Tribunal quashes time-barred assessment order under Income-tax Act

The Tribunal quashed the final assessment order as time-barred under section 144C(13) of the Income-tax Act, 1961. Consequently, the other grounds raised by the assessee were not adjudicated, and the stay application was dismissed as infructuous.

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Issues Involved:
1. Jurisdiction of assessment and limitation period.
2. Addition under the head "any other allowable deduction."
3. Addition on account of international transaction pertaining to interest on outstanding receivables.
4. Initiation of penalty proceedings under section 270A of the Act.

Detailed Analysis:

1. Jurisdiction of Assessment and Limitation Period:
The primary issue raised by the assessee was that the final assessment order dated April 6, 2022, was barred by limitation as it was passed beyond the maximum time limit prescribed under section 144C(13) of the Income-tax Act, 1961. The assessee argued that the order was required to be passed by February 28, 2022, since the DRP's directions were received by the AO on January 27, 2022. The Revenue contended that the TPO's effectuation of the DRP's directions on February 18, 2022, should be considered. However, the Tribunal agreed with the assessee, stating that the scheme of the Act does not involve the TPO in giving effect to the DRP's directions, and the final assessment order was indeed time-barred. Consequently, the assessment order was quashed as void ab initio.

2. Addition under the Head "Any Other Allowable Deduction":
The assessee challenged the addition of INR 19,11,08,847 made by the AO under the head "any other allowable deduction." This included:
- Notional Income on Government Grants (INR 15,30,16,504): The assessee argued that this amount pertains to notional adjustments made due to government grants/custom duty exemption under IND-AS guidelines and should not be included in the taxable income. The DRP erred in stating that depreciation on government grants was credited to the P&L account.
- Notional Income on Security Deposits (INR 47,67,516): The assessee contended that this amount pertains to notional interest income on security deposits, which should be excluded from taxable income as per IND-AS mandate.
- Actual Payment on Lease Rent (INR 2,86,37,817): The assessee argued that this amount pertains to actual lease rent paid, which is an allowable business expense.
- Reversal of Provision for Rent Equalization (INR 46,87,009): The assessee claimed that this amount pertains to the reversal of a provision for rent equalization, which was previously offered to tax, resulting in double addition.

Since the appeal was decided on jurisdictional grounds, these merit-based issues were not adjudicated and were deemed academic.

3. Addition on Account of International Transaction Pertaining to Interest on Outstanding Receivables:
The assessee contested the addition of INR 3,60,744 related to the adjustment in the arm's length price (ALP) of the international transaction concerning interest on outstanding receivables. The assessee argued that:
- Outstanding receivables should not be treated as a separate international transaction.
- The nature of outstanding receivables should not be re-characterized as unsecured loans.
- The company is debt-free, and imputing interest on outstanding receivables is erroneous.
- The weighted average period of realization was below the period agreed under the inter-company agreement.
- If interest needs to be charged, it should consider the average receivable days of comparable companies.

These contentions were also not adjudicated due to the jurisdictional decision.

4. Initiation of Penalty Proceedings under Section 270A:
The assessee also challenged the initiation of penalty proceedings under section 270A. However, this issue was rendered academic due to the quashing of the assessment order on jurisdictional grounds.

Conclusion:
The Tribunal quashed the final assessment order as time-barred under section 144C(13) of the Income-tax Act, 1961. Consequently, the other grounds raised by the assessee were not adjudicated, and the stay application was dismissed as infructuous. The judgment was pronounced on June 16, 2022.

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