Introduction

The time limit to complete the tax assessment proceeding has become one of the most contentious areas in Indian taxation law. Recent decisions pronounced by different Income Tax Appellate Tribunals have brought into sharp focus the interplay that would exist between the requirements of procedure under the Dispute Resolution Panel mechanism and outer time limits for completion of assessment, as prescribed by the statute. There are various provisions in the relevant statutory scheme pertaining to assessment orders that, though intended to operate in harmony, their operation has sparked abundant judicial controversy.

The core controversy has thus related to whether the special mechanism under the DRP procedure could override or extend the statutory limitation period prescribed for completing assessments. The question has acquired critical importance given the widespread practice of tax authorities passing only draft assessment orders within the Section 153 timeline, assuming that subsequent DRP proceedings could be completed beyond this outer limit.

Understanding the Statutory Framework

Section 143(3): The Normal Assessment Proceeding
It is provided under Section 143(3) of the Income Tax Act, which provides the assessing officer with the requisite power to make inquiries and conduct inquiries into the income so declared by a taxpayer.[1] This, therefore, lays the premise for detailed scrutiny assessments wherein the tax authorities scrutinize the correctness and completeness of returns filed by assessees. The assessment followed by the issue of notices, inquiries conducted, books of accounts scrutinized, and correct taxable income determined after giving full opportunity of being heard to the taxpayer is established.

144B. Faceless Assessment Scheme

Section 144B basically deals with a faceless assessment scheme. The faceless assessment would bring efficiency and transparency to the assessment procedure, where there is no physical interface between taxpayers and tax officials. The present provision compulsorily provides that all assessments shall necessarily be made in an electronic mode through any designated portal; at the same time, it provides dynamic jurisdiction, which means that the same officer cannot perform all functions relating to an assessment. The scheme here involves the issuance of show cause notices, draft assessment orders, and provides a specific timeline for each stage in the faceless assessment.

144C. DRP mechanism for eligible assessee

Section 144C provides a special mechanism for eligible assessees, mainly foreign companies and entities entering into international transactions involving transfer pricing adjustments. This section provides that when the Assessing Officer proposes variations which are prejudicial to the interest of the assessee, mandatorily, a draft assessment order has to be forwarded. The assessee has the right to file objections with the Dispute Resolution Panel-a collegium of three Commissioners-within 30 days from the receipt of the draft order. The DRP has been vested with powers to confirm, reduce, or enhance the proposed variations and has to issue directions within nine months. Section 144C(13) specifically states that upon receipt of the DRP directions, the Assessing Officer shall complete the assessment within one month from the end of the month in which such direction is received, notwithstanding anything to the contrary contained in Section 153.

153. Time limit for assessments

Section 153 prescribes the outer limits within which the assessments are to be completed. [2] For regular assessments under Section 143 or Section 144, an order has to be generally passed within 12 months from the end of the relevant assessment year. However, if a reference is made to the Transfer Pricing Officer under Section 92CA(1), the period is extended by another 12 months under Section 153(4), thus making it an overall period of 24 months from the end of the assessment year. These limitation periods lend certainty and finality to tax proceedings, ensuring that assessees are not subjected to prolonged uncertainty regarding their tax liabilities.

The Limitation Controversy

The central legal issue dividing the courts and resulting in what has been a prolific output of decisions is whether Section 144C lays down an independent limitation period excluding the general limitation period provided under Section 153, or the DRP machinery has to function within the outer limit fixed by Section 153.

Interpreting Revenue

The tax department has always argued that Section 144C is itself a complete code with respect to eligible assessees.[3] In that view, the non-obstante clause in Section 144C(13) excludes, by its operation, the limitation period falling under Section 153, thereby permitting completion of assessments within one month from receipt of DRP directions even though the time limit under Section 153 has otherwise expired.[4] Revenue argues that this longer timeframe in the special procedure in transfer pricing cases relating to international transactions is necessitated by the intrinsic difficulties associated with such assessment and the time that DRP would need for deliberation of technical transfer pricing matters.

