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In a recent landmark decision, the Bombay High Court has ruled that an assessment order issued by the Faceless Assessing Officer (FAO) on August 31, 2023, is time-barred and cannot be upheld. This decision comes two years after the directions from the Dispute Resolution Panel (DRP). Justices K. R. Shriram and Neela Gokhale, presiding over the case, have strongly recommended initiating a thorough inquiry into the FAO’s failure to comply with the provisions of the Income Tax Act and the lack of diligence on the part of officials and the system itself, which has resulted in a substantial loss to the exchequer and the citizens of the country.

The case revolves around a Return of Income (ROI) filed by Vodafone Idea for the Assessment Year 2016–2017. The ROI indicated a loss and a claim for a refund of prepaid taxes amounting to Rs. 1128.47 crore, including tax deducted at source and advance tax.

The assessment was chosen for scrutiny, and a notice was issued under Section 143(2) of the Income Tax Act. As the petitioner, Vodafone Idea, engaged in international and specified domestic transactions with associated enterprises, a reference was made under Section 92CA(1) to the Transfer Pricing Officer (TPO) to determine the arm’s length price for the relevant Assessment Year.

During this period, the TPO proposed an adjustment to the value of the international transaction, leading the Assessing Officer (AO) to draft an order with various proposed additions and disallowances. The petitioner raised objections before the Dispute Resolution Panel (DRP) on January 27, 2020. Subsequently, the DRP issued directions on March 25, 2021, under Section 144C(5). These directions were uploaded to the Income Tax Business Application (ITBA) portal and served to the petitioner via email on April 6, 2021.

The core issue raised by the petitioner was the failure of the AO to pass the final order in line with DRP’s directions within the 30-day statutory period prescribed by Section 144C(13). As a result, the petitioner argued that the originally filed ROI should be accepted, and the excess tax paid should be refunded with interest.

The department contended that the directions from DRP were only received by the FAO on August 23, 2023, and the assessment, completed on August 31, 2023, adhered to the one-month limitation period specified in Section 144C(13), counting from the date the directions were received, not the date they were uploaded to the ITBA portal.

However, the court ruled in favor of the petitioner, stating that they are entitled to receive a refund with interest as per the law. The procedure should be completed within 30 days of this court order being uploaded. Nevertheless, the revenue has the option to reopen the assessment following due process and in accordance with the law.

This decision highlights the importance of adhering to legal timelines and procedures in tax assessments, ultimately safeguarding the rights of taxpayers.

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