While granting a major relief to Nokia, the Delhi High Court, on last week distinguished the terms setting aside of assessment and assessment order.
A division bench comprising Justices S Muralidhar and Prathiba M Singh clarified that when assessment on an issue set aside and remanded for decision afresh, time limit under Section 153(2A) of the Income Tax Act is applicable.
In the instant case, the petitioner, Nokia India Pvt. Ltd was engaged in manufacture and sale of mobile handsets. During the relevant assessment year, the Assessee was involved in international transactions with its Associated Enterprise and therefore, 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.
On appeal, the ITAT 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.
Before, the High Court, the petitioners sought the quashing of the issued by the Deputy Commissioner of Income Tax under Section 254 read with Sections 144-C and 143 (3) of the Income Tax Act, 1961. 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, stating that the proceedings are time-barred.
Quashing the order, the bench noted that the ITAT had in fact set aside the entire assessment order and directed a de novo enquiry.
“Where the remand is on a “selected issue or aspect of the assessment, the uncertainty or discomfort of the sword of uncertainty provides no peril to the assessee.” The enquiry to be undertaken by the AO upon evidence being furnished by the Assessee was indeed a fresh enquiry and if no time limit was prescribed for that exercise, the Assessee would undoubtedly have the sword of uncertainty hanging. Considering the additions made, there was, in fact, no other substantive issue that had to be examined afresh by the AO. Therefore, the Court, in terms of its own analysis of Section 153 (2A) in the aforementioned decision, required a fresh assessment order to be made by undertaking a de novo enquiry. For such an exercise the limitation in Section 153 (2A) had to apply. On the facts of Basu Distributors (supra), it is not understood how Section 153 (2A) would not apply.”
Read the full text of the Order below.
