2014 (4) TMI 1238 - AT - Income Tax

Admission of additional ground - Order of assessment framed on a non-existing entity - scheme of amalgamation conceived - TP adjustment - HELD THAT - It is an admitted position before us that the additional ground as admitted above was not agitated before the DRP. Thus, we find that the matter has neither been agitated nor decided by the DRP. Therefore, we find that the appellate process will be short circuited if the matter is decided for the first time by us. Both the counsel fairly agreed that the matter may be restored to the file of the DRP to hear the assessee in the matter and decide, as per law. The matter is restored to the file of the DRP to hear the assessee on this matter and decide, as per law.

Summary

Issues Involved:

1. Assessment of income at a higher amount than returned.
2. Transfer Pricing adjustments and related errors.
3. Taxability of capital receipt as remission of trading liability.
4. Computation of deduction under Section 10A.
5. Deduction for provisions utilized/released.
6. Limitation of credit for tax deducted at source.
7. Initiation of penalty proceedings under Section 271(1)(c).
8. Levy of interest under Section 234B and 234D.
9. Levy of interest under Section 234C.
10. Confirmation of additions/disallowances by the DRP.
11. Legality of the assessment order passed on a non-existent entity due to amalgamation.

Detailed Analysis:

1. Assessment of Income:
The learned Assessing Officer (AO) completed the assessment at an income of Rs. 53,55,74,554 as against the returned income of Rs. 28,52,36,663. The assessee contested this on the grounds that the AO erred in making this assessment.

2. Transfer Pricing Adjustments:
The Dispute Resolution Panel (DRP) confirmed the draft assessment order incorporating the Transfer Pricing Officer's (TPO) order, resulting in an addition of Rs. 14,08,10,625. The assessee raised multiple issues regarding the TPO/AO's errors, including:
- Not accepting the economic analysis undertaken by the assessee.
- Rejecting comparable companies based on various criteria such as turnover, economic performance, accounting year, employee cost, and onsite revenues.
- Including reimbursement of expenses in the total cost base.
- Not considering foreign exchange fluctuation gains/losses.
- Not making adjustments for differences in risk profiles.
- Not providing the benefit of the arm's length range.

3. Taxability of Capital Receipt:
The AO held that a capital receipt of Rs. 10,84,21,198, being a secured loan waived off, was taxable under Section 41(1)(a) as remission of trading liability. The DRP also held this receipt as taxable under Section 28(iv).

4. Computation of Deduction under Section 10A:
The AO reduced data communication expenses of Rs. 53,34,082 from the export turnover while computing the deduction under Section 10A. The assessee argued that these expenses were not invoiced to customers and should not be deducted from the total turnover.

5. Deduction for Provisions Utilized/Released:
The AO did not allow a deduction for provisions utilized/released during the assessment year 2006-07, which were disallowed in earlier years.

6. Limitation of Credit for TDS:
The AO limited the credit for tax deducted at source (TDS) to Rs. 32,389,317, whereas the assessee claimed Rs. 39,038,743.

7. Penalty Proceedings:
The AO initiated penalty proceedings under Section 271(1)(c) against the assessee.

8. Levy of Interest under Section 234B and 234D:
The AO levied interest under Sections 234B and 234D, which the assessee contested.

9. Levy of Interest under Section 234C:
The AO levied interest under Section 234C in the computation sheet, despite the assessment order not specifying such a levy.

10. Confirmation by DRP:
The DRP confirmed the additions/disallowances proposed by the AO without detailed reasoning.

11. Legality of Assessment Order:
The assessee raised a preliminary objection that the AO framed the order in the name of a non-existing company due to amalgamation. The company ceased to exist on 1.4.2008, but the assessment order was passed on 28.10.2010. The Tribunal admitted this additional ground, noting that it was a question of law and restored the matter to the DRP for a decision.

Conclusion:
The Tribunal restored the matter regarding the legality of the assessment order to the DRP for a fresh hearing and decision. The appeal was allowed for statistical purposes.