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Facts
The assessee company, engaged in software development services, filed its return of income for AY 2020-21. Following a reference to the TPO for determination of arm's length price, upward adjustments were made. The assessee filed objections before the DRP, which issued directions. The TPO passed a give effect order, and subsequently, the Assessing Officer (AO) passed the final assessment order.
Held
The Tribunal held that the Assessing Officer failed to pass the final assessment order within the statutory time limit prescribed under Section 144C(13) of the Income Tax Act. The receipt of DRP directions is considered when they are uploaded on the ITBA portal, not when physically received later.
Key Issues
Whether the Assessing Officer passed the final assessment order within the time limit prescribed under Section 144C(13) of the Income Tax Act, considering the date of receipt of DRP's directions.
Sections Cited
143(3), 144C, 144B, 92CA, 144C(13), 282, 13
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, HYDERABAD BENCHES “B” , HYDERABAD
Before: SHRI LALIET KUMAR, HON’BLE & SHRI G. MANJUNATHA, HON’BLE
O R D E R PER LALIET KUMAR, J.M.
This appeal is filed by the assessee, feeling aggrieved by the assessment order dt.19.07.2024 passed u/s 143(3) r.w.s. 144C(3) read with Section 144B of the Income Tax Act for the AY 2020-21.
Facts of the case, in brief, are that assessee company, which is engaged in providing software development services to its group entities, filed its return of income for A.Y. 2020-21 declaring total income of Rs.5,70,07,630/- on 30.11.2021. Notice u/s 143(2) of the Act dt.29.06.2021 was issued to the assessee. Subsequently, reference u/s 92CA(1) of the Act was made to the Transfer Pricing Officer (TPO) for determination of arm’s length price in respect of international transactions of Rs.79,30,427/- reported in Form 3CEB. Thereafter, TPO passed order u/s 92CA(3) of the Act on 31.03.2023 making upward adjustments to ALP by Rs.79,30,427/-. The said order was passed after taking into account the contentions of the assessee before the TPO. In view of the said order, addition of Rs.79,30,427/- was made to the returned income of the assessee company in accordance with the provisions of 92CA(4) of the Act. The draft assessment order determining the total income of RS.6,49,38,057/-, passed under section 144C r.w.s. 1448 of the Act dated 22.09.2023, was duly served to assessee.
2.1 The assessee filed objections against the assessment order before the Dispute Resolution Panel, which issued directions on 22.05.2024, as per the provisions of section 144C(5) of the Act. In paragraphs 2.4.2 and 2.5.3 of its order, the Ld. DRP directed the Transfer Pricing Officer to include 'Batchmaster Software Pvt. Ltd.' as a comparable and to exclude 'XS-CAD' on account of functional dissimilarities. As per the directions of DRP, the TPO passed a give effect order to the directions received under Section 144C vide order dt.12.06.2024. The TPO revised the adjustments made for provision of software development services from Rs.67,95,430/- to Rs.42,91,728/- and thereby determined the total income at Rs.6,24,35,355/-.
Feeling aggrieved with such assessment order, assessee is now in appeal before us.
Before us, at the outset, the ld.AR has drawn our attention to the legal ground raised by the assessee with respect to non- passing of the order within the time period as provided under Section 144C(13) of the Act. The ld.AR has drawn our attention to the order of Assessing Officer dated 19.07.2024. It was submitted that the DRP passed its order on 22.05.2024, and based on the said order, the TPO passed the order giving effect on 12.06.2024. It was further submitted that the basis of passing of the order by the TPO was the order passed by the DRP on 22.05.2024, and therefore, on the same day, the DRP’s order was received by the TPO via email. Hence, it was contended that the AO was required to pass the final order before the expiry of the statutory time limit as prescribed under Section 144C(13). Our attention was further drawn to para 7 of the AO’s order, which reads as under :
As per directions received from Ld. DRP-1, Bengaluru, the Transfer Pricing Officer passed a give effect order to the directions received under section 144C vide order dated 12.06.2024. As directed by the Ld. DRP, XS-CAD' is excluded from comparable on functional dissimilarities and Batchmaster Software Pvt. Ltd. is included as comparable. The Transfer Pricing Officer revised the adjustment made u/s. 92CA in the order dated 31.03.2023. In the order dated 31.03.2023, the TPO made following adjustments: S.No. Description Adjustment u/s 92CA (in Rs.) 1 Provision of Software development 67,95,430/- expenses 2 Interest on delayed receivables 11,35,997/- Total Adjustments 79,30,427/- As per directions of the Ld. DRP, the TPO revised the adjustments made for Provision of software development services.
