TMI Blog2023 (3) TMI 1094X X X X Extracts X X X X X X X X Extracts X X X X ..... tments, and hence no disallowance of interest is attributed under section 14A r.w.r 8D - HELD THAT:- AR has demonstrated the availability of substantial own funds in the financial statements for making the investments. But the A.O. has to verify and examine the evidences considering the judicial decisions and also the ratio of decision of Vireet Investment Pvt Ltd [ 2017 (6) TMI 1124 - ITAT DELHI] where only those investments which yield exempted income are considered for computing the average value of investments in respect of computing the disallowance under rule 8D(2)(iii) of the IT Rules. Thus restore the disputed issue to the file of the AO to verify, examine and consider the judicial decisions and recompute the disallowance u/s 14A r.w.r 8D of the Income Tax Rules and the grounds of appeal are allowed in favour of the assessee for statistical purpose and finally the assessee appeal is partly allowed for statistical purposes. - ITA No. 7278/Mum/2017 CO No. 21/Mum/2019 (Arising out of ITA No. 29/Mum/2018), ITA No. 29/Mum/2018 - - - Dated:- 22-12-2022 - SHRI BASKARAN BR, ACCOUNTANT MEMBER SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER For the Assessee : Mr.Nikhil T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Appellant from MOL without appreciating that the impugned transaction is a part of shareholder activity which does not require separate compensation and thereby no benchmarking is required under transfer pricing regulations; 5. erred in confirming the action of AO/TPO in holding that higher interest should have been charged by the Appellant from its AE - Mercator International Pte Limited ('MIL'), as against Rs 41,86,17,364 charged by the Appellant from MIL without appreciating that the impugned transaction is a part of shareholder activity which does not require separate compensation and thereby no benchmarking is required under transfer pricing regulations; 6. erred in confirming the action of AO/TPO in holding that Appellant should have charged interest from its AE - Mercator Offshore Holdings Pte Limited ('MOHPL'), as against Nil charged by the Appellant from MOHPL without appreciating that the impugned transaction is a part of shareholder activity which does not require separate compensation and thereby no benchmarking is required under transfer pricing regulations; 7. Without prejudice to the above, erred in not appreciating that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the adjustment to the value of international transactions of the Appellant. Adjustment on account of fees on corporate quarantee issued by the Appellant for the benefit of the AES On facts and circumstances of the case, the learned CIT(A): 17. erred in confirming the action of TPO/AO in making transfer pricing adjustments on account of alleged international transaction of corporate guarantee provided to MOL as against no corporate guarantee charged by Appellant to MOL 18. erred in not appreciating the fact that issue of corporate guarantee is outside ambit of expression 'international transaction' under section and hence transfer pricing regulations do not apply to the same; 19. erred in disregarding the fact that corporate guarantee had been advanced by the Appellant as a matter of commercial prudence primarily to protect the business interest of the group by fulfilling the shareholders obligations since any financial incapacitation of the AE would affect the investment of the Appellant; 20. erred in disregarding the fact that in absence of corporate guarantee, the Appellant being the holding company would have provided the funds to the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the additional grounds of appeal as under: 30. Ground of appeal 30 Time barred assessment liable to be quashed. erred in passing draft assessment order by following procedure laid down under section 144C of the Act without appreciating that provision of Section 144C is not applicable during AY 2010-11, thus the assessment order passed is beyond the time limit prescribed under section 153 of the Income Tax Act, 1961 and hence bad in law and liable to be quashed. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal, so as to enable your Honours to decide this appeal according to law. Time limit for passing order under Section 92CA of the Income-tax Act, 1961 ('the Act') 31. On the facts and circumstances of the case and in law, the Learned Transfer Pricing Officer erred in passing transfer pricing assessment order under Section 92CA(3) of the Act on 30 January 2014, which was barred by limitation, thereby rendering the transfer pricing order as null and void as per the provisions of Section 92CA(3A) read with Section 153 of the Act. 32. