TMI Blog2018 (5) TMI 1774X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, the time to issue the notice u/s 143(2) of the Act has already expired before the search. Therefore, for the purposes of Section 153A r.w.s. 153C an intimation u/s 143(1) of the Act was also an order of assessment. Since no incriminating material was found during the course of search. The addition made by the AO u/s 153A on account of interest on FCCDs was not justified. Addition on account of differential rate of interest on FCCD - assessee applied the interest rate on the basis of SBI PLR rate plus 300 basis points for the reasons that the FCCDs being unsecured and hybrid/quasi equity instrument as compared to plain vanilla loan instrument - AO/TPO restricted the interest rate to 12.25% - Held that:- The variance in the rate of interest as per TPO/AO to be adjusted and added was 3.75% which was within the permissible range of 5% as permitted by second proviso to Section 92C(2). It is also relevant to point out that the percentage of 3% in the aforesaid proviso has been inserted by the Finance Act, 2012 w.e.f. 01.04.2013 and prior to that amendment, this percentage was at 5%. Since the difference is less than 5%, therefore, no addition on account of arm’s length price coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have erred on facts and under the law in ignoring the specific provision of the Income Tax Act, 1961 (Act) as per which transfer pricing adjustment could not be made if the variation of interest rate on FCCD's between the arm's length price/rate so determined and the price/rate at which the international transaction has actually been undertaken does not exceed 5%. 3. That in the absence of Appellant having claimed any deduction on account of interest on FCCD's, there was absolutely no justification on the part of the Ld. AO, TPO and the Hon'ble DRP to have made transfer pricing adjustment out of such interest and making an addition/disallowance of ₹ 1,27,76,315/- to the income as declared. 4. That without prejudice to Ground No, 1 to 3 above, the order of Hon'ble DRP as passed alongwith consequential orders of the authorities below are nonspeaking orders since they have not recorded any reasons for the various submissions/contentions as made by the Appellant before them and therefore, the same deserve to be cancelled/set aside. 5. That without prejudice to above grounds, transfer pricing adjustment of ₹ 1,27,76,315/- as made to the income a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to raise additional grounds of appeal. The omission to raise the aforesaid grounds of appeal was merely inadvertent and was neither willful nor deliberate. Moreover, the above grounds being purely legal grounds deserve to be entertained and adjudicated upon for which reliance is placed on the Hon'ble Supreme Court judgment in the case of NTPC Ltd. reported in 229 ITR 383. As the above additional grounds go to the root of the matter, therefore, the same may kindly be entertained while deciding the above appeal. 5. During the course of hearing, the ld. Counsel for the assessee reiterated the contents of the aforesaid application and requested for admission of the additional grounds and stated that the relevant material is already available on record. Therefore, the additional grounds which are purely legal grounds may be admitted. The reliance was placed on the judgment of the Hon ble Supreme Court in the case of NTPC Vs CIT reported at 229 ITR 383. 6. In his rival submissions, the ld. Sr. DR opposed the admission of the additional grounds but could not controvert the aforesaid contention of the ld. Counsel for the assessee. 7. We have considered the submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Vide aforesaid additional grounds, the assessee challenged the validity of the assessment framed u/s 153A of the Act in the absence of any incriminating material found during the course of search. 11. The facts related to this issue in brief are that a search and seizure operation u/s 132 of the Act was carried out on Three C group by the Investigation Wing, New Delhi on 29.10.2013 and the assessee was also covered in the search. The AO issued the notice u/s 153A of the Act on 11.11.2014 and also issued notices u/s 142(1) of the Act on various dates, mentioned in the assessment order. In compliance to the said notice, the assessee filed the return of income declaring a loss of ₹ 1,89,993/-. The AO referred the matter to the TPO u/s 92CA(1) of the Act by observing that the assessee had issued fully and Compulsory Convertible Debentures (FCCDs) and that the international transactions with an associated enterprises were involved. 12. The TPO observed that the assessee had paid interest on FCCDs as per the investment agreement. In terms of which, the assessee was required to pay interest @ 16% which included SBI PLR and 300 basis point to cover the risk, cost of funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been capitalized during the year. It was accordingly submitted that no transfer pricing adjustment was even otherwise warranted in the case of the assessee. 