CLAIRVOLEX IP SOLUTIONS PRIVATE LIMITED,DELHI vs. DCIT, CIRCLE-4(2), NEW DELHI

“A. Introductory submission “2. The present appeals raise the issue as to whether in cases governed by section 144C of the I.T. Act, the time consumed in the proceedings undertaken after draft assessment order under section 144C of the I.T. Act before the Dispute Resolution Panel ("DRP") and the Assessing officer get subsumed within the time limitation prescribed under section 153 of the I.T. Act or whether section 144C operates as a special statutory mechanism with its own distinct timelines for completing the assessment after passing of the draft assessment order.

5. It is settled law that a split verdict declares no law under Article 141 of the Constitution, and the legal position remains open until authoritatively settled by a majority decision. (ii) Interim restraint on citing Bombay High Court judgment in case of Shelf Drilling 6. At the admission stage of the matter arising from the Bombay High Court judgment in case of Shelf Drilling Ron Tappmeyer Ltd. [2023] 153 taxmann.com 162 (Bombay), the Hon'ble Supreme Court passed an interim order dated 22.09.2023, directing that the High Court judgment shall not be cited as a precedent in any other subsequent matter until further orders. The relevant part of the said order is reproduced as under:

Having heard the respective senior counsel for the parties, we observe that the impugned judgment shall not be cited as a precedent in any other subsequent matter until further orders. We also clarify that the operative portion of the judgment shall apply only insofar as the respondents herein are in question This interim order has not been vacated or modified and continues to bind all courts, tribunals and judicial authorities in India. Interim orders subsist unless expressly vacated.

9. The above decision supports the Revenue's submission that, pending Supreme Court adjudication, the justifiable course available for this Hon'ble Tribunal is to defer adjudication of present appeals respecting the higher wisdom of Hon'ble High Court and Hon'ble Supreme Court. (iv) Grant of leave in Roca Bathroom and pendency before Hon'ble S.C. - legal implications

Products Pvt. Ltd., reported in 140 taxmann.com 304 (Mad.), and the same has not been stayed by the Hon’ble Apex Court. He further contended that even if in a situation where the Hon’ble Apex Court has stayed the order passed by Hon’ble High Court the ratio dicidendi of the judgment shall remain valid unless reversed/set aside by the Higher Court. In support of his submissions, he placed reliance on the decision in the case of Shree Chamundi Mopeds Ltd. v. Church of South India Trust, 1992 AIR SC 1439. He further referred to the judgment of Hon’ble Bombay High Court in the case of PayPal Payments P. Ltd. (supra) to reiterate that the decision rendered in the case of Roca Bathroom Products P. Ltd. (supra) and the decision of Hon’ble Delhi High Court in the case of Nokia India P. Ltd. vs. DCIT in Writ Petition No.1773 of 2016 decided on 21.09.2017 [85 taxmann.com 291 (Delhi)], wherein identical issue was decided has not been stayed by the Hon’ble Supreme Court of India. He thus prayed for proceeding with the hearing and adjudication of the issue. The ld. Counsel pointed that the Coordinate Benches of the Tribunal have already decided this issue after placing reliance on the judgement rendered in the case of Roca Bathroom Products P. Ltd. (supra).

determination before the Hon’ble Supreme Court of India. The Hon’ble Court further observed that similarly placed assessees who have succeeded before the Hon’ble Madras High Court inter alia in Roca Bathroom Products P. Ltd. (supra) as also before the Hon’ble Delhi High Court in Nokia India P. Ltd. (supra), the proceedings arising from said decisions of the Hon’ble Madras High Court and the Hon’ble Delhi High Court are pending before the Hon’ble Supreme Court of India. The said orders of the Hon’ble High Courts setting aside the assessment orders are not stayed by the Hon’ble Apex Court. Thus, it is evident that in so far as the decision rendered in the case of Roca Bathroom Products P. Ltd. (supra) by the Hon’ble Madras High Court, the same is not stayed.

It is a well settled legal proposition that when the operation of a specific order is stayed by the Higher Court, then its enforcement is stayed but the ratio decidendi of such order/judgment is not nullified unless explicitly set aside. The Hon’ble Supreme Court of India in the case of Shree Chamundi Mopeds Ltd. v. Church of South India Trust (supra) has held that an order of interim stay does not result in quashing of the impugned order. It only means that the order will not be operative from the date that it is stayed. In the case of Govt of AP vs. N. Rami Reddy & Others 2011 AIR-AP 226, one of the issue for consideration before the Hon’ble High Court was; Whether the interim stay of a High Court order by the Hon’ble Supreme Court of India has the effect of wiping out the ratio of the High Courts order or otherwise nullifying the precedent relied upon by the petitioner? The Hon’ble High Court held that the ratio of judgment represents the reasons assigned in support of the conclusion. An order of interim stay actually stays the operative part of the decision, but does not wipe out its ratio decidendi.

