2021 (4) TMI 151 - AT - Income Tax

Tribunal quashes assessment orders for non-compliance with DRP directions & procedural provisions

Yokogawa India Ltd. Versus The Asst. Commissioner of Income-Tax, LTU, Bengaluru.

Yokogawa India Ltd. Versus The Asst. Commissioner of Income-Tax, LTU, Bengaluru. - TMI Issues Involved:1. Incorrect interpretation of law by the AO.2. Error in assessing total income and computing tax payable.3. Levy of interest under section 234B.4. Errors related to Transfer Pricing adjustments.5. Non-compliance with DRP directions.6. Disallowance of expenses under section 37.7. Partial foreign tax credit.8. Levy of additional tax on dividend.9. Initiation of penalty proceedings.Detailed Analysis:1. Incorrect Interpretation of Law by the AO:The assessee argued that the AO's order was based on an incorrect interpretation of the law, rendering it invalid. The Tribunal found that the AO failed to comply with mandatory provisions under section 144C(10) and (13) by not passing the order in conformity with DRP directions.2. Error in Assessing Total Income and Computing Tax Payable:The AO assessed the total income at Rs. 46,19,68,010 as against Rs. 37,76,59,670 returned by the assessee, leading to an erroneous computation of tax payable. The Tribunal found that the AO did not follow the DRP's directions, which required reassessment.3. Levy of Interest under Section 234B:The AO levied interest under section 234B amounting to Rs. 1,34,16,328. This was not specifically addressed in the Tribunal's detailed analysis but was part of the overall reassessment required due to the AO's non-compliance with DRP directions.4. Errors Related to Transfer Pricing Adjustments:Several grounds were raised regarding Transfer Pricing (TP) adjustments:- The AO/TPO did not follow DRP directions and used inconsistent methods for determining Arm's Length Price (ALP).- The Tribunal noted that the AO retained the original TP adjustment without incorporating DRP directions, rendering the assessment order invalid.- The Tribunal quashed the assessment order for failing to comply with section 144C and remanded the issues for reassessment in accordance with DRP directions.5. Non-Compliance with DRP Directions:The Tribunal highlighted that the AO's final assessment order was not in conformity with DRP directions, violating mandatory provisions of section 144C. This non-compliance led to the quashing of the assessment order.6. Disallowance of Expenses under Section 37:The AO disallowed expenses of Rs. 50,00,000 under section 37, which the DRP had directed to disallow under Rule 8D(2)(ii) instead. The Tribunal found that the AO did not follow DRP directions, necessitating reassessment.7. Partial Foreign Tax Credit:The AO granted partial foreign tax credit, which the assessee contested. The Tribunal did not specifically address this issue in detail but included it in the overall reassessment directive.8. Levy of Additional Tax on Dividend:The AO levied additional tax on dividends under section 115O at an incorrect surcharge rate. The Tribunal included this in the reassessment directive due to the overall non-compliance by the AO.9. Initiation of Penalty Proceedings:The AO initiated penalty proceedings under section 271(1)(c). The Tribunal's decision to quash the assessment order rendered these proceedings moot, pending reassessment.Conclusion:The Tribunal quashed the assessment orders for both assessment years 2011-12 and 2012-13 due to the AO's failure to comply with DRP directions and mandatory provisions under section 144C. The cases were remanded for reassessment in accordance with the law, following DRP directions. The Tribunal emphasized the importance of adhering to procedural requirements to ensure fair and lawful assessments.