: "10. Sub-section (13) of Section 144C, therefore, is very clear inasmuch as the Assessing Officer shall, upon receipt of the directions issued under sub-section (5), in conformity with the directions, complete the assessment within one month from the end of the month in which such direction is received. Sub- section (13) also provides that the Assessing Officer can complete the assessment without providing any further opportunity of being heard to the assessee. This means that the moment the Assessing Officer receives the directions under sub-section (5), he has to straightaway complete the assessment and he does not even have to hear the assessee. The Assessing Officer shall simply comply with the directions received from the DRP within one month from the end of the month in which such direction is received."

In this backdrop, we note that both the judgments of the Bombay High Court in Shell India Markets (P.) Ltd's case (supra) and Vodafone Idea Ltd's case (supra) construe the time lines as provided in Section 144C to be mandatory in character. In our considered opinion, this interpretation is in accord with the intent behind insertion of that provision and the bare text and spirit of that section. Thus, we accord our approval to the interpretation as set out in the aforenoted decisions of the Bombay High Court.

Further, the procedure of assessment as provided under section 144C does not envisage or contemplate the interdiction or involvement of the TPO once a directive has been framed by the DRP. The role of the TPO comes to an end once an order as contemplated under section 92 CA(4) of the Act has come to be framed and remitted to the AO. There was thus no occasion for the TPO having resumed proceedings post the passing of the direction by the DRP on 20 June 2022.

Undisputedly, the directive of the DRP came to be uploaded on the ITBA portal on 24 June 2022. It is additionally stated to have been dispatched through Speed Post to the third respondent (TPO) and the fourth respondent (Additional/Joint/Deputy/Assistant Commissioner of Income Tax, National Faceless Assessment Centre, New Delhi) on 27 June 2022. It is thereafter that the TPO appears to have passed the order dated 25 July 2022. 21. We, however note that paragraph 4(2) of the E-as, 2019 makes the following salient provisions:- "4(2). All communication among the assessment unit, review unit, verification unit or technical unit or with the assessee or any other person with respect to the information or documents or evidence or any other details, as may be necessary for the purposes of making an assessment under this Scheme shall be through the National e-assessment Centre." 22. It is thus manifest that as per the provisions of E-as, 2019, all orders, notices and decisions have to be necessarily uploaded on the ITBA portal and as part of the larger faceless assessment regime which now holds the field. The uploading of the directive of the DRP on the ITBA portal would thus constitute valid and sufficient service and the period of limitation as prescribed in Section 144C(13) of the Page 10 of 14 Act would be liable to be computed bearing that crucial date in mind. Once the aforesaid position becomes clear, it is evident that the order of assessment, if at all could have been framed lastly by 31 July 2022. There has thus been an abject failure on the part of the first respondent to comply with the mandatory timelines as incorporated in the aforenoted provisions. Accordingly, the writ petition is liable to be allowed and the impugned order of assessment and the consequential penalty proceedings are thus liable to be set aside on this short score alone.

The writ petition is allowed. The order of assessment dated 24 August 2022 as well as the penalty show cause notice dated 24 August 2022 are quashed and set aside. For reasons aforenoted and consequent to a failure on the part of the respondents to implement the directives of the DRP, the return as submitted by the petitioner would be deemed to have been accepted and the tax liability worked accordingly.”

Thus, the Hon'ble Delhi High Court has held the directions of the DRP on the ITBA Portal would constitute valid and sufficient service and the period of limitation as prescribed in section 144C(13) of the Act would be liable to be computed bearing that crucial date in mind. The learned AR has also relied upon the judgment of the Hon'ble jurisdictional High Court dated 9/01/2025 in case of Rapiscan Systems Pvt. Ltd vs. ADIT (International Taxation) in Writ Petition No.44891 and 44915 of 2022 wherein the Hon'ble jurisdictional High Court has held in para 30 to 33 as under: “30. In order to meticulously examine the aspect of 'despatch' and 'receipt', in the present case, it is apt to quote the relevant SP,J & Dr.GRR,J Wps_44891 & 44915 of 2022 portion of letter dated 05.03.2024 filed along with I.A.No.1 of 2024 in the present matter, which reads as under: "2. In this regard, it is hereby stated that the direction dated 30.06.2022 were uploaded on ITBA portal on 30.06.2022.

In view of forgoing discussion, there is no cavil of doubt that assessing officer received the DRP's directions on 30.06.2022 and therefore, the limitation must be counted from that date and not from 05.07.2022. The impugned assessment orders dated 30.08.2022 and 01.09.2022 that were issued counting the limitation from 05.07.2022 in both the Writ Petitions are liable to be set aside as the same are issued beyond permissible period of limitation.

In the result, both the Writ Petitions are allowed by setting aside the impugned assessment orders dated 30.08.2022 and 01.09.2022. There shall be no order as to costs. Miscellaneous applications, if any, shall stand closed.”

The Hon'ble jurisdictional High Court has concurred with the view taken by the Hon'ble Delhi High Court in the case of Louis Dreyfus Company India (P) Ltd vs. Dy. CIT (Supra).

Since we have set aside the assessment order being barred by limitation and invalid, therefore, we do not go into the other grounds raised by the assessee which were also not argued by the parties.

In the result, appeal filed by the assessee is allowed.