2015 (4) TMI 1253 - AT - Income Tax

Tribunal remands appeals for fresh adjudication on disallowance & income adjustment.

The Tribunal allowed both appeals for statistical purposes, remanding the matters back to the AO/TPO for fresh adjudication. The issues included the ... Addition u/s 14A - Held that:- Respectfully following the order of the ITAT in the case of the assessee itself for the assessment year 2006-07 (supra), on identical issue, we remand the matter to the file of the Assessing Officer to decide the issue afresh after affording opportunity of being heard to the assessee in view of the order of the ITAT passed in the assessment year 2006-07. These grounds are accordingly allowed for statistical purposes. TPA - interest rate charged to the subsidiaries - contentions of the assessee remained that the interest rates were accepted at arm's length in the earlier years since the interest rates cannot be changed year after year, therefore, the same should be considered at arm's length this year also - Held that:- Considering above submissions, we find that it is an undisputed fact that in the earlier assessment years 2005-06 and 2006-07, the interest rates have been accepted at arm's length. in the case of Bhansali & Co [2014 (12) TMI 1149 - ITAT MUMBAI] held DRP erred in considering the loan as loan from India. The fact of the matter is that it was a foreign currency loan which was given abroad. Therefore the most appropriate method is taking the LIBOR as correct benchmark - the benchmarking done by the assessee is correct and the AO is directed to delete the addition. Issues Involved:1. Validity of the assessment order passed in pursuance to the directions issued by the Dispute Resolution Panel (DRP).2. Disallowance under Section 14A of the Income Tax Act.3. Jurisdictional error in the reference made by the Assessing Officer (AO) to the Transfer Pricing Officer (TPO).4. Adjustment to the income of the appellant pertaining to receipt of interest on loans given to subsidiaries.5. Incorrect calculation of interest on loan based on the Arm's Length Price (ALP) determined by the TPO.6. Levy of interest under Section 234B of the Income Tax Act.7. Withdrawal of interest under Section 244A of the Income Tax Act.8. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act.Issue-wise Detailed Analysis:1. Validity of the Assessment Order:The assessee questioned the assessment order passed in pursuance to the directions issued by the DRP, claiming that the DRP erred both on facts and in law in confirming the addition made by the AO/TPO to the appellant's income. The Tribunal did not find this ground needing independent adjudication as it was general in nature.2. Disallowance under Section 14A:The AO made a disallowance of INR 20,42,826 under Section 14A after applying Rule 8D of the Income Tax Rules, 1962. The DRP upheld this disallowance. The assessee argued that Rule 8D was not applicable for the assessment year under consideration (2007-08) and cited a similar issue in its own case for the assessment year 2006-07, where the ITAT had remanded the matter back to the AO for fresh consideration. The Tribunal, following the precedent, remanded the matter back to the AO for fresh adjudication, allowing the grounds for statistical purposes.3. Jurisdictional Error:The assessee contended that the reference made by the AO to the TPO suffered from jurisdictional error as the AO did not record any reasons in the draft assessment order for referring the matter to the TPO. The Tribunal did not provide a separate detailed analysis on this issue but included it in the overall remand for fresh adjudication.4. Adjustment to Income Pertaining to Interest on Loans:The TPO made an adjustment of INR 4,61,99,357 to the income of the appellant by holding that the international transactions pertaining to receipt of interest on loans to subsidiaries did not satisfy the arm's length principle. The assessee argued that the interest rates were accepted at arm's length in earlier years and should be considered at arm's length this year as well. The Tribunal noted that the interest rates had been accepted at arm's length in the earlier assessment years 2005-06 and 2006-07 and cited similar cases where the LIBOR rate was considered the appropriate benchmark for foreign currency loans. The Tribunal set aside the matter to the file of the TPO/AO for fresh adjudication in light of these findings, allowing the grounds for statistical purposes.5. Incorrect Calculation of Interest on Loan:The assessee argued that the TPO incorrectly calculated the interest on loan based on the ALP determined by the TPO. This issue was included in the overall remand for fresh adjudication by the Tribunal.6. Levy of Interest under Section 234B:The levy of interest under Section 234B was questioned by the assessee. The Tribunal noted that this issue was consequential in nature and did not need independent adjudication.7. Withdrawal of Interest under Section 244A:The withdrawal of interest under Section 244A was also questioned by the assessee. Similar to the issue under Section 234B, the Tribunal noted that this issue was consequential in nature and did not need independent adjudication.8. Initiation of Penalty Proceedings under Section 271(1)(c):The initiation of penalty proceedings under Section 271(1)(c) was questioned by the assessee. The Tribunal noted that this issue was premature at this stage and did not need any adjudication.Summary:Both appeals were allowed for statistical purposes, with the Tribunal remanding the matters back to the AO/TPO for fresh adjudication on several grounds, including the disallowance under Section 14A and the adjustment to the income pertaining to receipt of interest on loans to subsidiaries. The Tribunal emphasized the need for the AO/TPO to afford the assessee an opportunity of being heard and to consider relevant judicial precedents in their fresh adjudication.