2018 (9) TMI 1977 - AT - Income Tax

Tribunal remands case for reconsideration of expenditure claim under Section 14A

The Tribunal set aside the lower authorities' orders and remanded the case to the Assessing Officer for reconsideration of the issues related to the claim ... TP Adjustment - AO made a reference to TPO u/s 92CA to determine arms length price as the assessee had entered into specified domestic transaction and on the ground it was covered u/s 92BA - specific domestic transaction in the nature of remuneration paid to the directors by the Appellant - HELD THAT:- As decided in assessee's own case [2017 (12) TMI 1719 - ITAT BANGALORE] undisputedly, by the Finance Act, 2017, clause (i) of section 92BA has been omitted w.e.f. 01.04.2017. Once this clause is omitted by subsequent amendment, it would be deemed that clause (i) was never been on the statute. While omitting the clause (i) of section 92BA, nothing was specified whether the proceeding initiated or action taken on this continue. Therefore, the proceeding initiated or action taken under that clause would not survive at all. In this legal position, the cognizance taken by the AO under section 92B(i) and reference made to TPO under section 92CA is invalid and bad in law. Therefore, the consequential order passed by the TPO and DRP is also not sustainable in the eyes of law. Where this clause (i) is omitted from the statute since its inception, the AO ought have required to frame the assessment in normal course after making necessary enquiries of particular claim of expenditure in accordance with law. But this exercise could not have been done on account of provisions of section 92BA Clause (i) of the Act. Now when this clause (i) has been omitted from the statute by virtue of the aforesaid amendments, the AO is required to adjudicate the issue of claim of expenditures in accordance with law after affording opportunity of being heard to the assessee. We therefore set aside the orders of the AO and the DRP and restore the matter to the AO with the direction to readjudicate the issue of claim of expenditure incurred in respect of which payment has been made or is to be made to person referred to in clause (b) of sub section 2 of section 40A. Disallowance u/s 14A - HELD THAT:- The authorities have made disallowance having noted that the assessee did not have any exempted income. On this issue, it has been repeatedly held by the Tribunal, Hon’ble Apex Court and the High Court that wherever there is no exempted income, provisions of section 14A cannot be invoked. In the light of these facts, the finding of the lower authorities appears to be wrong as they have made the disallowance even after having noted that there is no exempted income. But in fact, the assessee has exempted income. Therefore, the disallowance can be made in accordance with the provisions of section 14A of the Act. Since this aspect was never examined by the AO, we set aside the order of the CIT(A) and restore the matter to the AO with a direction to readjudicate the issue afresh after affording opportunity of being heard to the assessee, keeping in view that earlier issue was also restored to the AO for readjudication. Appeal of the assessee stands allowed for statistical purposes. Issues Involved:1. Justification of the Assessing Officer's order.2. Validity of the Directions of the Honourable DRP.3. Limitation of the Final Assessment Order under Section 144C(13).4. Transfer Pricing Adjustment in respect of Specific Domestic Transaction.5. Disallowance under Section 14A r.w. Rule 8D(2)(iii).6. Levy of interest under Section 234B.Issue-Wise Detailed Analysis:1. Justification of the Assessing Officer's Order:The assessee challenged the order of the Assessing Officer (AO) on the grounds that it was not justified in law and on the facts and circumstances of the case. The Tribunal found that the issue was covered by its earlier order for the assessment year 2013-14, which directed the AO to adjudicate the claim of expenditure in accordance with the law after providing an opportunity for a hearing to the assessee.2. Validity of the Directions of the Honourable DRP:The assessee contended that the Directions of the Honourable Dispute Resolution Panel (DRP) were not justified in law and on facts. The Tribunal noted that the DRP's directions were based on the now-omitted Section 92BA(i) of the IT Act, which was deemed to have never existed in the statute book due to its omission by the Finance Act 2017, w.e.f. 01.04.2017.3. Limitation of the Final Assessment Order under Section 144C(13):The assessee argued that the Final Assessment Order dated 21.05.2018 was barred by limitation under Section 144C(13) as it was based on the DRP's direction dated 28.03.2018. The Tribunal did not explicitly address this issue but implied that the reassessment would render this point moot.4. Transfer Pricing Adjustment in respect of Specific Domestic Transaction:The main contention was regarding the transfer pricing adjustment of Rs. 4,88,51,169/- related to remuneration paid to directors. The Tribunal observed that the issue was covered by its earlier decision, which stated that the omission of Section 92BA(i) meant the provision never existed. Therefore, the reference to the Transfer Pricing Officer (TPO) under Section 92CA was invalid, making the subsequent orders by the TPO and DRP unsustainable. The Tribunal directed the AO to reassess the claim of expenditure in normal course after necessary inquiries.5. Disallowance under Section 14A r.w. Rule 8D(2)(iii):The assessee contested the disallowance of Rs. 14,88,870/- under Section 14A, arguing that no expenditure was incurred to earn the dividend income of Rs. 4,05,714/-. The Tribunal noted that the AO and CIT(A) had acknowledged no exempted income but still made disallowances. The Tribunal held that disallowance under Section 14A cannot be invoked where there is no exempted income, and directed the AO to re-examine the issue afresh, considering the actual exempted income.6. Levy of Interest under Section 234B:The assessee challenged the levy of interest of Rs. 90,00,606/- under Section 234B, arguing that the conditions for levying such interest did not exist. The Tribunal did not specifically address this issue but implied that the reassessment would cover all related aspects.Conclusion:The Tribunal set aside the orders of the lower authorities and restored the matters to the AO for readjudication of the issues related to the claim of expenditure and disallowance under Section 14A, providing an opportunity for the assessee to be heard. The appeal of the assessee was allowed for statistical purposes.