S.144C DRP Proceedings Cannot Extend Limitation u/s 153: ITAT Quashes Time-Barred Income Tax Assessment in Motorola Case [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) held that proceedings undertaken by Dispute Resolution Panel (DRP) under Section 144C of the Income Tax Act, 1961 do not override or extend the limitation period prescribed under Section 153 of the Income Tax Act, 1961.

The appeal was filed by Motorola Solutions India Private Limited, challenging the final assessment order passed by the Assessing Officer (AO) for the Assessment Year 2020-21. The case arose when the AO issued a draft assessment order proposing certain additions and thereafter referred the matter to the DRP under Section 144C of the Income Tax Act, 1961.

The DRP issued its directions, following which the AO passed the final assessment order under Section 143(3) read with Section 144C(13) of the Income Tax Act, 1961. The assessee challenged the validity of the final assessment order on the ground that it had been passed beyond the time limit prescribed under Section153 of the Income Tax Act, 1961.

Advocate Himanshu S. Sinha and Advocate Utkarsh Mittal representing the Assessee contended that the mandatory time limit prescribed under Section 153 of the Income Tax Act, 1961 applies equally to cases governed by Section 144C of the Income Tax Act, 1961. Subsequently, the proceedings before the DRP are only a part of the assessment mechanism.

Further, pointed out that the Madras High Court in precedent Commissioner of Income Tax v. Roca Bathroom Products Private Limited (2022), wherein it was held that Section 144C does not override Section 153 of the Income Tax Act, 1961.

S. K. Jadhav for the Revenue, argued that the time taken in DRP proceedings should be excluded while computing limitations. Additionally, the issue relating to limitation under Section 144C and Section 153 is pending consideration before the Supreme Court in the case of ACIT v. Shelf Drilling Ron Tappmeyer Ltd.

The bench of Yogesh Kumar U.S., Judicial Member, and Manish Agarwal, Accountant Member held that Section 144C does not operate as a standalone provision overriding Section 153 of the Income Tax Act, 1961. The Tribunal clarified that the limitation period prescribed under Section 153 of the Income Tax Act, 1961 continues to apply even in cases where the draft assessment procedure under Section 144C of the Income Tax Act, 1961 is followed.

Therefore, ruled that the DRP proceedings form part of the assessment process and cannot extend the statutory time limit. And the non obstante clause in Section 144C(13) does not nullify or suspend the operation of Section 153 of the Income Tax Act, 1961.

Accordingly, ITAT held that the final assessment order passed was barred by limitation and liable to be quashed.

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