Time-Barred Income Tax Assessments: Key Takeaways from Parexel ITAT Ruling

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Time-Barred Income Tax Assessments: Key Takeaways from Parexel ITAT Ruling
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Time-Barred Income Tax Assessments: Key Takeaways from Parexel ITAT Ruling

(ITA No. 447/Hyd/2023 | Assessment Year: 2020–21)

Introduction

Limitation provisions under the Income Tax Act, 1961 are substantive in nature and go to the very root of the Assessing Officer’s jurisdiction. Courts and tribunals have consistently held that an assessment completed beyond the statutory Section 153 limitation period is void ab initio, regardless of the merits of the additions made.

In the context of international taxation assessment and transfer pricing cases, disputes frequently arise regarding the interaction between the Section 144C assessment procedure and the time limit for completion of assessment prescribed under Section 153. Revenue authorities often rely on the non-obstante clause in Section 144C to argue that the normal limitation provisions do not apply to eligible assessee covered by the DRP mechanism.

Recent and relevant judgment on this issue is that of Hyderabad Bench of ITAT, Hyderabad, in the matter of Parexel International (IRL) Limited v. ADIT (ITA No. 447/Hyd/2023, AY 2020-21). In this matter, ITAT held that final assessment order is barred by limitation and thus quashed assessment order.

This article summarises the facts, issues, reasoning, and implications of this important ITAT ruling on time barred assessment.

Facts of the Case

The assessee, Parexel International (IRL) Limited, is a company incorporated in Ireland and is a non-resident for Indian tax purposes. For Assessment Year 2020–21, the assessee was subjected to scrutiny assessment under the provisions relating to international taxation assessment.

Given the existence of international transactions with associated enterprises, the Assessing Officer (AO) made a transfer pricing reference under section 92CA to the Transfer Pricing Officer (TPO). Since the proposed variations were prejudicial to the assessee and the assessee qualified as an eligible assessee under section 144C, the AO followed the special procedure prescribed under Section 144C.

The procedural steps relevant to this matter, as per the above-order, will be as follows:

  • Draft Assessment Order u/s 143(3) r.w. s. 144C(1) dated 30th September 2022
  • Objections filed by assessee before DRP in relation to Income-tax
  • DRP directions for income tax under Section 144C(5), dated 30 June 2023
  • Order of final assessment made under Section 143(3), read with Section 144C(13), on 07.07.2023

Disagreeing with the final assessment order, the assessee filed an appeal with the ITAT. Besides the merits of the appeal, the additional legal ground adopted as argued by the assessee is that the assessment order is barred due to Section 153.

Core Legal Issue

The central issue before the Tribunal was:

Whether the final assessment order time limit is governed by the Section 153 limitation period, or whether compliance with the Section 144C(13) limitation (i.e., passing the order within one month of DRP directions) is sufficient due to the non obstante clause section 144C.

In other words, the controversy revolved around Section 144C vs section 153.

Assessee’s Arguments

The assessee contended that limitation is a pure question of law and goes to jurisdiction. Relying on statutory provisions and judicial precedents, it was argued that:

  • The limitation for completion of assessment must be computed strictly in accordance with Section 153.
  • As per the Tribunal’s reading of Section 153(1) read with Section 153(4), the outer limit for passing the assessment order in the assessee’s case was 30 September 2021, even after considering the extension available due to the transfer pricing reference under section 92CA and relaxations under TOLA.
  • The Section 144C assessment procedure is only a procedural framework and does not override the substantive limitation prescribed under Section 153.
  • Section 144C(13) merely prescribes an inner time limit after receipt of DRP directions and does not extend the overall limitation.

The assessee relied heavily on the Roca Bathroom Products ITAT ruling (Madras High Court) and the Shelf Drilling Ron Tappmeyer case (Bombay High Court) to submit that limitation under section 153 ITAT jurisprudence prevails over Section 144C.

Revenue’s Arguments

The Revenue argued that:

  • Section 144C begins with a non-obstante clause, making it a self-contained code for assessment of eligible assessees.
  • Once the assessee opts for the DRP route, the only relevant limitation is that prescribed under Section 144C(13).
  • Since the final assessment order was passed within one month of receipt of DRP directions income tax, it was within time.
  • The issue is currently part of Supreme Court pending tax litigation, and therefore the matter should be kept open.

 

Findings of the ITAT

The ITAT admitted the additional ground, holding that limitation is a legal issue requiring no further factual investigation.

After an extensive analysis, the Tribunal held as under:

  • The Section 144C assessment procedure is not independent of Section 153; rather, it is a continuation of assessment proceedings.
  • The non-obstante clause section 144C has a limited application and does not exclude the operation of Section 153 in its entirety.
  • Section 144C(13) limitation only mandates that the final order must be passed within one month from the end of the month in which DRP directions are received, but this is subject to the overall Section 153 limitation period.
  • The provisions of Section 144C vs section 153 must be read harmoniously, and not in a manner that renders Section 153 redundant.

Following earlier coordinate bench decisions and binding High Court precedents, the Tribunal concluded that the final assessment order dated 07 July 2023 was passed beyond the permissible time limit of 30 September 2021 and was therefore assessment barred by limitation.

Accordingly, the assessment order was quashed by ITAT.

Reliance on Judicial Precedents

Roca Bathroom Products ITAT Ruling

The Tribunal relied extensively on the Madras High Court decision in CIT v. Roca Bathroom Products Pvt. Ltd., which held that:

  • DRP proceedings are part of assessment proceedings
  • The entire process must be completed within the outer time limit under Section 153
  • Section 144C does not provide an unlimited extension of time

 

Shelf Drilling Ron Tappmeyer Case

The Bombay High Court, in Shelf Drilling Ron Tappmeyer Ltd., similarly held that:

  • Section 144C cannot be used to defeat statutory limitation
  • The final assessment order time limit must fall within Section 153
  • Any order passed beyond such time is void

 

Key Takeaways

  • Limitation is jurisdictional, not procedural
  • Section 153 remains the governing provision for limitation
  • DRP route does not grant unlimited time to the AO
  • Section 144C(13) limitation operates within, not beyond, Section 153
  • Time-barred assessments are liable to be struck down irrespective of merits

 

Conclusion

The Parexel ruling is a significant ITAT ruling on time barred assessment, reinforcing certainty and discipline in tax administration. It reiterates that special procedures cannot dilute statutory safeguards and that assessment barred by limitation is a nullity in law. Until the issue is conclusively settled by the Supreme Court, this decision—backed by the Roca Bathroom Products ITAT ruling and the Shelf Drilling Ron Tappmeyer case—serves as a powerful precedent for taxpayers facing delayed international and transfer pricing assessments.

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