LUMILEDS INDIA PRIVATE LIMITED,GURGAON, HARYANA vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1(1), RANGE 53, GURGAON, HARYANA

• Aveva Solutions India LLP [TS-681-ITAT-2025 (HYD-TP] (Hyd-Trib.); & • Super Brands Ltd. vs ADIT, & 2609/Del/2021 (Del-Trib.) 3. Shri Dharam Veer Singh representing the department at the outset raised objection for taking up these appeals for adjudication. He submitted that the issue is now sub judice before the Hon’ble Apex Court. The Division Bench of Hon’ble Supreme Court of India in the case of Shelf Drilling Ron Tappmeyer Ltd. has examined the issue but due to divergent opinions expressed by the Hon’ble Judges, the issue is now referred to the Hon’ble Chief Justice of India for constituting a Larger Bench. Even otherwise the Hon’ble Apex Court in the case of Shelf Drilling Ron Tappmeyer Ltd. (supra), vide interim order dated 22.09.2023 has held that the operative part of ITA No. 6009/Del/2024(A.Y 2021-22) ITA No. 6041/Del/2024(A.Y 2021-22) ITA No. 6012/Del/2024(A.Y 2021-22) the impugned judgment shall not be cited as a precedent in other subsequent matters. Thus, in light of the said order passed by the Hon’ble Apex Court it would not be in judicial propriety to proceed with the identical matter. He further referred to the judgement of Hon’ble Bombay High Court in the case of PayPal Payments P. Ltd. vs ACIT in Writ Petition (L) No. 30944 of 2023 decided on 13.08.2024, to contend that even the Hon’ble Bombay High Court, after taking note of the fact that the Hon’ble Supreme Court has stayed the operative part of the judgment in the case of Shelf Drilling Ron Tappmeyer Ltd. (supra), has refused to entertain the Writ Petition involving identical issue. The ld. DR further referred to the decision of Hon’ble Supreme Court of India in the case of UP Rashtriya Chini Mill Adhikari Parishad, Lucknow Vs. State of U.P. and Others reported as (1995) AIR SC 2148, to contend that when the issue is referred to a Larger Bench, during the pendency of such reference the matter involving identical issues which is subject matter of reference, should not be taken up for adjudication. The ld. DR vide detailed written submissions raised objection for taking up the appeals for hearing of the issue involving limitation of passing the final assessment order with reference to section 144C r.w.s. 153 of the Act. The relevant extract of the DR’s submissions (common for all appeals) is as under:-

“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.

(iii) Bombay High Court decision in case of Paypal Payments Pvt. Ltd. (WPL (L) No.30944 of 2023, order dated 07.08.2024) 8. The Revenue further places reliance on the order dated 07.08.2024 passed by the Hon'ble Bombay High Court in case of Paypal Payments Private Limited v. ACIT (Writ Petition (L) No.30944 of 2023). In the said order, the Hon'ble Bombay High Court, while considering the very issue of interpretation of section 144C(1), 144C(4) and 144C(13) vis-à-vis section 153, recorded that the Supreme Court had, on 22.09.2023, directed that the Shelf Drilling judgment shall not be cited as precedent and clarified that the operative portion applies only inter partes. The Hon'ble High Court further noted that there was "quite a debate" on what one is permitted to do with the Shelf Drilling decision in view of the Supreme Court restraint. After hearing both parties in detail and after taking into consideration judgement of Hon'ble Madras High Court in the case of Roca Bathroom, Hon'ble Bombay HC, in its wisdom, has not quashed the assessment order and gave the parties the liberty to apply in the event of rendering a final order by Hon'ble Supreme Court on the impugned issue. The said view was again reiterated in the case of same assessee i.e. Paypal Payments Private Limited for another year in Writ petition (I) no. 27849 of 2024 vide judgement dated September 9, 2024 reported at [2024] 166 taxmann.com 521 (Bombay).

