[Income Tax Act] Reference to Transfer Pricing Officer after 21 months barred by limitation: Madras High Court

The Madras High Court last week held that a reference to the Transfer Pricing Officer (TPO) under Section 92CA of the Income Tax Act cannot be made after expiry of 21 months as per Section 153 of the Act since it would be barred by limitation [M/s. Virtusa Consulting Services Pvt. Ltd. v Dispute Resolution Panel]..A division bench of Justices R Mahadevan and Sathya Narayana Prasad was hearing a case where the appellant had entered into certain international transactions and thus, the matter was referred to the TPO for computation of the appellant’s arm's length price..The appellant had filed tax returns on November 30, 2006 and the time limit under Section 153 expired on December 31, 2008. However, a communication regarding the reference was only made to the appellant on February 27, 2009.Therefore, the essential question of law before the High Court was whether the reference to a TPO was barred by limitation..The order of the single-judge rejected the appellant's contentions on three broad grounds. Firstly, there was nothing in the provisos of Section 153 to indicate that the reference was barred by limitation, secondly the commissioner’s concurrence was obtained within 21 months, and thirdly the appellant was estopped from challenging the proceedings after having participated in them..On going through the provisions, the Court found force in the appellant’s contentions. It was found that reading the proviso of Section 153 to mean that a reference could be made after expiry of limitation, would not only make the first proviso obsolete, but would also run contrary to the second proviso.“If no reference is made within the period provided for assessment, no reference can be made subsequently as rightly contended by the learned senior counsel since the assessing officer becomes functus officio,” said the court..The Court opined that the Commissioner’s concurrence being obtained on time would not be of any assistance since the reference was made outside the time frame.“The proceedings would commence only when a reference is made to the TPO, which cannot be beyond the period provided under Section 153 (1) and the first proviso,” the Court stated. .The bench stressed that as per settled law, one provision could not be read to make the other provision redundant and a provision must be construed according to its plain and natural meaning without adding or deleting the words..On examining the question of estoppel, the court held that a legal plea could be raised at any stage of the proceedings, and there could not be any waiver of a statutory right.“The levy and collection of tax must be within the four corners of law in compliance with the substantial and procedural mandates of connected legislations,” the court concluded..Since in the present case, a reference was made after the permissible period, the timeline was missed by the department and thus, the appellant succeeded..Senior Advocate Ajay Vohra and Advocate Srinath Sridevan appeared for the appellants while the respondents were represented by Standing Counsel for Income Tax Prabhu Mukunth Arunkumar..[Read Judgment]