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2018 (5) TMI 1774

erest on FCCDs - Held that:- 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) on 05.09.2010 and the time period to issue the notice u/s 143(2) 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 books of accounts. AO/TPO made the addition on account of differential interest on FCCDs undertaken with the AE, in our opinion, no such adjustment could have been made to the income which was already assessed prior to the date of search. - Although the assessment was not framed u/s 143(3) but an intimation was issued u/s 143(1) of the Act, however, 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 just .....

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omic analysis as undertaken by the Appellant for justifying the interest @16% per annum to be at arm's length price; (iv) in not appreciating the fact that FCCD's being hybrid instruments i.e. a mix of debt and equity, carried a higher risk and hence could not be compared with plain vanilla loan or bond instruments/arrangements; (v) in not considering or ignoring the fact that interest @16% per annum on FCCD's by adopting PLR of SBI plus 300 basis points was in accordance with FEMA regulations; and (vi) by inappropriately restricting the interest rate to @12.25% per annum by not fully considering / appreciating the facts / submissions / evidence produced made/filed before them; 2. That the Ld. AO, TPO and the Hon'ble DRP 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 .....

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are based on the facts of the case of the Appellant where no incriminating material was found during search proceedings relating to the international transaction as undertaken by it with the AE. Moreover, the assessment for the year under consideration having been completed on 05/09/2010 vide intimation passed u/s 143(1), therefore, on the date of search as conducted on 29/10/2013, no assessment for such year was pending. As per ground No. 1 as already raised in the memo of appeal, the Appellant has already challenged the illegality of the above addition and the additional grounds are being raised in order to make them more specific. Moreover, as per Ground No. 7 as raised the Appellant is 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 whil .....

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h any co-relation, document-wise, with these four assessment years. The Tribunal found that the material disclosed in the satisfaction note belonged to assessment year 2004-05 or thereafter. The Tribunal rightly permitted this additional ground to be raised and correctly dealt with the ground on the merits as well. The High Court was right in affirming this view of the Tribunal. 9. In the present case also, the assessee raised the additional grounds which were on a jurisdictional issue on the basis of facts already on record. Therefore, the same deserve to be admitted. In view of the above, the legal grounds raised by the assessee are admitted. 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 v .....

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ssessee during the relevant previous year was capitalized in the books of the assessee and was not claimed as expenditure. Therefore, no adjustment on account of international transaction of payment of interest was warranted in the case of the assessee. Reliance was placed on the decision of the ITAT Delhi Bench in the case of Honda Motorcycles and Scooters India Pvt. Ltd. Vs ACIT (ITA No. 1379/Del/2011). It was pointed out that the ld. DRP vide order dated 21.11.2014 in the case of M/s Gujarat Guardian Ltd. for the assessment year 2010-11 deleted the Transfer Pricing addition holding that the engineering fees paid by the assessee had 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 .....

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h is the copy of the SBI PLR rate as extracted from SBI portal. It was accordingly submitted that the TP adjustment/addition which had been made because of the differential in the interest rate was within the acceptable range of 5% as permitted u/s 92C of the Act and that the risk factors on account of such unsecured and hybrid/quasi equity instrument had not been factored by the authorities below while computing the ALP of interest rate. It was also stated that in the absence of the assessee having claimed any deduction on account of interest on FCCDs during the year under consideration, no addition out of interest could have been made to the loss 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 th .....

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ion 158BD of the Act, i.e., recording satisfaction that undisclosed income belongs to the third party, which was detected pursuant to a search had not been complied with. Though documents belonging to the assessee were seized at the time of search operation, there was no incriminating material found leading to undisclosed income. Therefore, assessment of income of the assessee was unwarranted. 20. In the present case also, although the assessment was not framed u/s 143(3) of the Act but an intimation was issued u/s 143(1) of the Act, however, 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 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 searc .....

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er to assess and reassess the "total income" of the six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six assessment years in which both the disclosed and the undisclosed income would be brought to tax. (iv) Although section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the Assessing Officer which can be related to the evidence found, it does not mean that the assessment can be arbitrary 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 juri .....

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h Court in paragraph No. 37 of that decision has held that no addition can be made in the hands of the assessee in the absence of any incriminating material unearthed during the course of search or requisition of documents. On reading of the order of the Assessing Officer we could not find that there is any incriminating material referred to by the Assessing Officer which is found during the course of search for making these additions. Therefore, respectfully following the decision of the Hon'ble Delhi High Court in the case of CIT v. Kabul Chawla (supra) we confirm the order of the learned Commissioner of 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 .....

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