11. It is respectfully. submitted that the ratio laid down by the Hon'ble Bombay High Court in Shelf Drilling Ron Tappmeyer Ltd. and by the Hon'ble Madras High Court in Roca Bathroom Products (P.) Ltd. arises on the same legal controversy, namely the computation of limitation involving the interplay of sections 144C and 153. The principle enunciated in both decisions is, in substance, identical-i.e., that the timelines under section 153 continue to govern and must subsume the DRP mechanism under section 144C. In this context, it is material that the Hon'ble Supreme Court has passed a specific interim direction that the judgment of the Hon'ble Bombay High Court in case of Shelf Drilling shall not be cited as a precedent in any other subsequent matter. The Revenue, therefore, submits that, when the Supreme Court has expressly restrained reliance on the Shelf Drilling ratio, the same ratio cannot be permitted to be applied indirectly through relying on another non-jurisdictional decision ( Such as Roca Bathroom decision of Madras High Court) laying down an identical preposition, particularly when said Roca Bathroom decision of Madras High Court itself is (A.Y 2021-22) ITA No. 6009/Del/2024(A.Y 2021-22) ITA No. 6041/Del/2024(A.Y 2021-22) ITA No. 6012/Del/2024(A.Y 2021-22) under appeal, and leave has been granted by the Hon'ble Supreme Court. Accordingly, Roca Bathroom decision or any other decision on the said issue cannot be treated as determinative or enforced as a basis to conclude the controversy in present appeals, and the issue ought to await authoritative settlement by the Hon'ble Supreme Court. (v) Hon'ble Supreme Court judgment in case of UP Rashtriya Chini Mill Adhikari Parishad, Lucknow Vs. State of U.P. and others, I.A No. 4 of 1995 in SLP(C) no 19963 of 1992 dated 2nd July 1995 (copy enclosed) : 12. In this case, Hon'ble Supreme Court had made following observation when a Division Bench of High Court decided an issue which was pending consideration before Full Bench of High Court. "The matter was pending consideration before a Full Bench of High Court. Needless to say that the appropriate course for the Division Bench would have been to wait the decision of the Full Bench which finally delivered his verdict on 15.11.1994 overruling the Division Bench." The above observation of Hon'ble Supreme Court even if in the nature of obiter dicta would be binding on this Hon'ble Bench as in present appeals too, the issue of time limitation agitated by the assessee is pending for consideration of Larger Bench of Hon'ble Supreme Court.”

“5. Both sides heard. The issue which arises for consideration before us at the preliminary stage is whether we can proceed with the hearing of issue in appeal when on a similar issue the operative portion of the judgment passed by the Hon’ble High Court in the case of Shelf Drilling Ron Tappmeyer Ltd. (supra) has been stayed by the Hon’ble Supreme Court of India. In the present case, the appellant/assessee has placed reliance on the decision rendered in the case of Roca Bathroom Products P. Ltd. (supra). The identical objection now raised by the ld. DR was examined by the Hon’ble Bombay High Court in the case of PayPal Payments P. Ltd. (supra). The Hon’ble High Court deferred hearing of the issue for the reason that the hearing may not bring about any concreate conclusion as the similar question of law is pending 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.

6. Be that as it may, the assessee has not placed reliance on the judgment rendered in the case of Shelf Drilling (supra) but has pleaded its case following the decision rendered in the case of Roca Bathroom Products P Ltd. (supra) in which there is no stay order. Therefore, in our humble opinion there is no impediment in hearing the appeal of the assessee on the issue of “limitation in passing the final assessment order with reference to the provisions of section 144C r.w.s. 153 of the Act”. Thus, the preliminary objection raised by the Department is rejected.” For parity of reasons, the objections of the Department for taking up of these appeals for hearing at this stage are rejected.

5. 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 ITA No. 6009/Del/2024(A.Y 2021-22) ITA No. 6041/Del/2024(A.Y 2021-22) ITA No. 6012/Del/2024(A.Y 2021-22) 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.

“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] 7. The stand of the Revenue is that section 144C of the Act is a complete code in itself for completing the assessments where reference is made to Dispute Resolution Panel (DRP) and in sub section (1) to section 144C of the Act there is “non obstante” clause which mandates exclusion of all other provisions contained in the Act. The Hon’ble Single Judge of the Madras High Court in the case of Roca Bathroom Products (P.) Ltd. vs. Dispute Resolution Panel-2, 127 taxman.com 332 (Madras) while dealing with aforesaid arguments made on behalf of the Department in a lucid manner explained the reason for reading section 144C & 153 of the Act together for determining limitation for passing the final assessment order, and held:-

“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 (A.Y 2021-22) ITA No. 6009/Del/2024(A.Y 2021-22) ITA No. 6041/Del/2024(A.Y 2021-22) ITA No. 6012/Del/2024(A.Y 2021-22) 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 (A.Y 2021-22) ITA No. 6009/Del/2024(A.Y 2021-22) ITA No. 6041/Del/2024(A.Y 2021-22) ITA No. 6012/Del/2024(A.Y 2021-22) 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.

(A.Y 2021-22) ITA No. 6041/Del/2024(A.Y 2021-22) ITA No. 6012/Del/2024(A.Y 2021-22) 9. Since, the assessees succeeds on the legal issue of validity of the final assessment order, at this stage we do not intend to adjudicate other grounds of appeal. Hence, all other grounds are in the respective appeals are left open.

Order pronounced in the open court on Wednesday the 21st day of January, 2026.