Income Tax Act | Supreme Court Delivers Split Verdict On Timelimit For Assessments Under S.144C

The Supreme Court on Friday (Aug. 8) delivered a split verdict on the interpretation of the limitation period under Section 144C of the Income Tax Act, 1961 (“Act”), governing the timeline for passing assessment orders by the Assessing Officer in cases involving eligible assessees, such as foreign companies and transfer pricing matters.

The judgment was delivered by the bench of Justices BV Nagarathna and SC Sharma.

In a split verdict, Justice BV Nagarathna ruled that Section 153(3)'s twelve-month cap still governs even in Section 144C proceedings, rendering the assessments time-barred.

However, Justice SC Sharma held that the timelines in Section 144C operate independently of Section 153(3) and exclude its outer limit for DRP cases, stating that applying Section 153 could impact tax recovery. 

Background

The case arose from a batch of appeals filed by the Income Tax Department challenging a Bombay High Court's decision, which held that final assessment orders passed after the expiry of the Section 153(3) limitation period were time-barred, even in cases involving eligible assessees subject to the Section 144C process.

It was the case where the Respondent-Shelf Drilling Ron Tappmeyer Limited, a foreign entity providing offshore drilling services in India, filed its AY 2014–15 return declaring a loss and opting out of the presumptive taxation regime under Section 44BB. The Assessing Officer ("AO") rejected its books and computed income at 10% of gross receipts under Section 44BB(1). The Dispute Resolution Panel upheld this, but the ITAT set aside the order and remanded the case to the AO on 4th October 2019 for fresh adjudication.

As per Section 153(3), the AO had 12 months (from the end of the financial year in which the ITAT order was received) to pass a fresh assessment order, i.e., by 31st March 2021. Due to COVID-19, the deadline was extended to 30th September 2021 under the Taxation and other laws (Relaxation and Amendment of Certain Provisions) Act, 2020.

On remand, the AO issued a draft assessment order on 28th September 2021, just before the extended deadline. However, no final assessment order was passed before 30th September 2021.

Arguments

The Respondent-Assessee argued that the final assessment order must be passed within the limitation period (30th September 2021). Since only a draft order was issued, and the final order was not passed in time, the proceedings were time-barred.

Per contra, the Income Tax Department stated that Section 144C is a self-contained code and overrides Section 153 as there is no time limit for issuing a draft order under Section 144C (1). It said that the final order can be passed later, as long as the draft order is issued within the limitation period.

Issue

The core issue before the Court was whether the twelve-month outer time limit stipulated under Section 153 of the Income Tax Act applies to proceedings under Section 144C, even though Section 144C functions as a self-contained code prescribing its own timelines for cases involving eligible assessees.

Decision

The matter was heard by the bench of Justices BV Nagarathna and SC Sharma, where a split verdict was delivered.

The judgment authored by Justice SC Sharma, while allowing the Income Tax Department's appeals, held that the specific timelines prescribed under Section 144C operate independently of Section 153(3), and therefore, the High Court erred in quashing the assessments on limitation grounds. He reasoned that Parliament, by enacting non-obstante clauses in sub-sections (4) and (13) of Section 144C, intended to exclude the application of Section 153's outer limit to Dispute Resolution Panel (“DPR”) cases, thereby ensuring that the DRP process runs its full statutory course.

“If I take the view that the entire procedure prescribed and contemplated in terms of Section 144C of the Income Tax Act must be subsumed within the overall time period prescribed under Section 153 of the Income Tax Act, I am of the opinion that it would result in a complete catastrophe for recovering lost tax. The time period within which the Assessing Officers would have to pass orders would be negligible.”, said Justice Sharma.

"No doubt Sub-Section (4) and Sub-Section (13) of Section 144C of the Income Tax Act prescribe very specific timelines for the Assessing Officer to complete and pass the Final Assessment Order, but I am of the view that these timelines are independent of the timelines contemplated in Section 153 of the Income Tax Act, and operate in addition to the timelines contemplated in Section 153 of the Income Tax Act...The fixed time periods prescribed under Section 144C of the Income Tax Act must be adhered to, and a final assessment order must be passed either within one month of the Draft Assessment Order if the situation contemplated under SubSection (4) takes place, or within a period of 11 months from the passing of the Draft Assessment Order if the Assessee opts to file objections before the Dispute Resolution Panel.", Justice Sharma added.

Disagreeing with Justice Sharma's view, Justice BV Nagarathna, in a separate judgment, held that while Section 144C prescribes a self-contained procedure for eligible assessees, the overall limitation period under Section 153(3) continues to apply, including in remand situations. She concluded that the assessments in question were indeed time-barred and directed that the returns originally filed by the assessees be accepted, without prejudice to the Revenue's right to take any other permissible steps under law.

Justice Nagarathna reasoned that the object and purpose of prescribing narrower limitation periods (one month) in subsection (4) of Section 144C and one month in sub-section (13) of Section 144C is to ensure that the proviso to sub-section (3) of Section 153 is ultimately complied with as it prescribes the overall limitation period of twelve months for completion of an assessment or re-assessment, inter alia, when Section 254 of the Act applies.

"In my view, even in such a case, the assessment has to be concluded within twelve months as stipulated in Section 153(3) of the Act where there has been remand by the Tribunal to the Assessing Officer under Section 254 of the Act. Therefore, within the period of twelve months prescribed under Section 153(3), the Assessing Officer has to ensure that the entire procedure under Section 144C is completed (as and when it is applicable) and pass a final assessment order.”, Justice Nagarathna said.

“Having regard to the divergent opinions expressed by us, we direct the Registry to place these matters before Hon. the Chief Justice of India for constituting an appropriate bench to consider the issues which arise in these matters afresh.”, the court said.

Cause Title: ASSISTANT COMMISSIONER OF INCOME TAX & ORS. VERSUS SHELF DRILLING RON TAPPMEYER LIMITED

Citation : 2025 LiveLaw (SC) 783

Click here to read/download the judgment

Appearance:

For Petitioner(s): Mr. N Venkatraman, A.S.G. Ms. Swarupama Chaturvedi, Sr. Adv. Mr. Raj Bahadur Yadav, AOR Mr. H R Rao, Adv. Mr. Udai Khanna, Adv. Mr. V Chandrashekhara Bharathi, Adv. Mr. Ashok Panigrahi, Adv. Mr. Sachin Sharma, Adv. Mrs. A Deepa, Adv.

For Respondent(s): Mr. Jehangir D. Mistry, Sr. Adv. Ms. Rubal Bansal Maini, Adv. Mr. Prakhar Pandey, Adv. Mr. Satvik Sareen, Adv. Mr. Faisal Sherwani, AOR Mr. Kunal Cheema, AOR