The taxman is seeking to avail more time because there are large numbers of cases that are still in consideration related to international taxation and contentious transfer pricing matters.
The tax tribunal, a quasi-judicial authority, has been requested to postpone ongoing hearings concerning these cases until the Supreme Court concludes. This request was conveyed through an internal tax communique, as per the sources.
If the Supreme Court subsequently affirms a recent directive given by the Bombay High Court or an earlier ruling by the Chennai High Court, it could trigger the time-barred of certain tax matters that are currently under consideration by the Dispute Resolution Panel (DRP).
In this situation, these cases would fall outside the purview of the applicable tax law, rendering the Income Tax department to recover any taxes concerning these particular claims.
The DRP functions as an independent body comprising three dedicated IT commissioners. It considers assessing draft orders issued by tax assessors and works as an alternate avenue to resolve the discrepancies. The DRP is legally mandated to provide directives within nine months from the end of the month in which the draft order has been furnished to an assessee.
Furthermore, the law necessitates the assessing officer to release the final assessment order within a period of 24 months from the end of the relevant assessment year, especially in matters involving transfer pricing assessments being made.
A recent ruling by the Bombay High Court on August 4, 2023- the directive that led the department to the Income Tax Appellate Tribunal (ITAT), has clarified that the nine-month timeline is encompassed within the two years designated for the completion of the final assessment order.
Generally, draft assessment orders are released for various cases just before the end of the deadline for the final assessment. Under the DRP procedure, an assessee is obligated to approach the DRP within a month of issuing the draft assessment order. Subsequently, the DRP is required to issue its directives within nine months, followed by the completion of the assessment by the assessing officer within 30 days in line with the board’s directives.
Under these circumstances, an assessee, having the Bombay HC ruling in his favour, could potentially contend that the assessing officer’s order lacks legal validity as the expiration of the two-year time limit has already ended.
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In response to this predicament, the Mumbai I-T office’s international taxation division wrote in a letter dated August 8, 2023, In view of the wide ramifications and enormous tax implications of the aforesaid order, the Revenue is under the process of asking stay on the procedure of the stated order (i.e., the Bombay HC order) from the Hon’ble Supreme Court.
The department representatives (DRs) have been ordered to file adjournment requests in ongoing actions that are impacted by the aforementioned judgment until this revenue petition is adjudicated. In light of this, it is urged that the DRs please examine such petitions positively. The vice-president of ITAT-Mumbai is the recipient of the letter, which is signed by the chief commissioner (IT), west zone.
The Mumbai circle of the tax department, which manages close to 30% of the nation’s IT revenues, deals with a significant number of transfer pricing issues, one of the more complicated areas of tax law.
According to the letter to ITAT, the Bombay High Court’s decision in the case of Shelf Drilling Angel Ltd. and others addressed the interaction between the timelines prescribed under Section 153 and Section 144C and has ruled that the provisions of Section 153 are not excluded even for orders that fall under the purview of Section 144CC.
Departmental officials requested adjournments before the ITAT even before the Bombay HC verdict in every case where the grounds for appeal included the claim that the order was time-barred due to the Chennai HC’s ruling in the matter of M/s. Roca Bathroom Products Private Limited.
If the Honourable Supreme Court does not rule on the subject as a matter of priority, there will once more be a backlog of cases before the tribunal concerning transfer pricing and international taxation difficulties.
While Section 144C, added in 2017 to increase accountability in the tax assessment process, focuses on the process of the draught assessment order and the function of the DRP, Section 153 of the I-T Act deals with the time constraints for completion of assessment, reassessment, and re-computation.
