Assessment orders under section 144C must follow section 153 limitation periods despite remand proceedings

The ITAT Jodhpur held that assessment orders under section 144C are subject to limitation periods prescribed under section 153, following Delhi Bench precedent in Super Brands Ltd. The court ruled that sections 144C and 153 are mutually inclusive, requiring completion of proceedings within statutory time limits regardless of remand to AO, TPO, or DRP. The assessment was quashed as time-barred. The tribunal allowed various deductions including section 80IA for captive power plants and steam generation, section 80IC benefits, and deleted disallowances under section 14A without proper satisfaction being recorded. Several grounds were remanded for re-examination including head office expense allocation and TDS credit verification.

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Issues Involved:

1. Assessment order barred by limitation.
2. Adjustments in intimation issued under section 143(1)(a) without issuing show cause notice.
3. Disallowance of deduction claimed under section 80IA in respect of Captive Power Plants (CPPs).
4. Disallowance of deduction under section 80IA for generation and transfer of steam.
5. Allocation of head office expenses to eligible units.
6. Enhancing the income of eligible units under section 80IC of the Act.
7. Addition on account of mark-up on business support services.
8. Disallowance under section 14A of the Act, both under normal provisions and for computing Book profit under MAT.
9. Disallowance of deduction under section 35(2AB) of the Act.
10. Disallowance of Grass Root expenses.
11. Disallowance of staff welfare expenses.
12. Incorrect allowance of TDS credit.
13. Incorrect computation of interest under section 234B and 234C.
14. Initiating penalty proceedings under section 270A r.w.s. 274 of the Act.

Detailed Analysis:

1. Assessment order barred by limitation:

The assessee contended that the assessment order dated 29.07.2022 was beyond the time limit prescribed under section 153(1)/(4) of the Act, which required the order to be passed on or before September 30, 2021. The Tribunal, relying on the decision of the Hon'ble Madras High Court in CIT vs Roca Bathroom Products Pvt Ltd, held that the assessment order was barred by limitation and quashed the same.

2. Adjustments in intimation issued under section 143(1)(a) without issuing show cause notice:

The AO made adjustments aggregating to Rs. 65,44,93,450 in the intimation issued under section 143(1)(a) without issuing a show cause notice. The Tribunal directed the AO to provide details of the adjustment and allowed the assessee to file an appeal within 30 days of receipt of the details.

3. Disallowance of deduction claimed under section 80IA in respect of Captive Power Plants (CPPs):

The TPO reduced the claim under section 80IA by considering the transfer pricing of the power supplied by CPP to other manufacturing units at a lower rate than what was claimed by the assessee. The Tribunal, following its earlier decisions, held that the price charged by SEB was the best indicator of the market price and allowed the claim of the assessee.

4. Disallowance of deduction under section 80IA for generation and transfer of steam:

The AO disallowed the deduction claimed for the generation and transfer of steam, considering it as a by-product with no cost. The Tribunal, following its earlier decisions, held that steam is a form of power and allowed the deduction under section 80IA.

5. Allocation of head office expenses to eligible units:

The AO apportioned head office expenses to the eligible units on a turnover basis, reducing the deduction under section 80IA and 80IC. The Tribunal, following its earlier decisions, held that the apportionment should be done on a reasonable basis and not on turnover. The AO was directed to re-work the allocation of expenses related to director's fees, auditor's fees, and donations.

6. Enhancing the income of eligible units under section 80IC of the Act:

The TPO applied the Profit Split Method (PSM) for determining the arm's length price for the transfer of cathode, rejecting the cost plus approach adopted by the assessee. The Tribunal, following its earlier decisions, held that the cost plus approach was appropriate and allowed the claim of the assessee.

7. Addition on account of mark-up on business support services:

The AO made an addition of Rs. 66,54,233 on account of mark-up on business support services. The Tribunal held that the assessee was merely acting as a pass-through entity and no mark-up was required to be charged, allowing the claim of the assessee.

8. Disallowance under section 14A of the Act, both under normal provisions and for computing Book profit under MAT:

The AO made a disallowance under section 14A read with Rule 8D. The Tribunal, following its earlier decisions, held that the AO did not record valid satisfaction before applying Rule 8D and deleted the disallowance. It also held that disallowance under section 14A cannot be added while computing book profits under section 115JB.

9. Disallowance of deduction under section 35(2AB) of the Act:

The AO disallowed the deduction claimed under section 35(2AB) for want of Form 3CL. The Tribunal, following its earlier decision, upheld the disallowance.

10. Disallowance of Grass Root expenses:

The AO disallowed Grass Root expenses considering them as prospecting operations. The Tribunal, following its earlier decisions, held that such expenses were allowable under section 37(1) and deleted the disallowance.

11. Disallowance of staff welfare expenses:

The AO disallowed staff welfare expenses under section 40A(9) and Explanation 2 of section 37. The Tribunal, following its earlier decisions, held that these expenses were allowable and deleted the disallowance.

12. Incorrect allowance of TDS credit:

The Tribunal directed the AO to verify the claim of the assessee and allow credit for TDS as per provisions of the Income-tax law.

13. Incorrect computation of interest under section 234B and 234C:

The Tribunal directed the AO to compute interest under section 234B and 234C in accordance with the law.

14. Initiating penalty proceedings under section 270A r.w.s. 274 of the Act:

The ground was not pressed by the assessee and was dismissed as not pressed.

Conclusion:

The Tribunal allowed the appeals of the assessee partly, quashing the assessment orders as barred by limitation, and allowed various claims and deductions as per the detailed analysis above.

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