7. On merits the ld. DR has made following written submissions:-

“C. Revenue's submissions on merit of the limitation issue- interplay of sections 144C and 153 of the Act (without prejudice to earlier arguments): 13. Without prejudice to the prayer for deferral of present appeals, the Revenue respectfully submits that time limits given in section 153 of the Act are independent of those provided under section 153 of the Act. The legislative design of section 144C indicates that it is a special self contained code in itself with regard to assessment of eligible assessee and prescribes entire procedure and time line for the framework of Dispute Resolution Panel (DRP) to work: The provisions of this section cannot be interpreted in a manner that renders the entire scheme unworkable. As such, it is clearly stipulated in the said section by way of use of multiple non-obstante clauses that the timelines prescribed under section 153 will not apply to the final assessment order passed u/s 144C(13) of the Income Tax Act.

16. The non obstante language in section 144C dealing with passing of the final order makes it evident that Parliament intended post-draft finalization under section 144C to operate notwithstanding the general limitation in section 153.

17. A further significant facet is that it is the eligible assessee, which has option to activate or not to activate the DRP route. If objections before DRP are not filed, the statute permits expedited finalization. If objections are filed, the statutory mechanism consumes time by design. Still it remains expeditious way of finalization of dispute as stage of appeal before CIT(A) is done away with if option to file objection before DRP is chosen by the Assessee. Further, demand crystallizes only after DRP direction is given effect to by the Assessing officer. Hence, this is the way objective of expeditious disposal of disputes and ease of doing business is sought to be achieved by section 144C. The assessee cannot, after choosing the statutory route of DRP and availing benefit of expeditious and easier disposal of disputes provided by the code, contend that the assessment becomes void due to the time consumed in the process statutorily created for benefit of assessee.

18. In case, interpretation provided by the assessee is accepted, then it would lead to many absurdities in operation of 144C provisions. Firstly, at the stage of passing of draft assessment order, it is not known to the A.O. as to whether the assessee would choose DRP route or not. If the interpretation furthered by the assessee is accepted, then in every case of eligible assessee, which involved issue of draft assessment order, the AO would be required to pass draft assessment order at least 11 months before the time barring date prescribed under section 153 of the Act irrespective of the fact whether the assessee chooses DRP route or not. If Assessee does not choose DRP route, then while on one hand, such early finalization of assessment cuts down time available with the AO to pass assessment order affecting level of inquiries/verifications, on the other hand the DRP route would go unutilized. This contradiction itself shows that interpretation of section 144C of the Act relied upon by the assessee is required to be discarded. Secondly, with the overall time limits for completing assessments as prescribed under section 153 of the Act ever decreasing as an effort by the legislature to cut down overall time, if period of 11 months is counted backward from such shortened time limit allowed under section 153, then in many cases (such as not involving TP reference), the draft assessment order would be required to be issued even before end of the relevant assessment year. In many cases even involving Transfer Pricing Reference, such time available with the A.O. and T.P.O will be only few months, effectively scuttling possibility of any meaningful verification or scrutiny of details frustrating very purpose of entire scrutiny assessment related provisions under the I.T. Act. Such a situation will be hit by doctrine of impossibility or doctrine of frustration and courts should avoid any interpretation of 144C and 153 provisions of the Act which leads to such situations as 'Law does not compel the impossible'. This aspect having serious repercussions has not been considered while interpreting the interplay between section 153 and 144C of the Act. This again creates a very absurd situation which could never have been contemplated by the Legislature.Thirdly, it needs to be appreciated that overall mandate to reduce time lines for completing the assessment is being achieved by the Legislature over the years by way of shortening time lines given in section 153 of the Act. Section 144C is not meant for that as it has already very shortened and stiff timelines prescribed. Section 144C is meant for providing the alternate dispute resolution mechanism to eligible assessee and for doing away with one appellate level i.e. CIT(A) from entire chain of tax litigation. This objective requires to be appreciated for interpretation of section 144C of the Act.

19. Reliance is placed on principle of 'ut res magis valeat quam pereat' which has been upheld by Hon'ble S.C. In multiple cases (such as N B Sanjana Vs Elphinstone Spinning & Weaving Mills, AIR 1971 SC 2039, Cit Vs. Sun Engineering Works, AIR 1993 SC 43, P 57), it has been held by Hon'ble Supreme Court that one important consideration in construing a machinery section is that it should be so construed as to effectuate the liability imposed by the charging section and to make the machinery workable. Further, in case of W TRamsey Ltd v Inland Revenue Commissioners (1981) 1 All ER 865, it has been held that the context, scheme of the relevant Act as a whole and its purpose are as relevant in construing a taxing Act as in construing any other Act. (Source : Principles of Statutory Interpretation by Justice G P Singh, 15" Edition, page 629, 639).

