ITAT Delhi quashes assessments of Li & Fung (India) as time-barred under Sections 144C and 153

Background

The Delhi ‘I’ Bench of the Income Tax Appellate Tribunal has quashed the final assessment orders passed against Li & Fung (India) Pvt. Ltd. for Assessment Years 2018–19 and 2020–21, holding that the assessments were barred by limitation under Section 144C(13) read with Section 153 of the Income Tax Act, 1961. The assessee challenged the validity of the assessments on the ground that the final orders were passed beyond the statutory time limit. The Revenue objected to adjudication, arguing that the controversy relating to the interplay between Sections 144C and 153 was pending before a Larger Bench of the Supreme Court following a split verdict in Shelf Drilling Ron Tappmeyer Ltd., and that reliance on High Court judgments should be avoided at this stage.

Outcome

Rejecting the preliminary objection, the Tribunal held that there was no stay on the judgment of the Madras High Court in CIT v. Roca Bathroom Products Pvt. Ltd., which squarely governed the issue. The Bench observed that an interim stay of a judgment does not efface its ratio decidendi, unless it is expressly set aside, and reliance on Roca Bathroom was therefore permissible. On merits, the Tribunal held that Sections 144C and 153 are mutually inclusive and inter-dependent, and that the limitation for passing a final assessment order under Section 144C must be computed with reference to Section 153 as well. Applying this principle, the Bench noted that in both assessment years, the final orders were passed beyond the outer time limit prescribed under the Act.

Accordingly, the assessment orders for AYs 2018–19 and 2020–21 were quashed as time-barred. Since the assessee succeeded on the legal issue, the Tribunal declined to adjudicate the remaining grounds on merits, leaving them open. The connected stay applications were dismissed as infructuous. The appeals were allowed, with liberty granted to both parties to revive the matter in the event of a contrary ruling by the Supreme Court.