Kiran Raj

The Bombay High Court has dismissed an appeal filed by the Principal Commissioner of Income Tax (CIT) against Sterling Oil Resources Ltd., ruling that the final assessment order issued by the Assessing Officer (AO) was barred by limitation under Section 144C(13) of the Income Tax Act, 1961. The court held that the statutory time limit for passing the final assessment order must be strictly followed and that the delay in issuing the order rendered it invalid. The court further recorded that the revenue is not precluded from initiating fresh proceedings if permitted under the law.

The appeal, registered as Income Tax Appeal No. 1238 of 2018, was filed by the Principal Commissioner of Income Tax-13, Mumbai, against Sterling Oil Resources Ltd., challenging an order passed by the Income Tax Appellate Tribunal (ITAT) on June 22, 2016.

The respondent-assessee, Sterling Oil Resources Ltd., had filed its return of income for the assessment year 2010-11 on October 13, 2010. The case was referred to the Transfer Pricing Officer (TPO) under Section 92CA of the Income Tax Act on September 6, 2012. The TPO, through an order dated January 28, 2014, proposed an adjustment of Rs. 108.36 crore to the arm’s length price of the company’s international transactions.

Following the TPO’s order, the draft assessment order was issued on March 28, 2014. The respondent-assessee filed objections before the Dispute Resolution Panel (DRP) under Section 144C of the Act. On December 19, 2014, the DRP issued directions, stating that the share application money should be treated as an interest-free loan and directed the AO to consider the State Bank of India Prime Lending Rate (SBI PLR) of FY 2009-10 to determine the interest chargeable.

The DRP’s directions were received by the AO on December 23, 2014, and were forwarded to the TPO on January 5, 2015. The TPO revised the adjustments to Rs. 49.39 crore on January 27, 2015, and the final assessment order under Section 144C(13) was passed on February 27, 2015.

The ITAT, in its order dated June 22, 2016, ruled that the final assessment order was barred by limitation since it was passed beyond the one-month time frame stipulated under Section 144C(13). Consequently, the revenue filed the present appeal before the Bombay High Court, arguing that the time limit under Section 144C(13) was directory, not mandatory.

The court examined whether the time limit prescribed under Section 144C(13) was mandatory or directory and its implications on the validity of the assessment order.

The court recorded, “The issue which arises for our consideration is on the interpretation of Section 144C(13) of the Act as to whether the time limit provided under this sub-section for completing the assessment as per the directions of the DRP is mandatory or directory and consequences thereto.”

Referring to the statutory provisions, the court stated, “Section 144C(13) provides that upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete 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.”

The court observed that Section 144C(13) overrides Section 153 of the Act, and therefore, the assessment order must be issued strictly within the prescribed time limit. The judgment noted, “On reading of the provision of Section 144C(13) along with Section 144C(12), there is no doubt that the time limit is absolute, explicit, and peremptory.”

The court stated that the AO had to complete the assessment by January 31, 2015, as the DRP’s directions were received on December 23, 2014, but the final order was passed on February 27, 2015. It recorded, “Since the final assessment order was passed on 27 February 2015, beyond the expiry of one month from the end of the month in which the directions were received, the assessment order is barred by limitation.”

The court rejected the revenue’s argument that the time limit under Section 144C(13) is only directory and held that it is mandatory. It stated, “Providing time limits for completing assessments is an inbuilt safeguard to prevent possible abuse of power and ensure expeditious disposal of disputes.”

The court also examined precedents from various High Courts, including Vodafone Idea Ltd., Louis Dreyfus Company India (P.) Ltd., and Renaissance Services BV, and concluded that Section 144C(13) prescribes a mandatory time limit, and failure to comply renders the assessment order invalid.

The Bombay High Court upheld the ITAT’s decision and ruled that the assessment order dated February 27, 2015, was barred by limitation under Section 144C(13). The court dismissed the revenue’s appeal, stating, “In view of the above, we dismiss the revenue’s appeal and answer the questions raised against the appellant-revenue and in favor of the respondent-assessee.”

However, the court recorded that this ruling does not preclude the revenue from initiating fresh proceedings if permitted under the law. It stated, “Our judgment would not preclude the appellant-revenue from taking fresh proceedings if so available in accordance with law for assessing the respondent-assessee.”

Case Title: Principal Commissioner of Income Tax-13, Mumbai v. Sterling Oil Resources Ltd.
Case Number: Income Tax Appeal No. 1238 of 2018
Bench: Justice M. S. Sonak and Justice Jitendra Jain

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