The Income Tax Appellate Tribunal (ITAT), Delhi, has set aside an assessment order dated 19.12.2025, holding it barred by limitation under Section 144C(13) of the Income Tax Act, 1961. The Tribunal ruled that the final assessment order must be passed within one month from the end of the month in which the Dispute Resolution Panel (DRP) directions are received, failing which the order is invalid. This judgment underscores the strict adherence to procedural timelines in tax assessments, particularly in transfer pricing disputes.
Background & Facts
The Dispute
The appellant, Henkel Anand India Pvt. Ltd., a resident private limited company, filed its return of income for the Assessment Year (A.Y.) 2022-23 on 28.11.2022, declaring a total loss of Rs. 28,23,36,579. The case was selected for scrutiny, and a reference under Section 92CA(1) of the Act was made to the Transfer Pricing Officer (TPO) for determining the Arm’s Length Price (ALP) of the international transactions reported in Form 3CEB.
Key Facts
The assessee is a joint venture entity engaged in the purchase of raw materials and sale of finished goods.
The TPO proposed an upward adjustment of Rs. 3,41,56,010 on the draft assessment order.
The assessee filed objections before the Dispute Resolution Panel (DRP) against the draft assessment order.
The DRP, vide order dated 28.10.2025, directed the TPO to make an upward adjustment of Rs. 3,42,14,677 to the assessee’s income.
The final assessment order under Section 143(3) r.w.s. 144C(13) r.w.s. 144B was passed on 19.12.2025, assessing the total loss at Rs. 24,81,21,902, as against the loss of Rs. 28,23,36,579 declared in the return.
Procedural History
28.11.2022: Return of income filed declaring loss of Rs. 28,23,36,579.
Scrutiny Proceedings: Case selected for scrutiny; reference made to TPO under Section 92CA(1).
TPO Adjustment: Upward adjustment of Rs. 3,41,56,010 proposed.
DRP Objections: Assessee filed objections before the DRP.
28.10.2025: DRP issued directions to the TPO to make an upward adjustment of Rs. 3,42,14,677.
19.12.2025: Final assessment order passed, assessing loss at Rs. 24,81,21,902.
Appeal: Assessee filed appeal before ITAT, Delhi, challenging the validity of the assessment order on grounds of limitation.
Relief Sought
The assessee sought the quashing of the final assessment order dated 19.12.2025 on the ground that it was passed beyond the prescribed time limit under Section 144C(13) of the Act. Additionally, the assessee raised multiple grounds challenging the transfer pricing adjustments, including the rejection of its benchmarking analysis and the selection of comparables.
The Legal Issue
The primary legal question before the Tribunal was whether the final assessment order passed under Section 143(3) r.w.s. 144C(13) on 19.12.2025 was barred by limitation, given that the DRP directions were issued on 28.10.2025. Specifically, the issue was whether the Assessing Officer (AO) complied with the mandatory requirement of passing the final order within one month from the end of the month in which the DRP directions were received.
Arguments Presented
For the Assessee
The assessee contended that the final assessment order was passed on 19.12.2025, whereas the DRP directions were issued on 28.10.2025.
Under Section 144C(13), the final assessment order must be passed within one month from the end of the month in which the DRP directions are received. Thus, the deadline for passing the order was 30.11.2025.
Since the order was passed on 19.12.2025, it was barred by limitation and liable to be quashed.
The assessee relied on the intimation letter dated 28.10.2025 from the CIT(DRP)-1, Delhi, which confirmed the date of the DRP directions.
For the Revenue
The Ld. Departmental Representative (DR) relied on the orders of the lower authorities but failed to controvert the sequence of dates pointed out by the assessee’s counsel.
The DR could not provide any justification for the delay in passing the final assessment order beyond the prescribed time limit.
The Court's Analysis
The Tribunal examined the provisions of Section 144C(13) of the Act, which mandates that the final assessment order must be passed within one month from the end of the month in which the DRP directions are received. The Tribunal noted the following:
The DRP directions were issued on 28.10.2025, as evidenced by the intimation letter dated 28.10.2025.
The prescribed time limit for passing the final assessment order was thus 30.11.2025.
The final assessment order was passed on 19.12.2025, which was beyond the statutory deadline.
The Tribunal observed that the limitation period prescribed under Section 144C(13) is mandatory and not directory. Non-compliance with the prescribed time limit renders the assessment order invalid. The Tribunal relied on the principle that procedural timelines in tax laws must be strictly adhered to, as they serve to ensure certainty and finality in tax assessments.
"Admittedly, the order u/s 143(3) r.w.s. 144C(13) r.w.s. 144B has been passed on 19.12.2025 whereas the directions of the DRP were issued on 28.10.2025 as per intimation letter placed on record. Thus, the assessment order was issued beyond the limitation date (i.e. 30.11.2025) and is invalid."
The Tribunal further noted that the Revenue failed to provide any justification for the delay, and thus, the assessment order could not be sustained on grounds of limitation.
The Verdict
The ITAT allowed the assessee’s appeal and quashed the final assessment order dated 19.12.2025. The Tribunal held that the order was barred by limitation under Section 144C(13) of the Act, as it was passed beyond the prescribed time limit of one month from the end of the month in which the DRP directions were received. The Tribunal did not adjudicate on the merits of the transfer pricing adjustments, as the order was set aside on procedural grounds.
What This Means For Similar Cases
Strict Compliance with Procedural Timelines Is Mandatory
The judgment reinforces that the time limits prescribed under the Income Tax Act, particularly those related to assessment proceedings, are mandatory and not directory.
Practitioners must ensure that final assessment orders are passed within the statutory deadlines, failing which the orders are liable to be quashed.
This ruling serves as a caution to tax authorities to adhere strictly to procedural timelines to avoid invalidation of assessment orders.
Implications for Transfer Pricing Disputes
While the Tribunal did not adjudicate on the merits of the transfer pricing adjustments, the judgment highlights the importance of procedural compliance in transfer pricing disputes.
Assessees should ensure that all procedural requirements, including timelines for filing objections and passing orders, are meticulously followed to avoid adverse outcomes on technical grounds.
Burden of Proof Lies on the Revenue
The Revenue failed to justify the delay in passing the final assessment order, which proved fatal to its case.
In cases where the Revenue is unable to controvert the assessee’s contentions regarding procedural lapses, the Tribunal is likely to rule in favor of the assessee on technical grounds alone.