14. The ld. DRP, however, directed to sustain the adjustment by observing as under: The contentions of the TPO and the applicant have been carefully examined and considered. After careful perusal of the facts, the DRP is of the view that no interference is called for in TPO s decisions and accordingly the act of the TPO is upheld. 15. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that the assessee filed the original return of income on 30.09.2009 and assessment was completed by issuing the intimation u/s 143(1) of the Act on 05.09.2010. A reference was made to page nos. 25 to 30 of the assessee s paper book. It was further submitted that during the subsequent search made on 29.10.2013 no incriminating material was found relating to such international transaction. It was contended that the TPO although held that interest on FCCDs was to be restricted to SBI PLR rate by disallowing 300 basis points above but the same was not based on any incriminating material found during the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as declared by the assessee. 17. In his rival submissions, the ld. Sr. DR strongly supported the orders of the authorities below and reiterated the observations made by the AO/TPO/DRP in their respective orders. It was stated that the assessee had never raised the issue which now has been raised in the additional ground before the AO/TPO or the ld. DRP. It was also submitted that at the time of framing the original assessment, this fact, as to whether the loans were raised by the assessee or not, was not in the knowledge of the AO and the said fact came to his knowledge only when the search took place. 18. We have considered the submissions of both the parties and perused the material available on the record. In the present case, it is an admitted fact that the assessee filed the original return of income for the year under consideration on 30.09.2009 which was processed u/s 143(1) of the Act on 05.09.2010 and the time period to issue the notice u/s 143(2) of the Act had already expired before the search took place on 29.10.2013. During the course of search, no incriminating material was found relating to the FCCDs which were already shown by the assessee in its regular boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he search. Therefore, for the purposes of Section 153A r.w.s. 153C of the Act, an intimation u/s 143(1) of the Act was also an order of assessment. In the present case, since no incriminating material was found during the course of search. The addition made by the AO u/s 153A of the Act on account of interest on FCCDs was not justified. 21. Similarly, the Hon ble Gujarat High Court in the case of Pr. CIT Vs Dipak Jashvantlal Panchal (2017) 397 ITR 153 (supra) held as under: Section 153A of the Income-tax Act, 1961, bears the heading assessment in case of search or requisition . The heading of the section can be regarded as a key to the interpretation of the operative portion of the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used in the section strengthens that meaning. From the heading of the section, the intention of the Legislature is clear, viz., to provide for assessment in case of search and requisition. When the very purpose of the provision is to make assessment in case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition. In other words, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this section only on the basis of the seized material, (v) In the absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word assess in section 153A is relatable to abated proceedings (i.e., those pending on the date of search) and the word reassess to completed assessment proceedings, (vi) In so far as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer, (vii) Completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax (Appeals) and dismiss the appeal of the Revenue. The Revenue urges that the non obstante clause in section 153A together with section 158BD removes the barrier vis-a-vis restriction upon search assessments being confined to undisclosed income . In other words, it is stated that none of the provisions confine the enquiry of the Assessing Officer to evaluating incriminating materials. This aspect, in the opinion of the court, was extensively dealt with in CIT v. Kabul Chawla [2016] 380 ITR 573 (Delhi) which has, by now, been followed consistently in several appeals. The non obstante clause, in the opinion of the court, was necessary, given that there is a departure from the pre-existing provisions, which applied for the previous years and had a different structure where two sets of assessment orders were made by the Assessing Officer during block periods. With the unification of assessment years for the block period, i.e. only one assessment order for each year in the block period, it was necessary for an overriding provision of the kind actually adopted in section 153A. But for such a non obstante clause, the Revenue could possibly have faced hurdles in regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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