Orders should be passed by Income Tax Act authorities within three years: Madras High Court

In a significant ruling, the Madras High Court has held that assessment proceedings under the Income Tax Act should be completed within a reasonable period of time, which shouldn't cross three years. [The Commissioner of Income Tax v. M/s Roca Bathroom Products Private Limited].A Bench of Justices R Mahadevan and J Sathya Narayana Prasad held,"When no period of limitation is prescribed, orders are to be passed within a reasonable time, which in any case cannot be beyond 3 years. However, when the statute prescribes a particular period within which orders are to be passed, then such period, irrespective of whether it is short or long, shall be applicable.".The Court was seized of a clutch of petitions filed by the Commissioner of Income Tax and some private companies, both challenging orders of the Income Tax Appellate Tribunal (ITAT) which had remanded assessment proceedings initiated by the authorities back to the IT department to consider afresh.The companies, on the other hand, had sought refund of their taxed incomes on the ground that the proceedings stand vitiated due to the delay on the part of the authorities. It was also pointed out that the authorities failed to adhere to the provisions of the Income Tax Act, 1961.They further highlighted the fact that during the proceedings, they were initially issued notices for assessment of particular financial years, after which their matters were referred to the Transfer Pricing Officer (TPO) under Section 92 of the Act, who passed orders after scrutinising the income tax returns. The matter were even referred to the Disputes Resolution Panel (DRP), which also issued notices calling for objections from the private companies. After their objections were rejected by the DRP and final assessment orders were passed, the same were challenged before the ITAT.The ITAT set aside the final assessment orders and remitted the matter back to the authorities with a directive to consider afresh the matter and to also give the assessee companies a reasonable opportunity to put forth their stand on the issue..The authorities, while opposing the petitions before the High Court, claimed that the reliefs sought were premature and under the misconception that the proceedings initiated by the department are batted by limitation..Having heard the contentions, the judges opined that a hard and fast rule couldn't be laid down to indicate what is a reasonable time."It though depends upon the facts of the each case, drawing a clue from Article 113 of the Limitation Act, the residual entry, it would be reasonable to conclude that in such cases, action is to be concluded within 3 years. Needless to say, if the statute prescribes shorter period, the doctrine of reasonable time will not be applicable and the timeline under the statute is to be strictly followed," the judges held.It further held that provisions of Sections 144C (reference to dispute resolution panel) and 153 (time limit for completion of assessment, reassessment and recomputation) are not mutually exclusive, but are rather mutually inclusive. The period of limitation prescribed under Section 153(2A) or 153 (3) is applicable when matters are remanded back to the Assessing Officer or TPO or the DRP.Moreover, it was held that in matters involving transfer pricing, upon remand to DRP, the Assessing Officer is to pass a de novo draft order and the entire proceedings as in the original assessment, would have to be completed within 12 months."The outer time limit of 33 months in case of reference to TPO under Section 153, would not refer to the draft order, but only to final order and hence, the entire proceedings would have to be concluded within the time limits prescribed under the law," the judges concluded..Senior Panel Counsel Hema Murali Krishnan along with Advocate Prabhu Mukunth Arunkumar appeared for the IT authorities.Senior Counsel RV Eshwar and Kamal Sawhney, along with Advocates R Sandeep Bagmar and Arun Karthick Mohan, represented the private companies..[Read Judgment]