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected for scrutiny and notice u/s 143(2) and 142(1) of the Act are issued. The AO on perusal of the facts and details found that the assessee has international transactions with its Associate Enterprise (AE) and further the assessee is engaged in shipping and cargo handling services, therefore the assessee has offered income of shipping business under Tonnage Tax Scheme under Chapter XII-G of the Income Tax Act, 1961. The matter was referred to the TPO u/s 92CA of the Act with the prior approval of Commissioner of Income Tax for determination of ALP. Whereas on the issues of transfer pricing, the TPO has made the adjustments considering the transfer pricing study report, submissions, the comparables and passed the order U/sec92CA of the Act on 30.01.2014 with the T.P adjustments as under: S.No Nature of TP adjustment Amount 1 Arm s Length interest on loan Advanced to the AEs 34,35,01,289 2 Arm s Length Guarantee Fee on corporate guarantee extended to the AEs 8,10,96,267 3 Arm s Length compen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Sec. 92CA(3) of the Act and mentioned that the transfer pricing order (TPO) has to be passed 60 days prior to due date of assessment as per Sec. 153(1) of the Act and further substantiated on the provisions, explanations, judicial decisions and prayed for quashing of the T P order. Per Contra, the Ld. DR supported the order of the CIT(A). 8. We heard the rival submissions and perused the material on record. The Ld. AR has made submissions on the additional grounds of appeal raised on the validity of passing of Transfer Pricing order. The asssesssee has filed the submissions as under: A) Validity of Transfer pricing order and final assessment order: The Learned Transfer Pricing Officer (TPO) has passed the transfer pricing order on 30 January 2014. As per Section 92CA(3A) read with Section 153 of the Income-tax Act, 1961 ('the Act') the transfer pricing order has to be passed 60 days prior to due date of completion of assessment as per Section 153(1) of the Act. As per provisions of Section 153 of the Act, the time limit to pass the assessment order is 24 months from end of relevant assessment year. Further as per provisions of Section 153(4) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transfer Pricing Officer passed under Section 92CA(3) of the Act. However, since the transfer pricing order passed in the case of the Appellant is invalid and thus, no variation could be said to arise from the transfer pricing order passed under section 92CA(3) of the Act. Accordingly, the Appellant does not meet the definition of 'eligible assessee' as per section 144C of the Act and thus, the final assessment order passed is invalid and needs to be quashed. Invalidity of the assessment order Additionally, the Appellant also wishes to challenge that the final assessment order passed on 2 April 2014 is barred by limitation since it is passed beyond the time limit prescribed under section 153 of the Act being 31 March 2014. As per provisions of Section 153 of the Act, the time limit to pass the assessment order is 24 months from end of relevant assessment year. Further as per provisions of Section 153(4) of the Act, the time limit if reference is made under Section 92CA of the Act, then time limit to pass order under Section 143 of the Act is extended by 12 months. The following is the time limit for passing assessment order in the present case: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed 9. We found that the facts and submissions envisaged by the Ld. AR cannot be overlooked and are realistic. Further on the identical disputed issue, the Ld.AR has relied on the judicial decisions on the validity of TPO order as under: (i) Honble High Court Of Madras decision in DCIT Vs Saint Gobain Ind Pvt Ltd, (444 ITR 636 )(Madras ) held as under: I .Section 92CA, read with section 153, of the Income-tax Act, 1961 Transfer pricing- Reference to TPO (sub-section (3A)) - Assessment year 2016-17 In relevant assessment year, petitioner-company entered into international transaction and filed its income tax return on 30-11-2016 Assessing Office made reference to TPO for determination of ALP of international transactions Revenue contended that Assessing Off icer had time upto 23:59:59 hours of 31-12-2019 to pass assessment order which would mean that time l imit to pass order would expire on 00.00 hours of 1-1-2020 Whether limitation period for passing assessment order by Assessing Off icer as prescribed under section 153 would expire at 23:59:59 on 31-12-2019 and not on 00.00 hours of next date - Held, yes [Para 14] [In favour of assessee] II. Section 92CA, read wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO/DRP to the extent of making adjustment on account of ALP, on the legal ground that the TP order in this case is passed by the Ld. TPO beyond the time limit prescribed under section 92CA(3A) read with section 153 of the Act rendering the TP order and consequential assessment order illegal, null and void ab-initio and liable to be quashed. So we would first decide this legal issue before going into the merits of the case. 9. The Ld. A.R. for the assessee challenging the impugned order passed by the Ld. TPO contended that the order passed by the Ld. TPO is passed beyond the time limit prescribed under section 92CA(3A) read with section 153 of the Act and consequent assessment order, to the extent of TP adjustment, is not sustainable and brought on record the factual position to calculate the period of limitation under the Act necessary to decide the issue in controversy in tabulated form which is as under: 10. The Ld. A.R. for the assessee while discussing the factual position qua the order passed by Ld. TPO and statutory provisions applicable thereto contended inter alia that the order passed by Ld. TPO dated 01.11.2018 is not sustainable in the eyes of law being ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e 21 months from end of A.Y 31.12.2017 Extension of 12 months in case of transfer pricing reference as per sec 153(4) of the Act 31.12.2018 Time limit for passing the order u/s 92CA(3A) i.e 60 days