Assessee’s Counter-Argument

Taxpayers have argued against this interpretation, indicating that the maximum outer limit for all assessments is provided by Section 153, and in that broader framework, the provisions of Section 144C provide only a procedural mechanism.[5] The assessee’s argument has been that the non-obstante clause in Section 144C(13) has a limited application, inasmuch as the said provision only mandates passing of the final order within one month of the DRP directions, without conferring any powers on the authorities to extend the limitation period itself. In other words, according to this view, if the tax authorities fail to complete the entire assessment, including the DRP proceedings, within the time limit contained in Section 153, the assessment becomes time-barred and, therefore, is invalid.

Landmark Judicial Pronouncements

Madras High Court: Roca Bathroom Products Case

The Madras High Court, in Commissioner of Income Tax v. Roca Bathroom Products Pvt. Ltd., passed a landmark judgment where it held that clearly indicates Section 144C does not override the limitation period prescribed under Section 153. The Court, thus, held that the period of 12 months stipulated under Section 153(1) for completion of assessment extended to 24 months under Section 153(4) in cases where a reference is made to the TPO forms the outer limit within which all the assessment proceedings must be completed along with the directions by the DRP. The Revenue was Unable to persuade the court that Section 144C carves out an independent timeline, noting that such a construction would result in unending perpetuation of assessment beyond the statutory timeframe, which has been ordained by Parliament. The judgment immediately elucidated that the non-obstante clause contained in Section 144C(13) only mandates that the Assessing Officer passes the final order within one month of receiving the DRP directions and does not grant the authority with the power to extend the statutory outer limit as provided under Section 153.

Bombay High Court: Shelf Drilling Case

Following this line of reasoning, the Bombay High Court in Shelf Drilling Ron Tappmeyer Ltd. v. ACIT held that the limitation period under Section 153 would be applicable in remand proceedings pertaining to Section 144C assessments, as Section 153 was not excluded by the operation of Section 144C. [6] The Court observed that though there are specific timelines drawn within the framework of Section 144C for swift and expeditious finalization of assessments, this would not mean that the overall time limits provided under Section 153 stand extended or overruled. This judgment inter alia rejected the Revenue’s contention that the Madras High Court judgment in Roca Bathroom was rendered per incuriam and accordingly perpetuated the jurisprudence that DRP procedures cannot extend statutory limitation periods.

Delhi High Court Rulings

The Delhi High Court has taken a consistent view that the limitation period for purposes of Section 144C(13) of the Act starts from the date when the DRP directions are uploaded on the Income Tax Business Application portal. In the cases of Microsoft Corporation India Pvt. Ltd., Louis Dreyfus Company India Pvt. Ltd.[7], and Fiberhome India Pvt. Ltd., the Court held that the assessment orders passed more than one month from the date of electronic upload would be beyond the limitation period. Applying the principles of Section 13 of the Information Technology Act, 2000, the Court said that dispatch of electronic records would mean when they enter a computer resource outside the control of the originator, and this would definitely trigger the limitation period.

Recent ITAT Decisions

TMEIC Industrial Systems India Case

In a recent decision relating to TMEIC Industrial Systems India Private Limited, the Hyderabad ITAT set aside the final assessment order passed under Section 143(3) read with Sections 144C(13) and 144B on limitation grounds. [8] The facts were that for Assessment Year 2020-21, the normal limitation under Section 153(1) was ending on September 30, 2022, which was extended to September 30, 2023 by the TPO reference under Section 92CA. As the final assessment order was passed on July 25, 2024, the Tribunal held it was clearly beyond the permissible limitation period. The ITAT admitted the additional legal ground challenging limitation, holding that questions going to the root of jurisdiction can be raised at any stage. The Tribunal rejected the Revenue’s contention that Section 144C is a complete code overriding Section 153, following binding precedents of the Madras and Bombay High Courts. The plea for extension based on COVID-related Supreme Court suo motu orders was also rejected, as such extensions apply only to judicial or appellate proceedings, not original assessment orders.