The ld.DR, on the other hand, has drawn our attention to page 9 of the AO’s order, wherein it was mentioned that the order of the DRP, along with the TP order, was received on 12.06.2024. Accordingly, it was argued that the AO’s order was passed within the prescribed time limit and is, therefore, valid. The relevant portion at page 9 of the order reads as under :
…..In the order giving effect to the direction of Ld. DRP, the TPO revised the adjustments made for Provision of software development services from 67,95,430/- to 42,91,728/-The order of DRP along with order passed by TPO were received in this office in worklist on 12-06-2024.
In rebuttal, the ld.AR referred to the judgment of the jurisdictional High Court in the case of Rapiscan Systems Pvt. Ltd Vs ADIT (Int. Taxation) which is to the following effect :
“FINDINGS: 13. Before dealing with rival contentions, it is apposite to consider Sections 144C(13) and 282(1)(c) of the Income Tax Act and Section 13 of the I.T. Act which reads thus: "Section 144C: Reference to dispute resolution panel:- (1) to (12)... (13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained insection 153 or section 153B, the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received." "Section 282: Service of notice generally:- (1) The service of a notice or summon or requisition or order or any other communication under this Act (hereafter in this section referred to as "communication") may be made by delivering or transmitting a copy thereof, to the person therein named,-- (a) and (b)... (c) in the form of any electronic record as provided in Chapter IV of the Information Technology Act, 2000 (21 of 2000); or" "Section 13: Time and place of despatch and receipt of electronic record.:- (1) Save as otherwise agreed to between the originator and the addressee, the despatch of an electronic record occurs when it enters a computer resource outside the control of the originator. (2) Save as otherwise agreed between the originator and the addressee, the time of receipt of an electronic record shall be determined as follows, namely:- (a) if the addressee has designated a computer resource for the purpose of receiving electronic records,-(i)receipt occurs at the time when the electronic record enters the designated computer resource; or(ii)if the electronic record is sent to a computer resource of the addressee that is not the designated computer resource, receipt occurs at the time when the electronic record is retrieved by the addressee; (b) if the addressee has not designated a computer resource along with specified timings, if any, receipt occurs when the electronic record enters the computer resource of the addressee." (Emphasis Supplied) 14. The E-Assessment Scheme, 2019 placed reliance on Section 13 of the I.T. Act for the purpose of delivery of electronic record. The relevant portion reads thus: "Delivery of electronic record: 10. (1) Every notice or order or any other electronic communication under this Scheme shall be delivered to the addressee, being the assessee, by way of:- (a) placing an authenticated copy thereof in the assessee's registered account; or (b) sending an authenticated copy thereof to the registered email address of the assessee or his authorized representative; or (c) uploading an authenticated copy on the assessee's Mobile App; and followed by a real time alert. (2) and (3) xxx (4) The time and place of dispatch and receipt of electronic record shall be determined in accordance with the provisions of Section 13 of the Information Technology Act, 2000 (21 of 2000)." (Emphasis Supplied) 15. The Delhi High Court in Louis Dreyfus Company India Private Limited (supra) held as under: "15. In terms of sub-section (13) of Section 144C of the Act, the AO is mandated to complete the assessment ―in conformity with the directions as framed by the DRP. That very provision commands the AO to complete the assessment within one month from the end of the month in which such a direction is received.
