(ITA No. 2072/Del/2022 | A.Y. 2018–19 | Software One India Pvt. Ltd.)
The tax litigation scenario in India has undergone a paradigm shift in the past ten years, particularly in the context of transfer pricing and eligible assessees. Among the most important procedural crossroads in the current scenario is the one between Section 144C and Section 153 of the Income-tax Act, 1961.
The case of ITA No. 2072/Del/2022 (A.Y. 2018-19) - Software One India Pvt. Ltd. before the Income Tax Appellate Tribunal (Delhi Bench) has brought about a new level of clarity to this crossroads and can be safely said to be a turning point in tax litigation.
Legislative Framework: Understanding the Scheme
Section 144C – Special Procedure for Eligible Assessees
Section 144C provides a separate assessment mechanism where the assessee qualifies as an “eligible assessee” and the Assessing Officer proposes variations that are prejudicial to the interest of such assessee.
Instead of directly passing a final assessment order, the Assessing Officer is statutorily required to first issue a Draft Assessment Order. The assessee is then entitled to file objections before the Dispute Resolution Panel (DRP). Only after the DRP issues its directions can the Assessing Officer pass the Final Assessment Order in conformity with those directions.
The provision was introduced to streamline transfer pricing litigation and reduce prolonged appellate cycles by creating a pre-appellate corrective mechanism. Importantly, the draft order stage is not procedural surplusage — it is the foundation of jurisdiction in eligible cases.
Section 153 – Time Limits for Completion of Assessment
Section 153 prescribes the statutory limitation period within which assessment orders must be completed. The provision ensures finality and prevents indefinite exposure to assessment proceedings.
The complexity emerges when the draft order mechanism under Section 144C intersects with the limitation framework under Section 153. Even though DRP proceedings may consume time, the final assessment order must still be passed within the limitation period prescribed by statute. The clock does not become irrelevant merely because the matter travels through the DRP channel.
The central legal question, therefore, is whether non-adherence to either the procedural mandate of Section 144C or the limitation requirement under Section 153 renders the final assessment order invalid. The Software One case directly addressed this issue.
Case Background: Software One India Pvt. Ltd.
Assessee: Software One India Pvt. Ltd.
AY: 2018–19
Forum: ITAT Delhi
The dispute revolved around procedural compliance in passing the final assessment order pursuant to the draft order and DRP mechanism. The assessee contested the validity of the final assessment order on the ground that it was not passed in strict compliance with Section 144C read with Section 153.
The assessee’s contention was that the statutory provisions were not strictly followed, and this departure was fundamental to jurisdiction. Therefore, the assessment order was void ab initio.
Core Legal Issue
The tribunal assessed whether the assessment was done within the time limit specified under Section 153 and whether the statutory procedural requirement was strictly followed under Section 144C. The larger question was whether the procedural requirement was merely technical and could be cured or whether it was jurisdictional and thus rendered the assessment invalid.
Tribunal’s Observations
The Income Tax Appellate Tribunal observed that the scheme of Section 144C is mandatory where applicable. The Assessing Officer cannot bypass the draft assessment order stage nor treat it as a procedural ritual. The issuance of a draft order and grant of opportunity before the DRP are substantive statutory rights granted to eligible assessee.
Further, the tribunal underscored that limitation under Section 153 is sacrosanct. An assessment order passed beyond the prescribed time limit, or in violation of the mandatory statutory procedure, cannot be sustained. Where the statute prescribes a specific method for completing an assessment, that method must be followed in letter and spirit.
The decision reinforces that procedural safeguards in tax law are not technical loopholes but jurisdictional conditions.
Why This Judgment Is a Turning Point
This ruling elevates procedural compliance to a central position in tax litigation. Earlier, certain procedural lapses were sometimes treated as curable irregularities. The tribunal’s approach in this case reflects a stricter judicial attitude — particularly in matters involving eligible assessees and transfer pricing adjustments.
The judgment signals that limitation analysis under Section 153 and procedural verification under Section 144C can form a strong defensive strategy. A close analysis of the date of draft order, DRP directions, and final assessment order may help in ascertaining the viability of high-value additions.
In the case of corporates, and more specifically MNEs, the judgment reiterates the need to monitor statutory timelines and participate actively at the draft assessment stage. Procedural diligence can significantly affect net tax liability.
The judgment also brings about a balance in legislation. While taxpayers are expected to strictly comply with statutory requirements, the same is expected from tax authorities. Compliance is not a one-way street.
Judicial Trend: Strict Interpretation of Section 144C
The failure to issue a draft assessment order has constantly emphasised by the judicial system, represented by the benches of the Income Tax Appellate Tribunal and the High Courts, when called upon to do so, absence of an opportunity to approach the DRP, or failure to comply with the statutory limitation under Section 153 may lead to the assessment being rendered null and void.
The Software One case is consistent with the emerging judicial trend and emphasizes that the jurisdictional requirements cannot be reduced to mere convenience.
Key Takeaways
Section 144C is mandatory in character and not merely directory. The limitation specified under Section 153 is the determinant of the validity and finality of the assessment proceedings. Any departure from the same can result in the invalidation of the entire assessment process, irrespective of the merits of the additions. In high-profile transfer pricing disputes technical and jurisdictional issues are increasingly becoming the decisive factors
Conclusion
Decision held in ITA No. 2072/Del/2022 (Software One India Pvt. Ltd.) is more than a procedural adjudication — under the Income-tax Act, 1961, it is a reaffirmation of statutory discipline. The decisive battle, in contemporary tax litigation, is often not about comparables or computation alone, but about whether the assessment itself survives jurisdictional scrutiny. Sections 144C and 153, when read together, in cases involving eligible assessees form the backbone of assessment validity.