Cases of Western UP Tollway and Mahua Bharatpur Expressways

In a number of cases decided by ITAT Delhi, which involved infrastructure companies, final assessment orders were passed beyond the limitation under Section 153, even though DRP directions were issued. [9] The Tribunal held that Sections 144C and 153 are mutually inclusive. It was further clarified that the non-obstante clause in Section 144C(13) only mandates the Assessing Officer to pass the final order within one month of receipt of DRP directions but, in no way, extends the statutory time limit prescribed under Section 153. It was clarified that even in the case of an assessee who is eligible and covered under the DRP procedure, the outer limitation under Section 153 cannot be breached.

Determining the Date of Receipt of DRP Directions

One important sub-issue that has arisen relates to when precisely the Assessing Officer receives DRP directions under the faceless assessment scheme, since this sets in motion the one-month period under Section 144C(13).

Application of Principles of Information Technology Act

Section 13 of the Information Technology Act, 2000 has been applied by numerous benches of ITAT for determining the date of dispatch and receipt of an electronic communication. The Supreme Court in Union of India v. G.S. Chatha Rice Mills held, “A record is said to have been dispatched when it is sent outside the area and goes to a computer resource outside the control of the originator; and a record is said to be received when the record enters the designated computer resource of the addressee.” The above ratio has been applied whereby various tribunals have concluded that the date on which DRP directions are uploaded on the ITBA portal would be the date of dispatch, initiating the limitation period for complying with the directions, irrespective of when individual officials download the order or acknowledge it.

Practical Implications

This has an important practical implication in that the tax authorities cannot now argue that internal administrative delays in accessing or processing uploaded orders can prolong limitation. An objective timestamp of electronic upload ensures certainty and avoids manipulation of timelines by assessing officials’ delayed access or acknowledgment.

Consequences of Time-Barred Assessments

Jurisdictional Defect vs. Procedural Irregularity

The courts have, thus, uniformly taken the view that passing assessment orders beyond the statutory limitation period is a jurisdictional defect and not merely a procedural irregularity. This distinction assumes importance because jurisdictional defects result in orders being void ab initio and cannot be cured under Section 292B of the Income Tax Act, which saves procedural irregularities. Limitation provisions, therefore, are mandatory in nature, and once the statutory period expires, the Assessing Officer loses jurisdiction to pass any assessment order; any order passed thereafter would fall without legal authority.

No Second Opportunity to Tax Authorities

While quashing the assessment orders, on the ground of being time-barred, courts have generally refused a second chance to the tax authorities to pass fresh orders because that would, in effect, extend limitation periods beyond what the statute permits. [5] The principle of finality in tax proceedings essentially mandates that once the limitation expires, the matter must be treated as concluded and the return filed by the assessee should be accepted as filed. If their authorities are allowed to restart the proceedings, such limitation provisions will be defeating their very purpose.

Regulatory Framework Governing Assessment Procedures

Compliances as required under Section 144C are mandatory.

Section 144C is not purely procedural but gives rise to substantive rights of eligible assessees to have their cases reviewed by a collegium of three commissioners before final assessment. [1] It has been held by a plethora of High Courts that if the draft assessment orders are not issued to eligible assessees or final orders are passed without waiting for the statutory period for filing objections, it would be a jurisdictional error. In several cases where the authorities have bypassed the DRP mechanism or adopted a shortcut, courts have held that the assessments were void ab initio. The Delhi High Court in International Air Transport Association v. DCIT and JCB India Limited v. DCIT has categorically laid down that Section 144C is, therefore, imperative in the case of an eligible assessees, and non-compliance cannot be regarded as a curable procedural defect.

