ASSISTANT COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) & OTHERS V. SHELF DRILLING RON TAPPMEYER LTD. ETC. 2025 INSC 946:

DATE: 08/08/2025

COURT: Supreme Court of India

BENCH: Justice B.V. Nagarathna and Justice Satish Chandra Sharma

FACTS:

The Respondents in the first batch of cases were non-resident assessees engaged in exploration under Section 44BB of the Income Tax Act (ITA) and qualified as eligible assessees under Section 144C. These overseas-incorporated companies, involved in shallow water drilling for oil and gas industry clients, regularly filed income tax returns. Four Special Leave Petitions (SLPs) before the Supreme Court arose from four writ petitions filed by the Respondents before the Bombay High Court, which were allowed.

For AY 2014–15, though eligible for presumptive taxation under Section 44BB, the Respondents opted out and declared a total loss of Rs.1,20,18,44,672 in their November 2014 return. The case was selected for scrutiny under Section 143(2), and in 2016, a Draft Assessment Order (DAO) computed their total income at Rs.4,34,79,980. The Respondents filed objections before the Dispute Resolution Panel (DRP), which rejected their claims and issued directions to the Assessing Officer (AO). Aggrieved by the AO’s final order, they appealed to the Income Tax Appellate Tribunal (ITAT), which allowed the appeal and remanded the case to the AO.

In 2021, a show-cause notice was issued. The Respondents argued that no final order could now be passed, as the limitation period under Section 153(3) read with the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) expired on September 30, 2021. The High Court held that the same legal principle applied to all petitions and that no final assessment order could be passed after the due date. Challenging this reasoning, the Revenue approached the Supreme Court.

ISSUES:

The core issue was whether, in assessment proceedings under Section 144C of the Income Tax Act, the limitation periods under Section 153(3) applied in a manner that prevented the passing of a final assessment order after the prescribed time, particularly when objections were filed before the Dispute Resolution Panel (DRP). The case also addressed how these provisions interacted with Section 92C in transfer pricing cases, and whether the High Court was correct in holding that the limitation had expired, thus barring the Revenue from passing the final order.

JUDGEMENT WITH REASONING:

The Supreme Court set aside the Bombay High Court’s decision, holding that the limitation framework under Section 153 applies fully to assessments under Section 144C, including when Section 92C is invoked. The Court clarified the timelines for passing draft and final assessment orders, depending on whether objections are filed before the DRP, and allowed the Revenue to proceed with passing orders in accordance with law. The assessee retains the right to challenge such orders through available legal remedies.

The Court relied on the purposive interpretation principle, as laid down in Vivek Narayan Sharma v. Union of India, emphasizing that statutory interpretation must promote the legislative intent and avoid absurd or impractical outcomes. It noted that Sections 144C and 153 of the Income Tax Act contemplate distinct procedural tracks, with varying time needs depending on whether the assessee files objections before the DRP. Since filing objections is solely the assessee’s choice, the legislature’s design ensures adequate time for both DRP deliberations and fair opportunity to the assessee, without violating principles of natural justice.

The Court held that the timelines under Section 153 apply to the draft order under Section 144C(1), and where Section 92C is involved, Section 153(4) extends the period by twelve months. For final orders, if no objections are filed, the order must be passed within one month of the draft; if objections are filed, the order must be passed within eleven months after the draft. The High Court’s approach ignored these integrated timelines and would force rushed DRP decisions, defeating legislative purpose. Accordingly, the Supreme Court rejected the High Court’s reasoning and reinstated the Revenue’s authority to complete assessments within the proper statutory framework.

ANALYSIS:

This case revolves around the interplay between the timelines prescribed under Sections 144C and 153 of the Income Tax Act, particularly in situations where an assessee opts to file objections before the Dispute Resolution Panel (DRP). The Respondents, foreign companies engaged in oil and gas exploration, were eligible for presumptive taxation under Section 44BB but chose regular assessment, leading to a dispute over assessment timelines. While the Bombay High Court held that the final assessment order could not be passed beyond the limitation period, thus barring the Revenue from acting, the Supreme Court clarified that the limitation framework under Section 153 fully applies to Section 144C proceedings, with procedural flexibility to accommodate DRP deliberations. By rejecting the High Court’s rigid interpretation, the Supreme Court underscored that statutory timelines must be applied harmoniously to ensure fairness without undermining legislative design.

The judgment is significant for its reaffirmation of purposive interpretation in tax law, ensuring that procedural safeguards for assessees do not inadvertently paralyze the assessment process. The Court emphasized that the timelines are calibrated to give both the Revenue and the assessee adequate time depending on whether DRP proceedings are invoked, and that Section 92C transfer pricing adjustments may extend these periods. By restoring the Revenue’s authority to complete the assessment in accordance with integrated statutory timelines, the decision maintains a balance between taxpayer rights and efficient tax administration. It also sends a strong message that technical procedural arguments cannot be used to short-circuit substantive adjudication where the legislative scheme clearly contemplates extended timelines in specific scenarios.