20. Non applicability of judgement in the case of Roca Bathroom Products P. Ltd [2022] 140 taxmann.com 304 (Madras)- In the case of Roca Bathroom, the assessment years involved were A.Y. 2009-10 and 2010-11 and there issue involved was relating to section 153(2A) of the Act and there was inordinate delay on the part of the Department in passing final assessment order during set aside proceedings. Hence, that judgement was passed in its own peculiar facts and would not be applicable to any other case not involving such inordinate delay. As highlighted in para 18 above, that if the interpretation as argued by the assessee is accepted, then it would create a situation where in some of the assessment years in many cases, time available with the AO to pass final assessment year would be reduced to negative or hardly few months. Similar will be the case with the TPO. This is due to the fact that different assessment years have different time lines to complete final assessment as given in the proviso below 153(1) of the Act. Such cases and assessment years would be hit by doctrine of impossibility and interpretation as submitted by the assessee can not accepted at all. Therefore, each case and Assessment year would be required to be dealt and examined separately to see if sufficient or atleast some reasonable time was available with the AO and TPO to finalize the assessment. Mass application of ration of Roca Bathroom ( supra) decision can not be made due to distinguishable facts in the case of Roca Bathroom (supra). Hence, without prejudice to all other arguments, the ration of Roca Bathroom decision can be made applicable only where there is inordinate delay in completing set aside proceedings similar to the case of ROCA Bathroom, there was delays of many years. Hence, without prejudice to all arguments in earlier paragraphs, the ration of Roca Bathroom decision can not be applied to present appeals due to distinguishable facts as discussed above.

We have considered the submissions made by rival sides on merits of the issue before us for adjudication. The crux of submissions on merits by the department is, that limitation for passing the final assessment order under section 144C(13) of the Act is to be seen only with reference to the timeline specified u/s. 144C of the Act only without referring to provisions of section 153 of the Act. We find that identical submissions were made by the Department before the Hon’ble Madras High Court in the case of Roca Bathroom Products P. Ltd. (supra). The Hon’ble High Court rejected the arguments of the Department and held that provisions of section 144C and 153 of the Act are mutually inclusive as both contain provisions relating to section 92CA of the Act and are inter-dependent and are overlapping. Hence, the period of limitation for passing the final assessment order u/s.144C(13) of the Act has to be determined with reference to section 144C r.w.s 153 of the Act. For the sake of completeness, the relevant excerpts from the judgment rendered in the case of Roca Bathroom Products P. Ltd. (supra) are reproduced herein below:-

“18. The main contentions of the Department, through their counsel are that Section 144C is a code in itself and hence on remand by the ITAT, the power of DRP to take up the dispute on additions by TPO, is not circumscribed by Section 153 and that in the absence of any express time limits contemplated under the Act, the time limits under Section 153 for reassessment cannot be read into Section 144C more particularly when the provisions of Section 153 are excluded by the non-obstante clause in section 144C(13) and hence the proceedings are not barred by limitation. Per contra, it has been contended by the learned senior counsels appearing for the respondent(s)/assessees that the outer time limit under Section 153 is applicable to every proceedings on remand and the department having slept over the issue for several years, cannot now redo the proceedings afresh, after certain rights have vested with the assessees. Even if specific provisions are not there to deal with this situation, the proceedings must be concluded within a reasonable time and hence the impugned proceedings are liable to be struck down and rightly done so by the learned Judge.

21. As held above, the assessment has to be concluded within 21 months when there is no reference and when there is a reference, it has to be concluded within 33 months. In the additional 12 months, the draft order is to be passed, the objections have to be filed, the DRP has to issue the directions and the final order is to be passed. The provisions under section 144C and section 153 are not mutually exclusive as both contain provisions relating to Section 92CA and are inter-dependant and overlapping. On remand, prior to amendment as per Section 153 (2A), the Assessing officer is given 12 months to pass a fresh assessment order. Therefore, it is incumbent on him to do so, irrespective of the fact that DRP has completed the hearing and issued the directions or not. As rightly held by the learned judge, we are of the view that the DRP ought to have concluded the proceedings within 9 months from the date of receipt of the Tribunal's order, when it had issued a notice on 19-2-2014 and conducted the hearing as early as on 10-3-2014 and on several dates. The DRP at Chennai, in fact ought to have passed orders before 19-11-2014, even if the date of receipt of the notice is taken as 19-2-2014. In that event, the assessing officer ought to have passed the order before 31-12-2014 or at the latest before 31-3-2015 considering that the order was received during the Financial year 2013-14. The transfer of the files to Bengaluru, after the lapse of the time, will not indefinitely extend the time and can have no impact on the time lines. It is an inter-department arrangement and it cannot defeat the rights of the assessee.” [Emphasized by us]