Faceless Assessment Requirements

The faceless assessment scheme under Section 144B itself provided for certain procedural requirements relating to issuance of show cause notice, draft assessment order, and granting adequate opportunity to the assessee to respond. Assessment orders passed in breach of Section 144B requirements have been quashed by various High Courts, where it has come on record that mandatory show cause notices, etc., have not been issued under this provision. By a similar analogy, the Delhi High Court has considered the issuance of show cause notice-cum-draft assessment order as a jurisdictional requirement prior to passing the final assessment orders and its non-issuance as a breach of principles of natural justice.

Impact on Transfer Pricing Assessments

The limitation issue thus acquires an acute angle of significance with transfer pricing assessments related to international transactions, since cases related to the same invariably require TPO references and often involve DRP proceedings.

Extended Timeline under Section 153(4)

A reference under Section 92CA(1) leads to an automatic extension of the assessment completion date by 12 months under Section 153(4).[2] This extension recognizes the additional time required for specialized transfer pricing analysis. However, this extended period of 24 months from the end of the assessment year remains the outer limit within which all proceedings including TPO order, draft assessment order, DRP directions, and final assessment order must be completed.

Practical Challenges

The narrow timelines have created practical challenges for tax authorities in complex transfer pricing cases involving multiple international transactions, detailed functional analysis, and selection of appropriate comparable companies. The time spent on TPO proceedings, followed by DRP objections and directions, leaves little or no time to enable the Assessing Officer to pass the final assessment order within the Section 153 period in many cases. This has led to a number of assessments being struck down as time-barred, which in turn has caused revenue loss for the government.

Comparative Analysis: Section 144B vs. Section 144C

While Section 144B provides the faceless assessment framework applicable to all cases, Section 144C creates a special mechanism for eligible assessees involving transfer pricing or international transactions.

The interaction of the two provisions has brought in some amount of complexity, as both the provisions require certain procedure and timelines that are to be followed in harmony. The Courts have held that in cases where an assessment involves an eligible assessee covered by Section 144C, the mechanism provided under Section 144C through the DRP has to be followed, which itself operates within the overriding framework of faceless assessment procedures contained under Section 144B. The time limits provided under both the said provisions shall necessarily have to be read together with the outer limit provided under Section 153 serving as the governing factor for the entire process.

Legislative Intent and Policy Considerations

Purpose of Limitation Provisions

The limitation provisions have several functions to play in the tax statute, which could be stated as the certainty for the taxpayer, prevention of indefinite prolongation of proceedings, efficiency in administration, and finality in fiscal matters. [2] The Supreme Court has laid emphasis on the fact that laws of limitation must be construed strictly since, by proper construction of these laws, definite and larger public policy issues are manifested, although they may have been passed with hardship in certain individual cases. The Income Tax Act contains limitation provisions so as to balance revenue collection and the rights of the taxpayer within a reasonable time framework.

Need for Procedural Reforms

The widespread quashing of assessment orders on limitation grounds has brought into sharp focus the need for procedural reforms so as to ensure that tax authorities complete complex assessments within statutory timelines. Suggestions have included:

Staggering TPO references earlier in the assessment process

Smoothening DRP procedures to lessen the consumption of time.

Use of technology to speed up the processing of objections and instructions
Amendment to Section 153, so as to provide for more realistic time limits to complete the proceedings pertaining to transfer pricing cases.

Any such reforms must, however, balance revenue interests with taxpayer rights to timely finality in tax proceedings.

Practical Guidance for Taxpayers and Practitioners

Limitation Periods and Monitoring

Taxpayers and their consultants should carefully monitor limitation dates, starting with the commencement of an assessment. The following are some of the fundamental dates that one should look out for:

End of the relevant assessment year
Date of TPO reference, if made
Date of draft assessment order
Date of filing objections before DRP
Date of DRP directions
Date on which DRP instructions are uploaded on the portal ITBA
Any delay at any stage that may result in the final assessment order being passed beyond the Section 153 deadline should be promptly brought to the authorities’ attention, and if necessary, challenged before appropriate forums.

