Failure to pass final assessment order within mandatory Section 144C(13) timelines results in loss of jurisdiction.

The petitioner filed its income tax return for Assessment Year (AY) 2017–18 reporting a book loss

Following a reference under Section 92CA(1), the Transfer Pricing Officer (TPO) proposed an adjustment to the petitioner’s international transactions

On March 16, 2021, the National e-Assessment Centre issued a draft assessment order under Section 144C(1) along with a notice of demand under Section 156 and penalty notices

The petitioner filed objections before the Dispute Resolution Panel (DRP), which issued directions on August 31, 2021

Although the TPO passed a consequential order on October 29, 2021, the Assessing Officer (AO) failed to pass a final assessment order

Despite the absence of a final order, the Revenue sought to enforce the demand raised in the March 2021 draft notice and adjusted refunds from other years against this alleged liability

The court applied Section 144C(13) of the Income Tax Act, 1961, which mandates that the AO shall complete the assessment in conformity with DRP directions within one month from the end of the month in which such directions are received, notwithstanding the general limitation periods in Section 153 or 153B

It further relied on the principle that statutory limitation periods are mandatory and their expiry renders the authority functus officio

The court cited several precedents, including Vodafone Idea Ltd. v. Central Processing Centre (2023) and Louis Dreyfus Company India Pvt. Ltd. v. DCIT (2024), to affirm that the timeline in Section 144C(13) is jurisdictional and mandatory

The court observed that since the DRP directions were received in September 2021, the AO was statutorily bound under Section 144C(13) to pass the final assessment order by October 31, 2021

It rejected the Revenue's defense that technical errors in the ITBA system—where the "final order" functionality was purportedly used incorrectly for the "draft order"—prevented the timely issuance of the final order

The court reasoned that internal administrative or technical difficulties cannot override or extend a limitation period prescribed by the legislature

Furthermore, it held that a draft assessment order and its accompanying notice of demand do not crystallize tax liability; such liability only arises upon a valid final assessment order

The court distinguished the Supreme Court’s decision in Shelf Drilling Ron Tappmeyer Ltd. (2025), noting that the present dispute concerned a specific failure to meet the Section 144C(13) deadline rather than a conflict with Section 153

Consequently, the draft notice of demand dated March 16, 2021, and the penalty notices were quashed as nullities

The court directed the respondents to refund Rs. 74,970 (which had been unlawfully adjusted against other years) with statutory interest and restrained the Revenue from taking further steps to enforce the demand

The petitioner’s return of income was ordered to be treated as accepted