prior to the date prescribed under 153 Less date on which limitaitn expires u/s 153 i.e 31.12.2018 1 day Less Remaining days of December 30 days Less Number of days of November 30 days Due date for passing the order u/s 92CA(3) 31.10.2018 Date of passing TP order u/s 92CA(3) 01.11.2018 30. Now, coming to the question of how the 60 day period is to be computed, the critical question would be whether the period of 60 days would be computed including the 31st of December or excluding it. Section 153 states that no order of assessment shall be made at any time af ter time expiry of 21 months from the end of the assessment year in which the income was first assessable. The submission of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s before the date of which limitation expires under section 153 of the Act i.e. o. 31.10.2018, hence barred by limitation. (iii) Similarly The Honble Tribunal in the case of M/s Emerson Electric (Company) Pvt Ltd ltd Vs DCIT (ITA No. 933/M/2021 dated 18.05.2002 (Mum Trib) has observed at Page 5 Para 5 to 17 of the order read as under: 5. We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto. 6. Assessee has filed the present appeal raising grounds challenging the arms length price of the international transactions by way of transfer pricing grounds and no corporate tax issue is there in the present appeal. 7. At the very outset, the Ld. A.R. for the assessee challenged the impugned order passed by the AO/DRP on the legal ground that the transfer pricing order passed in this case under section 92CA of the Act is passed beyond the time limit prescribed under section 92CA(3A) read with section 153 of the Act rendering the TP order illegal, null and void ab-initi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order within 60 days prior to the date of which period of limitation referred to in section 153 of the Act expires. 14. Now the question arises as to how the period of 60 days prior to the date of transfer pricing order i.e. 01.11.2019 is to be computed. Hon'ble Madras High Court in case of M/s. Pfizer Healthcare India Pvt. Ltd. (supra) while dealing with the issue held that for computing the period of 60 days, the last date as per section 153 should be excluded. Operative part of the judgment is extracted for ready perusal as under :- 30. Now, coming to the question of how the 60 day period is to be computed, the critical question would be whether the period of 60 days would be computed including the 31st of December or excluding it. Section 153 states that no order of assessment shall be made at any time after time expiry of 21 months from the end of the assessment year in which the income was first assessable. The submission of the revenue is to the effect that limitation expires only on 12 am of 01.01.2020. However, this would mean that an order of assessment can be passed at 12 am on 01.01.2020, whereas, in my view, such an order would be held to be barred by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on legal issue we deem it not necessary to go into the grounds raised by the assessee on merit. Consequently, appeal filed by the assessee is allowed. 10. We considering the facts, circumstances and the ratio of the judicial decisions discussed above found that the order passed by the TPO is barred by the limitation is illegal and void ab-initio and is quashed. Consequently assessment order passed after transfer pricing adjustment is without jurisdiction. Since the additional grounds of appeal are allowed in favour of the assessee the original grounds of appeal in respect of transfer pricing issues are not adjudicated and are left open. 11. Whereas in the original grounds of appeal nos 25 and 26, the asssesssee has challenged the disallowance u/s 14A of the Act. The Ld. AR referred to the submissions filed in the asssessement proceedings dealt at Para 5 of the assessment order. The Ld.AR emphasized that the assessee has substantial own funds in comparison to the investments and referred to the Audited financial statements and contended that the investments are made out of own funds which are more than the size of the investments, and hence no disallowance of interest is att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from 1-4-1999 Further, in terms of balance-sheet there was an availability of Rs. 398.19 crores including Rs. 180 crores of share capital - Whether if there are funds available, both, interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of interest-free funds generated or available with company, provided said funds are sufficient to meet investments Held, yes Whether since, in instant case, said presumption was clearly established in view of findings recorded by Commissioner (Appeals) and Tribunal, impugned order passed by said authorities was to be affirmed - Held, yes 12. We considering the facts, circumstances and the ratio of the judicial decisions applicable to the assessee and the Ld.AR has demonstrated the availability of substantial own funds in the financial statements for making the investments. But the A.O. has to verify and examine the evidences considering the judicial decisions and also the ratio of decision of Vireet Investment Pvt Ltd Vs. ACIT, 165 ITD 27 (Delhi SB) where only those investments which yield exempted income are considered for computing the average value of investments in respect of computin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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