“15. No doubt, section 144C is a self contained code of assessment and time limits are inbuilt each stage of the procedure contemplated. Section 144C envisions a special assessment, one which includes the determination of Arms Length Price (ALP) of international transactions engaged in by the assessee. The DRP was constituted bearing in mind the necessity for an expert body to look into intricate matters concerning valuation and transfer pricing and it is for this reason that specific timelines have been drawn within the framework of section 144C to ensure prompt and expeditious finalisation of this special assessment.

23. Further, similar non-obstante clause is also used in section 144C(4) with a same limited purpose to imply, even though there might be a larger time limit under Section 153, once the order of TPO is accepted or not objected to, causing a deeming fiction of acceptance, the final order is to be passed immediately. The object is to conclude the proceedings as expeditiously as possible and the authority need not wait for the last date to pass the orders. The limitation prescribed under the statute is for the assessing officer and therefore, it is his duty to pass order in time irrespective of whether the directions are received from DRP or not. As held by us above, the DRP will have no authority to issue directions after nine months and a further period of one month as per section 144C (13) and three months under section 153 (2A) is available, within which period no orders have been passed in the present cases. The reference made by the learned senior counsels on the judgments in Nokia India (P.) Ltd. (supra) and Vedanta Ltd. (Supra) is well founded. The timeline given under the Act is to be strictly followed.

[Emphasized by us] Thus, the Hon’ble High Court negatived the arguments made by the Department on ‘non obstante’ clause used in section 144C of the Act. The Hon’ble High Court thus, concluded:-

27. For the reasons set out herein before, we conclude as under: (a) The provisions of Sections 144C and 153 are not mutually exclusive, but are rather mutually inclusive. The period of limitation prescribed under Section 153 (2A) or 153 (3) is applicable, when the matters are remanded back irrespective of whether it is to the Assessing Officer or TPO or the DRP, the duty is on the assessing officer to pass orders. (b) Even in case of remand, the TPO or the DRP have to follow the time limits as provided under the Act. The entire proceedings including the hearing and directions have to be issued by the DRP within 9 months as contemplated under section 144C(12) of the Income-tax Act, (c) Irrespective of whether the DRP concludes the proceedings and issues directions or not, within 9 months, the Assessing officer is to pass orders within the stipulated time, (d) In matter involving transfer pricing, upon remand to DRP, the Assessing officer is to pass a denovo draft order and the entire proceedings as in the original assessment, would have to be completed within 12 months, as the very purpose of extension is to ensure that orders are passed within the extended period, as otherwise the extension becomes meaningless. (e) The outer time limit of 33 months in case of reference to TPO under Section 153, would not refer to draft order, but only to final order and hence, the entire proceedings would have to be concluded within the time limits prescribed, (f) The non-obstante clause would not exclude the operation of Section 153 as a whole. It only implies that irrespective of availability of larger time to conclude the proceedings, final orders are to be passed within one month in line with the scheme of the Act, (g) When no period of limitation is prescribed, orders are to be passed within a reasonable time, which in any case cannot be beyond 3 years. However, when the statute prescribes a particular period within which orders are to be passed, then such period, irrespective of whether it is short or long, shall be applicable.

10. The assessee has furnished date chart for AY 2017-18 the same is as under:-

(A.Y 2017-18)* Date of Draft Assessment 01.04.2021 Order u/s.144C(1) of the Act Date of DRP directions 30.12.2021 u/s.144C(5) of the Act Due date for passing Final 30.09.2021 Assessment Order u/s.144C(13) r.w.s. 153(4) of the Act Actual date of Final 29.01.2022 Assessment Order * -Extension of time limit as per section 3 of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. -Date of filing objections before the DRP 30.04.2021.

The dates mentioned in the above table have not been disputed by the Revenue. A perusal of sequence of dates for AY 2017-18 would clearly show that the date on which final assessment order is passed by the AO is beyond the period of limitation for passing the order u/s.144C(13) r.w.s. 153 of the Act. Thus, following the ratio laid down in Roca Bathroom Products P. Ltd. (supra), we hold that where the final assessment order passed by the AO is beyond the time limit as determined u/s.144C r.w.s.153 of the Act, the final assessment order is barred by limitation, hence, is quashed.

11. Since, the assessee succeeds on the legal issue of validity of the final assessment order, at this stage we do not intend to adjudicate the other grounds of appeal. Hence, all other grounds are left open.

Order pronounced in the open court on Friday the 30th day of January, 2026.