Supreme Court Judges give divergent views on Deadline for Tax Assessment Involving Foreign Companies

The Supreme Court was required to pronouce judgement on important verdict on the issue of whether the time taken for the Dispute Resolution Panel (DRP) process under Section 144C of the Income Tax Act, 1961, should be included within or excluded from the limitation period prescribed under Section 153 for completing an assessment.

The Company, Shelf Drilling Ron Tappmeyer Ltd, is a foreign company that is involved in the business of offshore drilling operations. For the Assessment Year 2014-15, the company declared a loss of Rs 120.18 crore under the provisions of section 44BB. The company’s Income Tax Return (ITR) was selected for scrutiny, and they received a draft assessment order on 26.12.2016, where the tax officer calculated the income at Rs 4.35 crore. A final order was passed on 30 October 2017.

The Income Tax Appellate Tribunal (ITAT) later sent the case back to the Assessing Officer on 4.10.2019, ordering a fresh assessment. As per Section 153(3), the reassessment had to be completed by 31.03.2021, later extended to 30.09.2021 due to COVID-19.

However, the department issued a new draft order on 28 September 2021. As the order was time-barred under Section 153(3), the company challenged the order before the Supreme Court, arguing it was too late. However, both the judges in the Supreme Court, Justice BV Nagarathna and Justice Satish Chandra Sharma, gave different views and opinions regarding this case.

Justice BV Nagarathna View

As per Justice BV Nagarathna, the procedures under Section 144C must be done within the 12-month window under Section 153(3) of the Income Tax Act, 1961. She said that this timeline is to speed up assessments and reduce litigation timelines. She held that, “If orders are not made within the time stipulated under Section 153(3), then there would be no final assessment order and the return of income as filed by the assessee would have to be accepted.”

Justice Satish Chandra Sharma View

Justice Satish Chandra highlighted that the revenue authorities must get extra time for complex assessments, especially for the Foreign Company and Transfer Pricing matters. He stated that the 12-month limit applies only up to the draft order stage. “Once the procedure under Section 144C(1) gets triggered, the time available with the Dispute Resolution Panel… will be over and above the timelines prescribed under Section 153,” he stated.

Final Decision

Since both judges gave different views and opinions, the matter was sent before the Chief Justice of India for constituting a larger Bench.