Final Income Tax Assessment Order Held Time-Barred u/s 144C(13): ITAT quashes ₹549 Cr Demand on Microsoft India [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) quashed Rs 549 crore tax demand made on Microsoft India. The income tax assessment order was held invalid due to a breach of the statutory timeline for passing the final order as mentioned under section 144C(13) of the Income Tax Act.

For AY 2017-18, Microsoft Corporation (India) Pvt Ltd, a subsidiary of Microsoft USA, filed its original return on 29.11.2017 declaring an income of ₹6,204.8 crores, which was later revised to the same figure. A draft assessment order under Section 144C of the Income Tax Act was issued on 28.09.2021, followed by DRP directions on 23.03.2022, which were uploaded on the ITBA portal on 01.04.2022.

The final assessment order under sections 143(3) read with 144C(13) was passed on 30.06.2022, making an addition of ₹830.42 crores and raising a tax demand of ₹549.24 crores. The DRP directions were conveyed to the AO in the month of April. The AO had to pass the assessment order within one month from the end of April 2022, i.e., the assessment order should have been passed on or before 31.05.2022. The assessee subsequently challenged the validity of the final order on the ground that it was barred by limitation.

The assessee argued that DRP directions were received by the AO on 13.04.2022, as evidenced on the ITBA portal. He contended that In terms of Section 144C(13), the AO’s statutory time limit to pass the final assessment order expired on 31.05.2022. The order dated 30.06.2022 was therefore issued beyond the permissible period and is without jurisdiction. In support of this, the assessee relies on its own precedent for AY 2018–19, where the ITAT quashed the assessment on identical grounds of delay.

The Revenue contended that the order was within limitation, as the jurisdictional AO actually “received” the DRP directions only on 20.05.2022. Accordingly, the one month under Section 144C(13) was extended to the end of June 2022, making the final order dated 30.06.2022 timely.

The Revenue further submitted that the faceless assessment scheme was in its early stages, and technical lapses should not prejudice the department.

They relied on the Supreme Court ruling in NFAC v. Automotive Manufacturers Pvt Ltd (2023), which allows some leeway to the Revenue during the rollout of the faceless regime. Additionally, there is no prejudice to the assessee, as it had a full opportunity to present submissions, and the challenge relates solely to procedural timing.

The two-membered bench of Vikas Awasthy ( Judicial Member) and Brajesh Kumar Singh (Accountant Member) had a difference of opinion in the matter as to whether to allow the appeal or not. After hearing the appeal, the Judicial Member allowed the legal issue raised in the appeal and consequently upheld the order of CIT(A). The Accountant Member opined otherwise and wrote a separate order dismissing the appeal of the assessee.

On account of a difference of opinion between the Members constituting the Bench, a reference was made to the President of the ITAT. The President nominated a Third Member to decide the Matter. The Third Member concurred with the view of the Judicial Member.

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