2017 (12) TMI 985 - AT - Income Tax

Assessee's Appeals Dismissed: Assessment Order Upheld

CTBC Bank Co. Ltd. Versus DCIT (International Taxation), New Delhi

CTBC Bank Co. Ltd. Versus DCIT (International Taxation), New Delhi - TMI Issues Involved:1. Eligibility of the assessee under Section 144C of the Income-tax Act, 1961.2. Limitation period for passing the assessment order.3. Disallowance under Section 14A of the Income-tax Act, 1961.Detailed Analysis:1. Eligibility of the Assessee under Section 144C:The assessee argued that it was not an 'eligible assessee' as defined under Section 144C(15)(b) of the Income-tax Act, 1961, because the Transfer Pricing Officer (TPO) had not issued an order under Section 92CA(3). The Dispute Resolution Panel (DRP) rejected this objection, stating that the term 'eligible assessee' includes any foreign company. However, the Tribunal referred to the decision of the Hon’ble Delhi High Court in the case of Honda Cars India Ltd. v. Dy. CIT, which held that both conditions under Section 144C(15)(b) must be fulfilled for an assessee to be considered 'eligible.' Since the TPO did not propose any variation to the returned income, the assessee did not meet the criteria of an 'eligible assessee.' Consequently, the draft assessment order was quashed.2. Limitation Period for Passing the Assessment Order:The assessee contended that the assessment order should have been passed by 31st March 2012, as per the limitation prescribed under Section 153(2A). The Tribunal noted that the Assessing Officer (AO) was required to give effect to the Tribunal's earlier order and could pass the order at any time, as supported by the decision of the Hon’ble Delhi High Court in Basu Distributors (P.) Ltd. v. ITO. Therefore, the assessment order was not barred by limitation and was upheld.3. Disallowance under Section 14A:The assessee claimed that no direct expenditure was incurred in earning interest from HUDCO Tax-Free Bonds, as investments were made from free reserves in earlier years. The AO made a disallowance under Section 14A, which was confirmed by the DRP. The Tribunal observed that the assessee failed to furnish separate accounts for exempt and non-exempt income or any evidence to prove that investments in HUDCO Bonds were made from non-interest-bearing funds. The AO noted that funds once brought into the business lose their identity, and even if assumed to be from capital/free reserves, borrowing becomes inevitable, incurring interest costs. The Tribunal upheld the proportionate disallowance for earning exempt income, confirming the AO's findings.Conclusion:The appeals filed by the assessee were dismissed, with the Tribunal quashing the draft assessment order due to non-fulfillment of eligibility criteria under Section 144C, upholding the assessment order as not barred by limitation, and confirming the disallowance under Section 14A for earning exempt income.