Government Clarifies Time Limit for Completing Assessments Under Section 144C:

Government Clarifies Time Limit for Completing Assessments Under Section 144C The government in Budget 2026 has proposed a clarification to remove confusion about the time limit for completing tax assessments in special cases covered under Section 144C of the Income-tax Act. What's Section 144C? Section 144C deals with cases involving transfer pricing adjustments and cases where the taxpayer is a non-resident. Under this section, the assessing officer must first send a draft assessment order to the taxpayer. After receiving the draft order, the taxpayer can either accept the proposed changes or file objections before the Dispute Resolution Panel (DRP). Deadline to Complete Assessments Under Section 144C As per section 144C(4), if the taxpayer accepts the draft order, the assessing officer must complete the assessment within one month from the end of the month in which acceptance is received or the 30-day objection period expires.

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If the assessee files an objection before the DRP, the DRP must issue its order within nine months from the end of the month in which the draft order was issued to the assessee as required under section 144C(12). As per section 144C(13), the assessing officer must complete the assessment within one month from the end of the month in which the directions are received from DRP. These time limits in both cases apply even if Section 153 or Section 153B prescribe different deadlines. These sections also prescribe the time limit for completing the assessment, reassessment and recomputation. Section 144C Vs Section 153B It was clarified that if an assessment is made under section 144C(3) or 144C(13), the time limit to complete the assessment will be as per 144C(4) or 144C(13), rather than section 153 or section 153B. Issue: Despite this, many courts, including the Supreme Court, have given different interpretations in their rulings. Some judgements have held that the entire 144C process must meet the overall time limit of section 153 or 153B. What has Changed? There was a need to bring more clarity and reduce confusion, especially when the Income Tax Act, 2025, is about to take effect from April 1, 2026, whose main aim is to simplify the law language and reduce litigation.

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The government has proposed a clarification stating that Sections 153 and 153B apply only up to the draft order stage, and once the assessment is finalised, the time limit will be governed only by Section 144C, regardless of the deadlines in Sections 153 or 153B. Effective Date of this Clarification This clarification is made to both the old and new income tax laws. In the Income-tax Act, 1961, these clarifications apply retrospectively from 1st April 2009 for Section 153 and from 1st October 2009 for Section 153B, and The clarification will be added to the new Income-tax Act, 2025, which will take effect from 1 April 2026.