Distinction between setting aside of assessment and assessment order for time limit u/s 153(2A)

Distinction between setting aside of assessment and assessment order. When assessment on an issue set aside and remanded for decision afresh, time limit u/s 153(2A) applies-HC

 Time limit us 153-2A

ABCAUS Case Law Citation:
ABCAUS 2080 (2017) (09) HC

The Challenge/Grievance:
This Petitioner (Nokia India Pvt. Ltd) sought the quashing of the notice dated 14th September 2015 issued by the Deputy Commissioner of Income Tax (Assessing Officer – ‘AO’) under Section 254 read with Sections 144-C and 143 (3) of the Income Tax Act, 1961 (‘Act’). The Assessee also challenged the consequential order dated 2nd December 2015 passed by the AO rejecting the plea of the Assessee that in terms of Section 153 (2A) of the Act, the proceedings under the aforementioned notice dated 14th September 2015 would be time-barred.

Assessment Year :  2007-08

Important Case Laws Cited/relied upon by the parties:
Commissioner of Income-tax v. Bhan Textile (P) Ltd [2008] 300 ITR 176 (Del)
Basu Distributors (P) Ltd. v. Income Tax Officer [2007] 292 ITR 29 (Del)
Rikhabdas Jhaverchand v. CIT [2001] 249 ITR 774 (Bom)
Rajinder Nath v. CIT [I979] 120 ITR 14 (SC)
Instruments and Control Co. v. Chief Commissioner of Income-tax [2012] 349 ITR 571 (Guj)

Brief Facts of the Case:
The Petitioner was engaged in manufacture and sale of mobile handsets. Since, during the AY in question, the Assessee was involved in international transactions with its Associated Enterprise (‘AE’), a reference was made by the AO to the Transfer Pricing Officer (‘TPO’).

The Assessee filed objections to the report of the TPO before the Dispute Resolution Panel (DRP) contesting the transfer pricing (TP) adjustment by which the returned income of the Assessee stood enhanced. These objections were disposed of by the DRP. On the basis of the directions issued by the DRP, the Assessing Officer (AO) completed the assessment by passing an assessment order under Section 143 (3) read with Section 144C (13) of the Act on 29th September 2011 and made certain disallowances and additions to the income of the Petitioner.

Aggrieved by the assessment order, the Assessee filed an appeal before the Income Tax Appellate Tribunal (‘ITAT’) which inter alia set aside the matter to the file of AO to decide issues afresh.

In the remanded proceedings, the AO referred TP issues to the TPO. While the matter was pending with the TPO, the Assessee filed a letter before the TPO with a copy to the AO’s office and submitted that under Section 153 (2A) of the Act, the last date for the AO to pass the fresh assessment order was 31st March 2015. The TPO was requested to take the said provision into consideration.

However, the TPO responding to the said letter informed the assessee the limitation for passing the order in the assessment proceedings had to be calculated under Section 153 (3) (ii) of the Act. Alternatively, the TPO stated that, even in terms of Section 153 (2A) of the Act, the proceedings were not time-barred as of 31st January 2015.

Thereafter, the AO issued the impugned notice dated 14th September 2015 calling upon the Assessee to attend the AO’s office for proceedings under Section 254 read with Sections 144C and 143(3). the Assessee responded to the above notice reiterating that Section 153(2A) of the Act was applicable and, therefore, the fresh order of assessment was required to be passed within two years from the end of the financial year in which the order of the ITAT had been received by the Commissioner. He submitted that since the proceedings had become time-barred on 31st March 2015, the notice issued was without jurisdiction.

Subsequently, by order dated 2nd December 2015, the AO disposed of the objections of the assessee by holding that the case was not covered under Section 153(2A) of the Act which, according to the AO, was applicable only when a fresh order of assessment has to be made pursuant to an order in appeal or revision. Since the assessment had not been totally set aside or cancelled by the ITAT and, in fact, had been partly upheld on certain issues, the objection regarding limitation was not valid.

Observations made by the High Court:

The Hon’ble High Court observed that it could not agree with the contention that unless the entire assessment order is wholly set aside, the time limit for passing the fresh order under Section 153 (2A) would not be attracted. According to the Court, there was no warrant for such an interpretation.

The Hon’ble High Court observed that the object behind introduction of sub-section (2A) was to prescribe a time limit for completing the assessment proceedings upon the original assessment being set aside or being cancelled in appeal. Clearly, the intention was not to restrict the applicability of sub-section (2A) only to such cases where the ‘entire’ original assessment order is set aside. It was noted that, “Under the existing provisions of section 153(3), such fresh assessments are not subject to any time limit.” Indeed, Section 153, as it stood at that time, did not prescribe any time limits. Section 153 (3) (ii), in particular, did not require the order passed thereunder to be issued within any particular time limit.

The Hon’ble High Court observed that there is a distinction between an ‘assessment’ that is set aside and an ‘assessment order’ being set aside. When the assessment on an issue is set aside and the matter remanded, with a direction that the issue has to be determined afresh, Section 153 (2A) of the Act would get attracted.

The Hon’ble High Court noted that along with the insertion of sub-section (2A), sub-section (3) underwent a simultaneous change. It was expressly made “subject to the provisions of sub-section (2A).” This meant that Section 153(3) would thereafter apply only to such cases where Section 153(2A) did not apply. In other words, in all instances of an AO having to pass a fresh assessment order upon remand where Section 153(2A) would apply, the AO would be bound to follow the time limit imposed by sub-section (2A). Where the AO was only giving effect to an appellate order, then Section 153 (3) (ii) of the Act would apply.

The Hon’ble High Court noted that in the instant case, of the seven issues, the assessment in respect of five was was set aside and the issues remanded for a fresh determination. Whether the remand was to the TPO or the DRP would not make a difference as long as what results from the remand is a fresh assessment of the issue. Clearly, therefore, the time limit for completing that exercise was governed by Section 153 (2A) of the Act.

Decision/Held:

It was held that the assessment proceedings had to necessarily be completed by the AO within the time limit specified in Section 153(2A) of the Act. Therefore, the impugned notice dated 14th September 2015 issued by the AO and all proceedings consequential thereto including the order dated  2nd December 2015 passed by the AO was set aside.

Time limit us 153-2A

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