Objections of Raising Limitation

It is to be noted that limitation being a jurisdictional issue can be raised at any stage of proceedings and, for the first time, even before appellate authorities. Additional grounds challenging limitation have been allowed to be raised even at the ITAT stage, as such grounds go to the root of the jurisdiction of the Assessing Officer to pass the impugned order. Limitation objections should not shirk from being raised even if not raised before lower authorities, provided the relevant facts and dates are part of the record.

Conclusion

The regular trend of judgments by High Courts and the ITAT benches is well-settled that the mechanism of DRP under Section 144C functions within, and not outside, the limitation provided for under Section 153. The non-obstante clause in Section 144C(13) carved out only for completion of the assessment within one month after the directions of DRP, without longer extension of the statutory time limit to complete the assessment. This would satisfy the proposition of finality in the tax proceedings and avoid infinite length of time in completing the assessment.

The fact that assessment orders are quashed on limitation grounds in a majority of cases is indicative of the deep-seated systemic problem that requires changes in administration and possibly legislation to ensure that complex transfer pricing assessments can be completed within realistic time limits without compromising taxpayer rights. The pendulum for administrative reforms awaits full play, after which enforcement agencies will have to show more diligence in time management throughout the assessment process; taxpayers must remain vigilant in protecting their rights under limitation provisions.

The jurisprudence in this area continues to evolve. The Supreme Court is very likely to give authoritative guidance as several Special Leave Petitions on this issue are pending. It would, however, be fair to state without hesitation that the current state of law supports a strict insistence on Section 153 limitation periods, even in cases involving DRP proceedings under Section 144C.

References

[1] PwC India. (2021). Assessment order passed in violation of mandatory procedure laid under section 144C of the Act. Retrieved from https://www.pwc.in/assets/pdfs/news-alert/tax-insights/2021/pwc_tax_insight_2_august_assessment_order_passed_in_violation_of_mandatory_procedure_laid_under_section_144c_of_the_act.pdf
[2] TaxTMI. (2025). Section 153 – Time limit for completion of assessment, reassessment and recomputation. Retrieved from https://www.taxtmi.com/acts?id=3309
[3] SBS and Company. (2020). Various hues of Draft Assessment Orders – Section 144B and Section 144C. Retrieved from https://www.sbsandco.com/blog/various-hues-of-draft-assessment-orders-section-144b-and-section-144c
[4] TaxGuru. (2025). ITAT Hyderabad quashes final TP assessment as time-barred despite DRP directions. Retrieved from https://taxguru.in/income-tax/itat-hyderabad-quashes-final-tp-assessment-time-barred-drp-directions.html
[5] Indian Kanoon. (2022). The Commissioner Of Income Tax vs M/S. Roca Bathroom Products Private Ltd. Retrieved from https://indiankanoon.org/doc/177582541/
[6] Lexology. (2024). Failure to Follow Mandatory Provisions of Section 144C – Whether Fatal to Assessment? Retrieved from https://www.lexology.com/library/detail.aspx?g=80945df9-f25b-454c-be8b-1deaa5b067b6
[7] TaxGuru. (2024). Section 144C(13) Compliance Timelines Begin from DRP Directions Upload Date. Retrieved from https://taxguru.in/income-tax/section-144c13-compliance-timelines-drp-directions-upload-date.html
[8] TaxGuru. (2024). Section 144C doesn’t extend outer time limit: ITAT Hyderabad quashes TP final order as barred by limitation. Retrieved from https://taxguru.in/income-tax/section-144c-doesnt-extend-outer-time-limit-itat-hyderabad-quashes-tp-final-order-barred-limitation.html
[9] StudyCafe. (2024). ITAT: DRP Route Cannot Save Time-Barred TP Assessments Under Section 153. Retrieved from https://studycafe.in/itat-drp-route-cannot-save-time-barred-tp-assessments-under-section-153-403608.html

Posted on: December 30th, 2025