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TMI Blog2015 (7) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... ter of determination of Arms Length Price (ALP) to the Transfer Pricing Officer (TPO). 3. Before TPO, the assessee relied upon Technical Assistance Agreement entered by the assessee with its AE Perstorp AB Sweden entered on 03-02-1998 and further submitted that the impugned payments have been approved by RBI. The TPO asked the assessee to furnish details like, Basis of the royalty payment, working of royalty, cost incurred by the owner towards the royalty and whether any other AE is paying royalty. However, the assessee did not furnish any of the details that were called for. On the contrary, it was submitted that the royalty payments pertain to the period from September 1998 to March 2002 and the assessee had disallowed the same in the relevant years u/s 40(a)(i) of the Act for non-deduction of TDS. Since the assessee has remitted the TDS during the year under consideration, it has claimed deduction u/s 40(a)(i) of the Act. It was further submitted that the royalty payment pertaining to the year under consideration was not claimed as deduction since the TDS was not deducted from the said payment. With regard to the ALP of the payment, the assessee simply relied upon the Technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entered during the year relevant to the assessment year which is before the AO. Accordingly, we are of the view that the AO cannot refer the international transactions that were carried on in any of the past years, whose assessments have already been completed. 8. Further, there is no dispute with regard to the fact that the above said royalty amount of Rs. 5.76 crores pertained to the period from Sep. 1998 to March, 2002. Hence the said payment does not pertain to the international transaction entered during the year under consideration. Accordingly, we are of the view that there was no requirement for the AO to refer the matter of determination of ALP to the TPO, since the impugned transactions do not pertain to the year under consideration and hence there was no requirement of determination of ALP. 9. We notice that the TPO as well as Ld CIT(A) have expressed the view that the assessee itself has furnished the Transfer Pricing Study in Form No. 3CEB. In our view, the action of the assessee in furnishing the report cannot override the provisions of the Act and further it is an established principle of law that there is no estoppels against the law. Accordingly, we are not in ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 145A of the Act on account of adjustment of closing stock value with Excise duty amount. (b) T.P. adjustment of Royalty amount. 13. The first issue relates to the addition made by the AO u/s 145A of the Act. The assessee has followed Exclusive method of accounting for Excise duty and hence the closing stock value declared in the Profit and loss account did not include the value of Excise duty. Hence the AO enhanced the value of closing stock by the amount of duty related to it. The Ld CIT(A) also confirmed the same, but gave a partial relief with regard to some computational error. 14. We heard the parties on this issue. According to the assessee, it has followed Exclusive method for accounting the Excise duty, which means that the "Excise duty account" shall be maintained as a Balance Sheet item, wherein the collection and remittance shall be accounted for and the remaining balance shall be taken to the Balance sheet as an item of Payable/Receivable. Under inclusive method, the Excise duty shall be included in the value of purchases, sales and inventory and hence the same is accounted for through the Profit and loss account. As per the accounting principles, both the methods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the current transaction. Even the accounting standards provide that the contingencies and events taking place in the subsequent period could be recognized only if it is ascertained before the finalization of accounts and further the controversy relating to the said contingency or event should be subsisting as on the date of preparation of the financial statements. In the instant case, it was not shown to us that both the conditions have been fulfilled. In fact, had it known to the assessee that it need not pay the royalty amount before the finalization of the financial statements, then there would not have been any requirement to provide for royalty payment in the current year's financial statements. Hence, in our view, the reversal of the royalty transaction made in the financial year relevant to the AY 2006-07 would not impact the determination of ALP in the current year. 19. The Ld A.R also has taken a stand that it has disallowed the royalty payment u/s 40(a)(i) of the Act and hence the T.P adjustment would result in double addition. We notice that the Ld CIT(A) has given relief to the assessee with regard to the addition made u/s 40(a)(i) of the Act. Since, we are restori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been passed by the AO on 30-12-2009 and in that order; the AO has made addition proposed by the TPO. The Ld A.R submitted that the provisions of sec. 144C (1) is attracted in the case of "eligible assesses", if the assessing officer, after 1st day of October 2009, proposes to make any variation in the income or loss returned by the eligible assessee. The Ld A.R submitted that the expression "Eligible assessee" is defined in sec. 144C(15)(b) of the Act, according