The Hyderabad Bench of the Income Tax Appellate Tribunal (ITAT) has quashed the draft assessment order passed after holding that it was barred by limitation under Section 153(5A) of the Income Tax Act, 1961.
The bench of Vijay Pal Rao (Vice President) and Manjunatha G (Accountant Member) ruled that the statutory time limit for passing a draft assessment order begins from the date the Transfer Pricing Officer’s (TPO) order is received electronically through the Income Tax Business Application (ITBA) portal or email, and not from the date the Assessing Officer subsequently acts upon it.
The dispute arose after the Transfer Pricing Officer’s original order under Section 92CA(3) was revised pursuant to a revision order passed under Section 263 of the Income Tax Act by the Commissioner of Income Tax. Following the revision, the TPO passed a fresh transfer pricing order on 31 May 2023.
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The assessee contended that the revised TPO order had been uploaded on the ITBA portal on the very same day and was also communicated electronically to the Assessing Officer shortly thereafter. Consequently, under Section 153(5A), the Assessing Officer was required to pass the draft assessment order within two months from the end of the month in which the TPO’s order was received. Since the draft assessment order was issued only on 14 February 2024, the assessee argued that it was hopelessly time-barred.
The Revenue argued that although the TPO’s order existed earlier, it was taken up by the Assessing Officer only in February 2024. According to the Department, the assessment proceedings were therefore completed within time from the date on which the order was internally processed.
However, the Tribunal rejected this contention, observing that statutory limitation cannot depend upon internal administrative handling of files once the order has already been received electronically.
A significant aspect of the case was the assessee’s reliance on information obtained under the Right to Information Act.
The RTI response issued by the Department confirmed that the revised TPO order dated 31 May 2023 had been uploaded on the ITBA portal; it was forwarded through official webmail to the jurisdictional Assessing Officer on 13 June 2023; and the assessee had received the order on 1 June 2023.
The Tribunal held that even if 13 June 2023 was treated as the date of receipt by the Assessing Officer, the limitation under Section 153(5A) expired on 31 August 2023, rendering the draft assessment order issued on 14 February 2024clearly beyond the prescribed statutory period.
The Dispute Resolution Panel (DRP) had earlier rejected the limitation objection by applying Section 153(3), holding that the assessment was within the broader limitation available following revision under Section 263.
The ITAT disagreed, holding that where a revised transfer pricing order is passed pursuant to Section 263, the specific limitation prescribed under Section 153(5A) governs the matter. The Tribunal observed that the DRP had applied the wrong statutory provision and consequently failed to appreciate the mandatory limitation applicable to the case.
The Bench relied extensively on its earlier decision in Dr. Reddy’s Laboratories Ltd. v. ACIT, where it had already held that electronic communication through the ITBA portal and official email constitutes valid receipt of directions for computing statutory limitation.
The Tribunal reiterated that the date of digital transmission—not the later receipt of any physical copy—determines the commencement of the limitation period. This interpretation, the Bench observed, is also consistent with judicial precedents recognising electronic communication as valid service under the Income Tax Act.
Having concluded that the draft assessment order itself was time-barred, the Tribunal held that the defect went to the root of the assessment proceedings. Since the foundational draft assessment order was invalid, every subsequent action flowing from it, including the final assessment order passed by the Assessing Officer in December 2024, automatically stood vitiated.
The Tribunal found it unnecessary to examine the assessee’s remaining grounds relating to transfer pricing adjustments, comparable selection, working capital adjustment, risk adjustment, foreign exchange loss, MAT computation and other corporate tax issues, treating them as infructuous.
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