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 Private Limited v. Additional Commissioner of Income Tax Officer, National Faceless Assessment Centre & Ors10. 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.' 20. 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 assesse 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 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." (Emphasis Supplied) 16. The Bombay High Court in Vodafone Idea Ltd. (supra) opened as under: "15. Annexed to the affidavit of Mr. Satish Sharma is a screenshot of the CHN-Case History Notings of the Dispute Resolution Panel proceedings uploaded on the Income-tax Business Application portal. The screenshot is of the page as it appears on the Income-tax Business Application portal. A perusal of the screenshot of Case History Notings of the Dispute Resolution Panel read with the affidavit filed by Mr. Satish Sharma, the Chief Commissioner of Income-tax and Ms. Anne Varghese, the Joint Commissioner of Income-tax, clearly indicate that once the DRP directions are uploaded and the Document Identification Number ("DIN") is generated, which is also visible on the first page of the hard copy of the DRP directions, the said document is visible to the AO of the Faceless Assessment Unit ("FAU") having jurisdiction over the permanent account number of the assessee concerned. Thus, both the affiants agree that the Dispute Resolution Panel directions once uploaded on the Income-tax Business Application portal are automatically visible to the Faceless Assessing Officer, if any assessment work item is pending related to a particular permanent account number. Admittedly assessment proceedings of the petitioner were pending. Thus, undoubtedly the Dispute Resolution Panel directions uploaded on the Income-tax Business Application portal were readily and clearly visible and accessible to the Faceless Assessing Officer of the assessee. 16...
Mr. Singh made all attempts to persuade us that despite the Income- tax Business Application portal displaying the Dispute Resolution Panel directions and the same being accessible to the Faceless Assessing Officer, it was only on August 23, 2023, that the same were received by the Faceless Assessing Officer. We cannot accept this because, the E- assessment Scheme itself provides that all communication is deemed to have been received by the assessment units concerned once received through the National e-Assessment Centre. Thus, once the e- assessment Centre is in receipt of the Dispute Resolution Panel directions, the period of limitation runs from that day. There is no requirement of a deep dive in an analysis of the phrase "upon receipt of directions" as it appears in section 144C(13) of the Act. The fundamental principle of interpretation is to assign words their natural, original and precise meaning, provided that the words are clear and take into account the purpose of the statute. It is settled law that a provision should be interpreted in its literal sense and given its natural effect. This is the elementary golden rule of interpretation of statutes. Since there is no ambiguity pertaining to the phrase "upon receipt of the directions issued under sub- section (5) of section 144C of the Act, the Assessing Officer shall. . ." there is no requirement of delving in a further in-depth analysis of the clear provision. 18 to 20......
Thus, if the provisions of section 144C as mandated by the statute are not strictly adhered to the entire object of providing for an alternate redressal mechanism in the form of Dispute Resolution Panel stand defeated. That is not the intention of the Legislature when the provision was introduced in the Act. Section 144C(10) of the Act provide that the directions of Dispute Resolution Panel are binding on the Assessing Officer. By failing to pass any order in terms of the provision, the Assessing Officer cannot be permitted to defeat the entire exercise and render the same futile. When a statute prescribes the power to do a certain thing in a certain way, then the thing must be done in that way and other methods of performance are forbidden. Once the statute has prescribed a limitation period for passing the final order, it is expected that the internal procedure of the Department should mould itself to give meaning to and act in aid of the provision. Any procedural defect (there is none in this case) in the internal mechanism of the working of E- assessment Scheme, cannot operate against the interest of the assessee. Hence, the Faceless Assessing Officer cannot be believed that the Dispute Resolution Panel direction was received by him only on August 23, 2023 despite being uploaded on the Income-tax Business Application portal on March 25, 2021. The failure on the part of Department to follow the procedure under section 144C of the Act is not merely a procedural irregularity, but is an illegality and vitiates the entire proceeding."
17. The Madras High Court in Taeyang Metal India (P) Ltd. (supra) followed the principle laid down by the Delhi High Court in the aforesaid judgment.
The common string traveling through the judgments of the aforesaid three High Courts leaves no room for any doubt that the Courts have taken a uniform view that Section 144C(13) mandates the assessing officer to complete the assessment within one month from the end of the month in which such a direction is issued. Interestingly, the Bombay High Court considered paragraph No.4(2) of Scheme of 2019 which makes it clear that all communications among the assessment unit, review unit, verification unit or technical unit or with the assessee or with any other person shall be through the national e-assessment centre. The use of words 'any other person' makes it very wide and shows the intention of the scheme makers that they intended to bring within its fold all nature of communications which shall be made through national e-assessment centre.
The Delhi High Court in Louis Dreyfus Company India Private Limited (supra) further held that it is obligatory under the scheme to necessarily upload the communication on the ITBA portal. Upon uploading the information on the portal, the period of limitation as prescribed under Section 144C(13) of the Income Tax Act would be liable to be computed bearing that crucial date in mind.
