2024 (4) TMI 189 - AT - Income Tax

Assessment order under section 143(3) becomes non-est due to search proceedings under section 153A

The ITAT Kolkata held that an assessment order passed under section 143(3) was non-est as it got abated due to search proceedings under section 153A. The ... Validity of assessment u/s 153A - At the time of search, assessment proceedings u/s. 143(3) for the impugned assessment year was in progress before the Ld. AO - HELD THAT:- Second proviso to section 153A(1) provides for abatement of pending assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years on the date of initiation of search u/s. 132 - The impugned assessment year is a year which falls within the period of six assessment years considering the date of search as 22.09.2011. Admittedly, the assessment proceedings u/s. 143(3) were pending at the time of initiation of search. Thus, the proceedings u/s. 143(3) got abated. There was no occasion for the AO at Bengaluru to pass assessment order in terms of the second proviso to sec. 153A(1) and, therefore, is non-est. Since the assessment order passed by the AO u/s. 143(3) is held to be non-est, the instant appeal by the revenue is infructuous. Appeal by the revenue is dismissed as infructuous. Assessment proceedings u/s. 153A r.w.s. 143(3) by the AO after the transfer of file from Bengaluru jurisdiction to Kolkata jurisdiction, pursuant to conduct of search are based on the original assessment made by the AO u/s. 143(3) even though it got abated - As assessee propounded that the case is squarely covered by the decision of Abhisar Buildwell [2023 (4) TMI 1056 - SUPREME COURT] by referring to non-availability of incriminating material for the addition/disallowance made in the said assessment. The said proposition of the Ld. Counsel is rejected at the threshold because the impugned assessment year is an abated assessment year as already observed and held while disposing the appeal of the revenue dealt above. Disallowance made u/s. 14A read with Rule 8D - As argued AO without any discussion on the said disallowance has borrowed the same from the order passed u/s. 143(3) and, therefore, no such disallowance is warranted as the assessment u/s. 143(3) is held to be non-est - HELD THAT:- CIT(A) has rightfully given the direction for recomputing the disallowance u/s. 14A which is in consonance with the decision of REI Agro Ltd. [2014 (4) TMI 713 - CALCUTTA HIGH COURT] which had upheld that Rule 8D(2) can be applied only in respect of investment which actually yielded dividend income during the year. We do not find any reason to interfere with the finding and decision arrived at by the Ld. CIT(A) on this issue. Accordingly, ground of the assessee are dismissed. Upward adjustment made to book profit on account of disallowance of expenditure computed u/s 14A of the Act r.w.r. 8D - HELD THAT:- Placing reliance on the decision of Jayshree Tea & Industries Limited [2014 (11) TMI 1169 - CALCUTTA HIGH COURT], we hold that the provisions of section 115JB clause (f) to explanation (1) applies as claimed by the revenue for the purpose of computing the book profit. Accordingly, the disallowance as computed by the AO in terms of the directions noted above is liable to be taken into account. TP Adjustment - export to subsidiary - adjustments made in respect of transfer pricing have been borrowed from the assessment made u/s. 143(3) which has been held to be non-est - HELD THAT:- AO does not have the jurisdiction to propose any transfer pricing adjustment in case where he has not made any reference to the TPO. Therefore the additions made by the AO towards transfer pricing adjustment for which both, assessee and revenue are in appeal, are not tenable and deleted. Accordingly, transfer pricing adjustment made by the AO in the impugned assessment u/s. 153A read with section 143(3) are not in compliance with the provisions contained in section 92CA of the Act read with aforesaid CBDT Instruction. AO has simply incorporated the suggestion and adjustment made by the Transfer Pricing Officer vide order dated 31.10.2011 which has no locus standi and is non-est. Decided in favour of assessee. Issues Involved:1. Interpretation of law and facts by CIT(A).2. Disallowance of expenditure u/s 14A read with Rule 8D.3. Disallowance of interest on borrowed funds.4. Transfer pricing adjustment on export to subsidiary.5. Initiation of penalty proceedings u/s 271(1)(c).6. Arm's length price adjustment on inter-corporate loan.7. Corporate guarantee to AE and its implications.8. Computation of book profit u/s 115JB.Summary:1. Interpretation of Law and Facts by CIT(A):The assessee challenged the CIT(A)'s order as being based on incorrect interpretation of law and facts. The Tribunal did not find any substantial merit in these claims and upheld the CIT(A)'s decisions where applicable.2. Disallowance of Expenditure u/s 14A read with Rule 8D:The assessee contended that the AO's disallowance u/s 14A was borrowed from a non-est order u/s 143(3). The CIT(A) recomputed the disallowance based on the decision of the Hon'ble Calcutta High Court in CIT Vs. REI Agro Ltd., directing the AO to consider only investments yielding dividend income. The Tribunal upheld this recomputation, dismissing the grounds raised by both the assessee and the revenue.3. Disallowance of Interest on Borrowed Funds:The assessee argued that no borrowed funds were used for investments yielding dividend income. The Tribunal upheld the CIT(A)'s decision, which was based on a detailed examination of facts.4. Transfer Pricing Adjustment on Export to Subsidiary:The assessee challenged the TP adjustment of Rs. 1,02,35,877/-. The Tribunal noted that the AO had borrowed this adjustment from a non-est order u/s 143(3) and held that the AO should have made a fresh reference to the TPO as per section 92CA. Consequently, the Tribunal deleted the TP adjustments, allowing the assessee's ground and dismissing the revenue's related grounds.5. Initiation of Penalty Proceedings u/s 271(1)(c):The Tribunal did not specifically address this issue in detail, implying that the CIT(A)'s decision to uphold the initiation of penalty proceedings was not overturned.6. Arm's Length Price Adjustment on Inter-Corporate Loan:The revenue's appeal included grounds challenging the deletion of an ALP adjustment of Rs. 3,86,54,453/-. The Tribunal found that the AO had not followed proper procedures under section 92CA, and therefore, the adjustments were not tenable. The Tribunal dismissed the revenue's grounds.7. Corporate Guarantee to AE and Its Implications:The revenue argued that the CIT(A) erred in deleting an adjustment of Rs. 2,02,00,000/- for a corporate guarantee to its AE. The Tribunal found that the AO had not made a proper reference to the TPO and dismissed the revenue's grounds.8. Computation of Book Profit u/s 115JB:The revenue contested the deletion of Rs. 40,03,074/- in computing book profit u/s 115JB. The Tribunal upheld the CIT(A)'s decision, relying on the jurisdictional High Court's ruling in the case of DCIT Vs. Birla Corporations, which stated that section 14A disallowances should not affect book profits under section 115JB.Final Decision:The Tribunal allowed the assessee's appeal in IT(SS)A No. 17/Kol/2018, partly allowed the revenue's appeal in IT(SS)A No. 20/Kol/2018, and dismissed the revenue's appeal in ITA No. 785/Kol/2018 as infructuous.