Karnataka High Court on Limitation for TP Remand Orders: Lessons from United Spirits Limited Vs DCIT

1. Overview of the Ruling

The Karnataka High Court in United Spirits Limited Vs DCIT has delivered an important ruling on how limitation periods under Section 153 apply when transfer pricing (Section 92CA) matters are remanded by the Income Tax Appellate Tribunal (ITAT). The Court examined whether a remand to the Transfer Pricing Officer (TPO) results in an extended time limit under Section 153(4) or whether the standard remand limitation under Section 153(3) governs the case.

The controversy arose because, after the Tribunal partly allowed the assessee’s appeals for Assessment Years (AY) 2013–14 and 2014–15 and sent certain issues back for fresh adjudication, the Revenue sought to continue proceedings beyond 31-03-2024, claiming that limitation stood extended up to 31-03-2025. The assessee asserted that the time to pass the fresh order pursuant to the Tribunal’s direction expired on 31-03-2024, rendering all further proceedings without jurisdiction.

The High Court sided with the assessee and held that:

  • A Tribunal remand does not amount to a fresh reference under Section 92CA(1).
  • Consequently, Section 153(4) is not attracted in such remand situations.
  • The case falls within the ambit of fresh assessment / fresh order under Section 92CA pursuant to Section 254, and is therefore squarely covered by Section 153(3).
  • Since the Tribunal order was received during Financial Year 2022–23, the outer limit to complete the exercise expired on 31-03-2024.
  • Any action or continuation of proceedings beyond this date is barred by limitation and without jurisdiction.

The Court quashed the communications dated 18-06-2024 and directed the Revenue to refund taxes paid in excess of returned income, along with statutory interest, within twelve weeks.

2. Factual Background – AY 2013–14 (W.P. No. 18474 of 2024)

2.1 Business and Return Filing

  • The assessee, United Spirits Limited, is a public limited company engaged in manufacturing and selling alcoholic beverages.
  • For AY 2013–14, the assessee filed its return declaring total income of ₹4,93,71,22,200.

2.2 Transfer Pricing Reference and Adjustments

  1. On 30-09-2015, the Assessing Officer (AO) made a reference to the TPO under Section 92CA(1) regarding the assessee’s international transactions.
  2. The TPO passed an order under Section 92CA(3) determining aggregate transfer pricing adjustment of ₹7,38,89,39,877.
  3. The AO then issued a draft assessment order under Section 143(3) read with Section 144C(1), computing total income at ₹15,60,38,20,756.
  4. The assessee objected before the Dispute Resolution Panel (DRP), which upheld the TP adjustment and issued directions under Section 144C(5).
  5. Based on these directions, a final assessment order was passed, determining total income at ₹15,19,93,90,755 under Section 143(3) read with Section 144C(13).

2.3 ITAT Proceedings and Remand

  • The assessee appealed before the ITAT.
  • The Tribunal partly allowed the appeal, upheld some findings and remanded certain issues back to the AO/TPO for a fresh decision.
  • The remand required fresh adjudication on specified transfer pricing and related issues.

2.4 Post-Remand Notices and Correspondence

Following the Tribunal’s remand order:

  1. 24-03-2023 – The TPO issued a notice under Section 92CA(2) calling for documentation to substantiate the assessee’s computation of arm’s length price and other remand issues.
  2. 12-04-2023 – The assessee filed its reply.
  3. 20-10-2023 and 15-11-2023 – Further notices were issued seeking additional information.
  4. 27-10-2023 and 05-01-2024 – The assessee filed replies to these notices.
  5. A subsequent notice required production of documents on or before 01-03-2024; details were furnished by the assessee on 28-02-2024.
  6. Meanwhile, jurisdiction over the assessee shifted from Respondent No. 2 to Respondent No. 3 on 07-02-2024.

2.5 Limitation Objection and Rejection

  • The assessee pointed out that under Section 153(3) read with Section 153(5), the limitation to give effect to the Tribunal’s order expired on 31-03-2024 because the Tribunal’s order was received during FY 2022–23.
  • On this basis, the assessee requested refund of tax paid in excess of its returned income for AY 2013–14.
  • By communication dated 18-06-2024, the AO rejected this contention, asserting that for remand proceedings, time would expire only on 31-03-2025, not on 31-03-2024.
  • The assessee challenged this communication before the High Court, seeking quashing of the letter dated 18-06-2024 and refund with interest.

3. Factual Background – AY 2014–15 (W.P. No. 18439 of 2024)

3.1 Return and Revised Return

  • For AY 2014–15, the assessee initially filed a return declaring income of ₹3,87,70,39,200.
  • After noticing certain defects, it filed a revised return declaring total income of ₹4,64,40,44,920.

3.2 TP Adjustment and Assessment

  1. For this year also, the AO invoked Section 92CA(1) and a TP order was passed on 26-10-2017.
  2. A draft assessment order dated 26-12-2017 was issued, determining total income at ₹18,26,72,09,820, and computing tax and interest demand at ₹6,43,88,41,680.
  3. The assessee went before the DRP, which upheld the TP adjustment.