Importantly, the Bombay High Court in Vodafone Idea Ltd. (supra) poignantly held that as per the said scheme once e- assessment centre is in receipt of DRP directions, the period of limitation runs from that date. No further deep dive is required in view of language of Section 144C(13) of the Income Tax Act.
21. Sri Vijhay K Punna, learned Standing Counsel for revenue, placed reliance on the judgment of Supreme Court in the case of National Faceless Assessment Centre (supra). The said case is arising out of faceless assessment procedure envisaged in Section 144B of the Income Tax Act. The Apex Court while upholding the view of the High Court observed that faceless assessment scheme came into being recently and therefore, the revenue ought to have been given some leverage to correct themselves and take corrective measures. The said observation of the Supreme Court is related to the faceless regime and cannot be stretched and made applicable in this case. This is trite that the precedential value of a judgment relates to the point which has been actually decided and not what is logically flowing from it (see Dr. (Mrs.) Chanchal Goyal v. State of Rajasthan 8). It is equally settled that a singular different fact or point may change the precedential value of a judgment (see Bhavnagar University Vs. Palitana Sugar Mill (P) Ltd. 9).
So far, the judgment in the case of Commissioner of Income Tax, Chennai (supra) is concerned on which reliance is placed by Sri Vijhay K Punna, it is profitable to note that in the said case, the Supreme Court considered Section 263(2) of the Income Tax Act, in the said Section the word used is 'made' and not 'receipt of the order'. The Supreme Court emphasized the cardinal principle of the law that provision of statute is to be read as it is and nothing is to be added or taken away from the provision of the statute. In other words, this is well settled that 2003 (3) SCC 485 (2003) 2 SCC 111 when language of statute is clear and unambiguous, it has to be given effect to irrespective of its consequences (see Nelson Motis vs. Union of India 10).
The pivotal question is whether in view of the language employed in Section 144C(13) whether directions of DRP can be said to be received by the assessing officer on 30.06.2022. A conjoint reading of Section 144C (5) and (13) makes it clear that upon receipt of directions issued under Section 144C(5), it is imperative for assessing officer to complete the proceedings within one month from end of the month in which such a direction is received. Thus, key words used in Section 144C(13) are 'upon receipt of directions issued under Sub-Section (5)' 24. Although, Delhi, Bombay and Madras High Courts have already taken a view and we respectfully agree with that once such directions of DRP are uploaded on the portal, the DRP lost control over it and date on which it entered the portal, the recipient i.e, the assessing officer comes to know about it. 25. To elaborate, it is profitable to refer to Section 13(1) of the I.T.Act. This Sub-Section deals with 'despatch of electronic record' 1992 (4) SCC 711 and envisages that 'despatch' of an electronic record is when it enters the computer resource outside the control of originator. Undisputedly, in this case, the 'originator' is the DRP. Sub-Section (za) of Section 2 of the I.T.Act defines the word 'originator' and reads thus: "Section 2: Definitions (za) ―originator means a person who sends, generates, stores or transmits any electronic message or causes any electronic message to be sent, generated, stored or transmitted to any other person but does not include an intermediary;" (Emphasis Supplied) 26. Once 'originator' enters a computer resource outside his control, 'despatch' takes place. Sub-Section 2 (a) of Section 13 of the I.T.Act deals with 'receipt' which makes it clear that 'receipt' occurs at the time when the electronic record enters the designated computer resource. Thus, the meaning of 'despatch' or 'receipt' is elaborately defined in aforesaid Sub- sections of Section 13 of the I.T.Act. The word 'computer resource' is also defined under Section 2(k) of the I.T.Act, which reads thus: "Section 2: Definitions (k) ― computer resource means computer, computer system, computer network, data, computer data base or software;"
In the instant case, parties have taken a diametrically opposite view on the aspect whether the directions uploaded on the portal on 30.06.2022 can be treated to be 'receipt' on the part of the assessing officer. Sri Vijhay K Punna, learned Standing Counsel for revenue contends that 'receipt' will be the date when the e-mail was received by the revenue containing the DRP directions i.e., on 05.07.2020.
As per the view taken by the aforesaid three High Courts there is no doubt that when the originator/DRP sends its directions in computer resource outside its control, it amounts to 'despatch' and similarly, 'receipt' takes place when said electronic record enters the computer resource.
