[Opinion] Interplay of Section 144C(13) and Section 153(3)

D.C. Agrawal – [2025] 170 taxmann.com 235 (Article)

1. Introduction

In the case of Shelf Drilling Ron Tappmeyer Ltd. v. ACIT (IT)[2023] 153 taxmann.com 162 (Bombay), the petitioner, a Cayman Islands-incorporated company headquartered in Dubai and engaged in shallow water drilling for the oil and gas industry, filed its income tax return in India for AY 2014-15, declaring a loss of Rs. 120.18 crores under regular provisions instead of presumptive taxation under Section 44BB(3). The petitioner operated a rig, J.T. Angel, acquired through an Asset Purchase Agreement, which provided drilling services to ONGC under sub-contracts via Shelf Drilling Offshore Services (India) Pvt. Ltd. (SDOSIPL). During scrutiny, the Assessing Officer (AO) invoked Section 145 to reject the petitioner’s books of account and computed income under Section 44BB(1) at 10% of gross receipts. The Dispute Resolution Panel (DRP) upheld the AO’s approach, leading to a final assessment under Sections 143(3) and 144C(13). On appeal, the ITAT held that the rejection of books was improper, remanding the matter for fresh adjudication. Subsequently, the AO issued a draft assessment order on September 28, 2021. The assessee not only filed the objections against the draft order but also challenged that AO could not have passed final assessment order as being time-barred, because the statutory time limit u/s 153 expired on September 30, 2021 and Revenue will not get any benefit of Section 144C(13). Hon’ble High Court considered the arguments of the parties and decided the case in favour of the assessee holding that final assessment order could not be passed after 30-09-2021. In this article, issues before the Court, arguments of the parties, decision of the Court and analysis of this decision will be briefly described.

2. Issues raised before the Court

Following issues were considered by Hon’ble Bombay High Court-

1. Applicability of Time Limits for Assessment: Whether the time limit prescribed under Section 153(3) of the Income Tax Act, 1961, for completion of an assessment (12 months from the end of the financial year in which the ITAT order was received) would override the provisions under Section 144C, which provides its own timelines for dispute resolution by the Dispute Resolution Panel (DRP) and final assessment order issuance.
2. Interaction Between Sections 144C and 153: Whether the specific timelines in Section 144C for the DRP’s directions and subsequent actions by the Assessing Officer are self-contained and override the general time limit prescribed under Section 153(3), particularly in cases of remand from the ITAT.
3. Barred Limitation and Consequences: Whether the final assessment order passed after the expiry of the 12-month limitation under Section 153(3), despite compliance with Section 144C timelines, is invalid and time-barred, requiring the return of income filed by the petitioner to be accepted.
4. Validity of Draft Assessment Order: Whether the draft assessment order passed on 28-09-2021 within the extended limitation period could sustain proceedings, despite no final assessment order being issued by the last date of the extended period (30-09-2021).

3. The facts relating to these four issues were as under

• Applicability of Time Limits for Assessment

1. 1. The petitioner, a company based in the Cayman Islands, filed its return of income for the assessment year (AY) 2014–15, declaring a loss of Rs. 120.18 crores.
   2. The Income Tax Appellate Tribunal (ITAT) had remanded the case back to the Assessing Officer (AO) for fresh adjudication on 4 October 2019, directing the AO to consider the books of accounts and documentary evidence.
   3. Under Section 153(3), the time limit for completing the assessment after an ITAT remand was 12 months from the end of the financial year in which the ITAT order was received. This deadline was further extended to 30 September 2021 under a COVID-19-related notification.
   4. The AO passed a draft assessment order on 28 September 2021, but no final assessment order was issued before the expiry of the time limit on 30 September 2021.

• Interaction Between Sections 144C and 153

1. 1. Section 144C provides a self-contained mechanism for handling objections to draft assessment orders via the Dispute Resolution Panel (DRP). It includes specific time limits for various stages of the process, such as nine months for the DRP to issue directions and one month for the AO to pass a final assessment order.
   2. Section 153(3), however, prescribes a general time limit of 12 months for completing assessments following an ITAT remand.
   3. The petitioner argued that the specific timelines in Section 144C do not override the overarching time limit in Section 153(3), and the assessment was barred by limitation.
   4. The Revenue contended that Section 144C, being a later and special provision, operated independently of Section 153(3) and allowed sufficient time for the DRP and AO to complete the process.

• Barred Limitation and Consequences

1. 1. The ITAT remanded the matter on 4 October 2019, triggering the time limit under Section 153(3). The extended deadline of 30 September 2021 was calculated based on relaxations provided by TOLA (Taxation and other laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (hereinafter referred to as “the Relaxation Act”).
   2. Despite multiple notices and proceedings initiated by the AO in 2021, no final assessment order was issued by 30 September 2021.
   3. The petitioner argued that the limitation period had expired, rendering the proceedings invalid. The petitioner sought acceptance of its originally filed return of income as final.

• Validity of Draft Assessment Order

1. 1. The draft assessment order was passed on 28 September 2021, two days before the extended deadline of 30 September 2021.
   2. The AO issued this draft order while complying with Section 144C(1), which mandates issuing a draft order if any variation prejudicial to the assessee is proposed.
   3. The petitioner challenged the draft order, arguing that it could not sustain proceedings since no final assessment order was passed within the statutory time frame.
   4. The Revenue argued that the draft order was sufficient to satisfy the requirements of the law and that the final order could follow after addressing objections under Section 144C.

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