The Income Tax Appellate Tribunal Delhi has held that the final assessment order passed under Section 144C(13) of the Income Tax Act, 1961, is subject to the time limits prescribed under Section 153. The Tribunal quashed the assessment order as time-barred, affirming that the Madras High Court’s judgment in Commissioner of Income-tax v. Roca Bathroom Products (P) Ltd. constitutes a binding precedent in the absence of any stay or contrary ruling by a higher forum.
The Verdict
The Assessee won. The Income Tax Appellate Tribunal Delhi held that the final assessment order passed under Section 144C(13) must comply with the statutory time limits under Section 153. The order, issued on 31 July 2024 for Assessment Year 2020-21, was quashed as it exceeded the 33-month outer limit prescribed under Section 153(1) read with Section 153(4). The Tribunal affirmed that the Madras High Court’s ruling in Roca Bathroom Products is binding, as no stay has been imposed and no contrary precedent exists.
Background & Facts
The Assessee, Class Agricultural Machinery Pvt. Ltd., challenged the final assessment order dated 31 July 2024 for Assessment Year 2020-21, which was passed under Section 143(3) read with Section 144C(13) and Section 144B. The assessment arose after a transfer pricing reference under Section 92CA, triggering an extended timeline under Section 153(4). The normal 18-month limit for assessment expired on 30 September 2022, and with the 12-month extension for TPO proceedings, the outer limit became 30 September 2023. The final order was passed on 31 July 2024, over ten months beyond this deadline.
The Revenue contended that Section 144C operates as a special statutory mechanism with its own timelines, independent of Section 153, and that the non-obstante clause in Section 144C(13) excludes the application of Section 153. The Assessee relied on the Madras High Court’s judgment in Commissioner of Income-tax v. Roca Bathroom Products (P) Ltd., which held that Section 153’s time limits govern the entire assessment process, including DRP proceedings, and that the non-obstante clause only permits a 30-day window for finalizing the order after DRP directions, not an extension of the overall limit.
The Revenue sought deferral of adjudication, citing a split verdict by the Supreme Court in ACIT v. Shelf Drilling Ron Tappmeyer Ltd. and an interim order dated 22 September 2023 restraining citation of the Bombay High Court’s judgment in that case. However, the Assessee emphasized that it had not relied on the Bombay judgment but only on the Madras High Court’s ruling, which remains unchallenged by stay.
The Legal Issue
Is the final assessment order under Section 144C(13) subject to the time limits prescribed under Section 153 of the Income Tax Act, 1961, even when the DRP mechanism is invoked? Does the non-obstante clause in Section 144C(13) override Section 153, or is it limited to facilitating timely finalization after DRP directions?
Arguments Presented
For the Petitioner
The Assessee argued that Section 144C and Section 153 are interdependent, not mutually exclusive. The Madras High Court in Roca Bathroom Products held that the 33-month outer limit under Section 153 applies to the final assessment order, not merely the draft. The DRP proceedings are part of the assessment process, and delays therein cannot extend the statutory deadline. The non-obstante clause in Section 144C(13) merely ensures that the final order is passed within 30 days of receiving DRP directions, not that the entire process is exempt from Section 153. The Assessee cited multiple Hyderabad Tribunal orders following Roca Bathroom Products and emphasized that no stay has been granted against that judgment.
For the Respondent
The Revenue contended that Section 144C creates a distinct statutory regime for assessment in transfer pricing cases, with its own timelines. The non-obstante clause in Section 144C(13) explicitly excludes the application of Section 153, making the latter inapplicable to final orders under Section 144C. The Revenue argued that the Supreme Court’s interim order restraining citation of the Bombay High Court’s judgment in Shelf Drilling Ron Tappmeyer Ltd. implicitly applies to the Madras judgment, as both address the same legal issue. It further submitted that adjudicating the issue now would lead to multiplicity of proceedings and that judicial propriety demands deference until the Supreme Court’s Larger Bench settles the law.
The Court's Analysis
The Tribunal rejected the Revenue’s argument that the Supreme Court’s interim order against the Bombay High Court’s judgment in Shelf Drilling Ron Tappmeyer Ltd. extends to the Madras High Court’s judgment in Roca Bathroom Products. The Tribunal emphasized that the two judgments are distinct, and the interim order specifically restrained citation of the Bombay judgment, not all similar rulings. The Madras judgment remains unchallenged by stay and has not been overruled.
"The ratio laid down by the Hon'ble High Court of Madras in the case of Roca Bathroom Products (P) Ltd. (supra) is having effect of binding precedent on the Tribunal."
The Tribunal applied the principle of harmonious construction, holding that Section 144C and Section 153 must be read together. The non-obstante clause in Section 144C(13) does not nullify Section 153 but operates only to ensure that the final order is issued within 30 days of DRP directions, even if the overall limit under Section 153 has not expired. The Tribunal relied on the Madras High Court’s detailed analysis, which concluded that the 33-month limit applies to the final order, not the draft.
The Tribunal also cited the Supreme Court’s decision in Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association, which clarified that a stay on an order does not erase its legal existence or binding effect. The Tribunal further relied on the Bombay High Court’s ruling in CIT v. Godavari Devi Saraf, affirming that the Income Tax Act is an all-India statute and that judgments of any High Court are binding on Tribunals unless contradicted by a higher authority.
The Tribunal noted that the Hyderabad Bench had consistently followed the Roca Bathroom ratio and had safeguarded the Revenue’s interests by granting liberty to revive the appeal if the Supreme Court later rules otherwise. This approach, the Tribunal held, was procedurally sound and aligned with judicial discipline.
What This Means For Similar Cases
This decision establishes that for all pending assessments under Section 144C, the 18-month or 33-month outer limit under Section 153 remains enforceable. Practitioners may now confidently challenge final assessment orders passed beyond these limits, provided they rely on the Roca Bathroom Products precedent. The ruling reinforces that the non-obstante clause in Section 144C(13) is procedural, not substantive, and does not create a blanket exemption from statutory timelines.
However, the scope of this precedent is limited to cases where no stay has been imposed on the Madras High Court’s judgment. If the Supreme Court’s Larger Bench later upholds the Revenue’s interpretation, this decision may be rendered inoperative. Until then, the Tribunal’s approach - quashing time-barred orders while preserving liberty to revive on future Supreme Court directions - offers a balanced procedural safeguard. Practitioners should ensure that all assessment orders are scrutinized for compliance with Section 153 timelines, particularly in transfer pricing cases, and should consider invoking this precedent in pending appeals.