Section 282 of the Income Tax Act on which reliance was placed by Sri Vijhay K Punna, learned Standing Counsel for revenue makes it clear that in Sub-Section 1(c) of Section 282, the communication through electronic record as per Chapter IV of the I.T.Act was recognized and treated to be service of notice generally. Chapter IV of the I.T.Act contains Section 13, which envisages time, place of 'despatch' and 'receipt' of electronic record.
In order to meticulously examine the aspect of 'despatch' and 'receipt', in the present case, it is apt to quote the relevant 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. Further, physical copy of the Directions was also sent to the Assessing Officer on 30.06.2022 through Speed Post." (Emphasis Supplied) 31. The Income Tax Department through communication dated 30.06.2022 (Annexure P-19) informed that the order under Section 144C(5) dated 30.06.2022 is having Document No.(DIN) ITBA/DRP/M/144C(5)/2022-23/1043689612(1). This is a system generated document and it does not require any signature. A conjoint reading of communications dated 30.01.2024 and 05.03.2024 (Annexure P-18) and communication dated 30.06.2022 (Annexure P-19) leaves no room for any doubt that DRP's directions were despatched on 30.06.2022 and also uploaded on the portal on the same date. Thus, the DRP/originator had lost control over it on the date and time the said directions were uploaded on the portal. Hence, same must be treated to be a 'receipt' by the recipient i.e., the assessing officer on the same day i.e., 30.06.2022. (See paragraph No.26.7 of Suman Jeet Agarwal v. Income-tax Officer 11, where the Delhi (2022) 449 ITR 517 High Court poignantly held that the portal of the department is the 'computer resource in the control of the department').
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.”
In view of the above, the appeal of assessee is required to be allowed.
We have heard the rival submissions and perused the material on record. Section 144C(13) of the Act provides as under:
Section 144C(13) in The Income Tax Act, 1961 (13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153, the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received.
From the plain reading of the above, it is clear that the order is required to be passed by the Assessing Officer within one month from the date of receipt of order form the end of the month in which the order was received by the Assessing Officer. It is the case of the assessee that the proceedings before the DRP were conducted on the basis of rules and guidelines framed under Section 144B, read with Section 282 of the Act. In the present case, admittedly, the order of DRP was upheld on 22.05.2024 and immediately, the same must have been transmitted and received by the Assessing Officer / TPO.
In the present case, the DRP had issued directions on 22.05.2024 and, on the same day, sent an email to the Assessing Officer / TPO. The TPO, after receiving the direction of the DRP, passed the order giving effect on 12.06.2024. However, the Assessing Officer passed the order only on 19.07.2024. In the order dated 19.07.2024, the Assessing Officer recorded that the TPO passed the order giving effect on 12.06.2024 in paragraphs 7 and 9 of his order. The Ld. DR argued that the one-month period should be computed either from the end of the communication received from the office of the TPO or, alternatively, from the date on which the Assessing Officer received the TPO's order along with the DRP's directions on 12.06.2024, making the order passed on 19.07.2024 timely. We are afraid that the above said proposition of Ld.DR is without any basis and is contrary to the decision of the jurisdictional High Court in Rapsican Systems Pvt. Ltd. (supra), wherein the Hon'ble High Court emphasized that the time limit provided under Section 144C(13) is mandatory and that the final order is required to be passed within the prescribed time under the Act. In the present case, no contrary evidence was filed by the Revenue or brought to the notice that the order passed by the DRP was not received on the date when it was uploaded on the Portal i.e., on 22.05.2024. Therefore, we presume that the date of communication of the DRP’s directions is 22.05.2024. Furthermore, the Assessing Officer received the TPO’s order giving effect on 12.06.2024 and still had sufficient time to pass the consequential order under Section 144C(13) on or before 30.06.2024. However, the Assessing Officer passed the order only on 19.07.2024, which is beyond the statutory time limit. Therefore, in our considered opinion, the order passed by the Assessing Officer is barred by limitation and is liable to be quashed, in view of the jurisdictional High Court’s decision in Rapsican Systems Pvt. Ltd. (supra). Accordingly, the legal grounds raised by the assessee are allowed, and consequently, the appeal filed by the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 4th February, 2025.