TaxTMI 
TaxTMI 
2025 (5) TMI 2253
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.... 2. On the facts and circumstances of the case and in law, the Ld. AO erred in passing the assessment order under section 143(3) r.w.s 144C(13) of the Act, which is barred by limitation, bad in law and ought to be quashed. 3. On the facts and circumstances of the case and in law, the impugned final assessment order passed by the Ld. AO in pursuance of the directions of the Dispute Resolution Panel (hereinafter referred to as 'DRP') under section 143(3) read with section 144C read with section 1448 of the Act, is bad in law and void ab-initio as learned AO failed to consider direction of DRP to avoid double disallowance of amount already disallowed by Appellant under section 948 of the Act and thereby bad in law and out to be annulled or quashed. 4. On the facts and circumstances of the case, the learned Transfer Pricing Officer 1(2)(1), ('TPO') erred in proposing upward adjustment on account of interest on Non-Convertible Debentures ('NCDs') amounting to Rs. 31,40,82,376 as Arm's length Price ('ALP") merely placing reliance on provisions of section 948 of the Act, thereby acting without jurisdiction, order ought to be quash....
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....tances of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 270A of the Act." 2.1. Assessee has also moved an application dated 28.08.2024 for taking additional ground which is reproduced as under: "On the facts and circumstances of the case and in law, if Ld. AO contention is accepted that a sum of Rs 13,61,74,321 not debited to profit and loss account to be considered for disallowances under section 94B then in such case "profit before tax" shall be recomputed considering such an amount of Interest Rs 13,61,74,321 and accordingly there shall be no impact on total taxable income of Appellant." 2.2. There being objection on the admission of the said ground, it is admitted for adjudication. 3. For ground No.2, relating to legal issue raised by the assessee that the impugned assessment order is barred by limitation, assessee made a submission vide letter dated 25.03.2025 by stating that it does not press on this ground but at the same time also does not wish to withdraw it but be kept upon. Accordingly, this ground is not adjudicated upon and left open. 4. We have heard both the parties and perused the material on record. We ha....
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....ess or profession, in respect of amount debited to profit and loss account, out of the total interest of Rs. 32.40 crores, assessee suo moto disallowed interest, by applying provisions of section 94B, restricting its deduction to 30% of its earnings, before interest, taxes, depreciation, and amortization (EBITDA). The working in this respect is tabulated below: Particulars Amount (in INR) Earnings before interest, taxes, depreciation and amortisation (EBITDA) (D) 3,21,69,877 30% of EBITDA (E = 30%*D) 96,50,963 Excess interest disallowed by Appellant u/s 94B (F = C-E) 16,82,57,452 5.3. Thus, assessee in effect, had claimed a deduction of Rs. 96,50,963/- out of the total interest expense of Rs. 32.40 crores, while computing its income under the head profit and gains from business or profession. Ld. TPO by referring to provisions of section 94B was of the view that if the interest paid or payable by the assessee is more than 30% of EBITDA, then the same is not allowable as per the said section, for which he issued a show cause notice, content of which are reproduced in para 5.3 of his order. On perusal of the same, we note that ld. TPO has asked the assessee....
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....oted by ld. DRP on the objections raised by the assessee as contained in para 2.2, states that Ld. TPO had passed the order u/s. 92CA(3) wherein as per section 94B excess interest amounting to Rs. 31,40,82,736/-, i.e., total interest paid minus 30% of EBIDTA was proposed as an upward adjustment to ALP of the international transaction undertaken by the assessee. 5.6. Assessee furnished its factual position corroborated by documentary evidence before the ld. TPO on the claim of deduction towards interest on NCDs, details of which are already tabulated above and therefore not reiterated here. It was asserted that ld. TPO had completely ignored the fact that assessee itself had made calculation u/s. 94B and suo moto disallowed the correct amount of excess interest in the return filed by it, fact of which was duly placed on record in the said proceedings before the ld. TPO. Assessee also claimed that interest which was not debited to the profit and loss account and not claimed as a deduction by the assessee in its return of income cannot be subjected to the provisions of section 94B. Unless and until an expenditure i.e., interest is deductible in computing the income chargeable under....
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....isallowed a sum of Rs. 16,82,57,42/- and therefore it is only the difference between the said amount and Rs. 32.40 crores which would have been disallowed in the final order so as to be in line with the specific direction given by ld. DRP. By referring to provisions of Section 144C(13), the impugned assessment order is without jurisdiction and bad in law. 6.1. Reliance was placed on the decision of Hon'ble Jurisdictional High Court of Bombay in the case of S.H.L. (India) Pvt. Ltd. vs. DCIT, [2021] 438 ITR 317 (Bom), wherein it was held that failure on part of Assessing Officer to follow procedure u/s.144C is not a mere procedural or inadvertent error but a breach of mandatory provision which is incurable. According to the Hon'ble Court, the final assessment order passed by the Assessing Officer stands vitiated on account of lack of jurisdiction, since the assessment order has not been passed in accordance with the provisions of section 144C. 6.2. Reliance was also placed on the decision of Hon'ble High Court of Karnataka in the case of PCIT vs. Flextronics Technologies (India) (P) Ltd. [2023] 459 ITR 493 (Kar), wherein it was held that where the Assessing Officer ....
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....d enterprises. Restrictive conditions prescribed u/s. 94B do not satisfy the requirements of Rule 10AB, since there is no price which has been charged or paid or would have been charged or paid with or between non-associated enterprises. Section 94B deals with deduction in relation to interest payable to AE providing for limitation on the interest paid to AE in excess of 30% of EBIDTA for making the disallowance. Disallowance prescribed u/s. 94B, thus cannot be considered a method for the purpose of Rule 10AB. Furthermore, it is important to note that section 94B is applicable on transactions between two AEs. For the purpose of Rule 10 AB, the price for determining ALP has to be with or between non-AEs. Thus, when the other method is applied requiring a price of an uncontrolled transaction with or between non-AEs, provision of section 94B cannot be imputed into it as it deals with a transaction between two AEs. 8.1. We refer to the show cause notice issued by ld. TPO, wherein the assessee was show caused in specific terms as to why the ALP of interest paid by it to its AE on borrowings should not be computed as per section 94B using the other method as most appropriate method. W....
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.... interest, taxes, depreciation and amortization ('EBITDA') 9.2. From the above, it is noted that unless and until the expenditure on interest is deductible in computing the income chargeable under the head 'profits and gains of business or profession', the said expenditure cannot be disallowed u/s. 94B of the Act. What has not been claimed as deduction under the profit and loss account but has been capitalized, cannot be brought into the provisions of section 94B for the purpose of making disallowance. The word 'deductible' is not defined under the Act. However, in taxation, an item which may be subtracted from gross income or adjusted in gross income for determination of taxable income can be said to 'deductible'. In other words, where the said expenditure is not claimed in first place, the same cannot be disallowed. Interest cost which has been allocated to WIP and does not form part of expenditure in the profit and loss account cannot be considered for the purpose of section 94B. 9.3. Reference is made to para- 46.3 of the explanatory notes to the provisions of the Finance Act, 2017 vide circular No.2/2018, dated 15.02.2018 wherein it is stated that "In view of the....