Facts of the Case

The petitioner, Aricent Technologies (Holdings) Ltd., sought directions for refund of taxes originally paid/adjusted in the case of M/s Flextronics Software Systems Ltd. (FSSL) for Assessment Year 2007–08.

FSSL had filed its return declaring income of ₹17.64 crore, which was subjected to scrutiny under Section 143(3) of the Income Tax Act, 1961. Subsequently:

  • Transfer Pricing Officer proposed additions on corporate charges.
  • Draft assessment order disallowed:
    • Project expenses (₹39.15 crore approx.)
    • Deduction under Section 10B (₹177.78 crore approx.)
  • Final assessment determined income at ₹243.55 crore.

A tax demand of ₹117.22 crore was raised, and a refund of ₹26.01 crore (AY 2006–07) was adjusted against this demand.

The assessee appealed before the ITAT, which:

  • Deleted disallowance of project expenses.
  • Remanded issues relating to:
    • Section 10B deduction
    • Transfer pricing adjustments

However, no final assessment order was passed by the Assessing Officer thereafter.

 Issues Involved

  1. Whether the Assessing Officer could pass a fresh assessment order after remand beyond the prescribed limitation period under Section 153.
  2. Whether the petitioner was entitled to refund of taxes adjusted earlier.
  3. Whether non-completion of assessment within limitation results in acceptance of returned income.

 Petitioner’s Arguments

  • The petitioner contended that the assessment proceedings had become time-barred under Section 153(2A)/153(3) of the Income Tax Act.
  • Since no fresh assessment order was passed pursuant to ITAT’s order dated 07.01.2016, the original return must be deemed accepted.
  • Consequently, the adjustment of refund (₹26.01 crore) was invalid and must be refunded with interest.

 Respondent’s Arguments

  • The Revenue admitted that:
    • No final assessment order had been passed after ITAT remand.
    • There was no clarity on when the ITAT order was received by the department.
  • No counter affidavit was filed to contest the petitioner’s claims.

 Court’s Findings / Order

The Delhi High Court held:

  • The limitation prescribed under Section 153(3) and 153(4) applies to fresh assessments pursuant to ITAT orders.
  • The Assessing Officer failed to pass the order within the statutory time.
  • Therefore, the fresh assessment proceedings were barred by limitation.
  • The returned income must be treated as accepted.
  • Adjustment of refund for AY 2006–07 was unsustainable.

Final Direction:

  • Refund of ₹26.01 crore along with applicable interest to be granted within 8 weeks.

 Important Clarification by Court

  • Failure of the Assessing Officer to act within statutory timelines renders the assessment invalid.
  • Even where matters are remanded, limitation provisions remain strictly applicable.
  • Administrative inaction cannot prejudice the taxpayer’s rights.
  • The Court also expressed displeasure over departmental negligence in not passing the order despite Tribunal directions.

 Sections Involved

  • Section 143(3) – Assessment
  • Section 144C(13) – DRP directions
  • Section 10B – Deduction for export-oriented units
  • Section 80HHE – Deduction for software exports
  • Section 153(2A), 153(3), 153(4) – Time limit for assessment
  • Section 254 – ITAT orders
  • Section 92CA – Transfer Pricing provisions

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/VIB27022023CW137652022_131735.pdf

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