2023 (3) TMI 1094 - AT - Income Tax

Tribunal allows appeal on time-barred order, remands transfer pricing issues for re-examination. Interest and penalty matters dismissed.

The tribunal allowed the assessee's appeal due to the time-barred nature of the Transfer Pricing Officer's order, rendering the subsequent assessment ... Validity of Transfer pricing order and final assessment order - period of limitation - As per Section 92CA(3A) r.w.s.153 of the Act the transfer pricing order has to be passed 60 days prior to due date of completion of assessment as per Section 153(1) of the Act - HELD THAT:- The time limit for passing of final assessment order should be 31 March 2014. However, the Ld. AO has passed the final assessment order on 2 April 2014 i.e., beyond the time limit of 31 March 2014. The order passed by the TPO is barred by the limitation is illegal and void ab-initio and is quashed. Consequently assessment order passed after transfer pricing adjustment is without jurisdiction. Since the additional grounds of appeal are allowed in favour of the assessee. Disallowance u/s 14A - sufficiency of own funds - As submitted assessee has substantial own funds in comparison to the investments and referred to the Audited financial statements and contended that the investments are made out of own funds which are more than the size of the investments, and hence no disallowance of interest is attributed under section 14A r.w.r 8D - HELD THAT:- AR has demonstrated the availability of substantial own funds in the financial statements for making the investments. But the A.O. has to verify and examine the evidences considering the judicial decisions and also the ratio of decision of Vireet Investment Pvt Ltd [2017 (6) TMI 1124 - ITAT DELHI] where only those investments which yield exempted income are considered for computing the average value of investments in respect of computing the disallowance under rule 8D(2)(iii) of the IT Rules. Thus restore the disputed issue to the file of the AO to verify, examine and consider the judicial decisions and recompute the disallowance u/s 14A r.w.r 8D of the Income Tax Rules and the grounds of appeal are allowed in favour of the assessee for statistical purpose and finally the assessee appeal is partly allowed for statistical purposes. Issues Involved:1. Transfer Pricing Adjustments2. Disallowance under Section 14A of the Income Tax Act3. Levy of Interest under Sections 234C and 234D4. Penalty Proceedings under Section 274 read with Section 271(1)(c)5. Validity and Limitation of Assessment and Transfer Pricing OrdersIssue-wise Detailed Analysis:1. Transfer Pricing Adjustments:The primary issue revolves around the transfer pricing adjustments made by the AO/TPO. The CIT(A) partially confirmed the adjustments related to interest on loans given to AEs, corporate guarantees, and disallowance under Section 14A. The assessee argued that the transfer pricing regulations should not apply as it is registered under the Tonnage Tax Scheme (TTS). The CIT(A) upheld the adjustments, including the interest charged on loans to AEs and corporate guarantees, despite the assessee's claim that these transactions were shareholder activities not requiring separate compensation. The assessee also contested the benchmarking methods used, such as the RBI's ECB rates and other interest rates, arguing for a more appropriate rate based on various financial instruments and transactions.2. Disallowance under Section 14A of the Income Tax Act:The AO made a disallowance under Section 14A, which was upheld by the CIT(A). The assessee argued that no disallowance should be made as it is covered under the TTS. Additionally, the assessee contended that the disallowance amount computed by the AO was excessive compared to its own computation. The tribunal noted that the assessee had substantial own funds to make the investments and referred to judicial decisions supporting the presumption that investments are made from interest-free funds if such funds are available. The tribunal restored the issue to the AO for re-examination in light of these findings.3. Levy of Interest under Sections 234C and 234D:The CIT(A) upheld the levy of interest under Sections 234C and 234D. The assessee's appeal on these grounds was not specifically addressed in the tribunal's order, indicating that these issues were not the primary focus of the appeal.4. Penalty Proceedings under Section 274 read with Section 271(1)(c):The assessee contested the initiation of penalty proceedings, arguing that it was premature. The tribunal did not specifically address this issue in detail, suggesting that it was not a central point of contention in the appeal.5. Validity and Limitation of Assessment and Transfer Pricing Orders:A significant issue raised by the assessee was the validity of the assessment and transfer pricing orders due to the time-barred nature of these orders. The assessee argued that the TPO's order was passed beyond the prescribed time limit, rendering it null and void. The tribunal agreed with the assessee, noting that the TPO's order was indeed time-barred as it was passed on 30 January 2014, one day beyond the 60-day period prior to the due date for completing the assessment. The tribunal quashed the TPO's order and, consequently, the assessment order based on the transfer pricing adjustments. This decision was supported by several judicial precedents, including decisions from the Madras High Court and various ITAT benches, which held that orders passed beyond the statutory time limits are invalid.Conclusion:The tribunal allowed the assessee's appeal on the grounds of the time-barred nature of the TPO's order, rendering the subsequent assessment order invalid. The issues related to transfer pricing adjustments and disallowance under Section 14A were restored to the AO for re-examination. The appeals related to the levy of interest and penalty proceedings were not the primary focus and were not specifically addressed in detail. The revenue's appeal and the assessee's cross-objection were dismissed.