to which it means any person in whose case the variation referred to in sec. 144C(1) arises as a consequence of the order of the Transfer Pricing Officer passed u/s 92CA(3) of the Act. The Ld A.R submitted that the assessing officer has passed the final order for the year under consideration on 30-12-2009, wherein he has made the addition proposed by the TPO. Since the assessee has become an "eligible assessee" and since the AO has added the variation proposed by the TPO, the AO should have forwarded draft assessment order first to the assessee in terms of sec. 144C(1) of the Act. Accordingly, the Ld A.R submitted that, since the AO has failed to follow the mandate of the provisions of sec. 144C(1), the impugned assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear under consideration is AY 2006-07 and the assessee filed its return of income o 30-11-2006. Hence the AO should have initiated assessment proceedings by 30-11-2007 by issuing notice u/s 143(2) of the Act. The AO made a reference to the T.P.O on 7.7.2008 and the T.P.O passed the order u/s 92CA(3) of the Act on 21.10.2009, i.e. after expiry of 15 months from the date of reference. 24. In the mean time, the Finance (No.2) Act, 2009 received the assent of the Hon'ble President of India on 19-08-2009, in which the provisions of sec. 144C of the Act came to be introduced in the Act. The said provisions mandate that the assessing officer should forward draft assessment order to the assessee, if he proposes, on or after 1st October, 2009, to make any variation to the income as suggested by the TPO. However, the CBDT has taken the view that the new provisions of sec. 144C shall have application in relation to AY 2010-11 and subsequent assessment years and it has been so expressed by the CBDT in its Circular No.5/2010 (supra). In the said Circular, it is also stated that the Dispute Resolution Panel Rules have been notified by S.O. No. 2958(E) dated 20th November, 2009. 25. We have ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expiry of limitation period prescribed u/s 153 of the Act for completion of the assessment. Once the assessment order is passed, the assessing officer shall become functus officio and hence he could not have issued Corrigendum. 27. On the contrary, in the instant case, the AO has passed the final assessment order on 30-12-2009 on a bonafide belief that the provisions of sec. 144C shall apply from AY 2010-11 onwards and hence there was no attempt on his part to correct the same by issuing a corrigendum. Hence, we are of the view that the assessing officer has committed only a procedural irregularity. 28. In this regard, we derive support from the decision rendered by Hon'ble Supreme Court in the case of Guduthur Bros (supra). The facts prevailing in the case of Guduthur Bros are that the assessee therein failed to file return of income within the prescribed time limit and hence the ITO issued a penalty notice u/s 28(1)(a) of 1922 Act (corresponding to sec. 271(1)(a) of 1963 Act. The assessee furnished a written reply and there after the ITO proceeded to levy penalty without affording a hearing to the assessee. The penalty order of the ITO was set aside by Appellate Assistant Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich had occurred during the course of the assessment proceedings. On receipt of the record it was open to the Income-tax officer to take up the matter from the point at which the illegality supervened and to correct his proceedings. It was pointed out in the course of the statement of the case by the appellants that such proceedings could only be taken during the course of assessment proceedings and those proceedings are concluded. In our opinion, the notice issued to the appellants to show cause why penalty should not be imposed on them did not cease to be operative because the Appellate Assistant Commissioner pointed out an illegality which vitiated the proceeding after it was lawfully initiated. That notice having remained still to be disposed of, the proceedings now started can be described as during the course of the assessment proceedings, because the action will relate back to the time when the first notice was issued. In our opinion, the Income-tax Officer is well within his jurisdiction to continue the proceedings from the stage at which the illegality has occurred and to assess the appellants to a penalty, if any, which the circumstances of the case may require." 29. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rection. It is well known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh unless forbidden from doing so by the statute. The statute does not say that such a direction cannot be issued by the appellate authority in a case of this nature. In interpreting s. 25A(1), we cannot also be oblivious to cases where there is a possibility of claims of partition being made almost at the end of the period within which assessments can be completed making it impossible for the ITO to hold an inquiry as required by s. 25A(1) of the Act by following the procedure prescribed there for. We, however, do not propose to express any opinion on the consequence that may ensue in case where the claim of partition is made at a very late stage where it may not be reasonably possible at all to complete the inquiry before the last date before which the assessment must be completed. In the instant case, however, since it is not established that the claim was a belated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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