2021 (9) TMI 1399 - AT - Income Tax

TP Adjustment - time limit for TPO to pass the order - whether order passed under section 92CA(3) is barred by limitation as per section 153? - how the period of 60 days prior to the date of TP order computed? - HELD THAT - As we find that as per sub-section 3 to section 92CA inserted with effect from 1.6.2007 time limit for TPO to pass the order is within the period of sixty days prior to the date of completion of the order as per section 153 of the Act. Since reference under section 92CA sub section (1) has been made to the TPO the time limit for passing the assessment order as per section 153(4) is extended by 12 months from the time limit as in section 153(1) - Hence, time limit to pass assessment order in this case is 31.12.2016. Since the TPO order is passed on 1.11.2016, on the touchstone of the aforesaid decisions it is clear that the TPO order passed is time barred as the due date in this case was 31.10.2016. Following the same reasoning as Coordinate Bench decision 2021 (3) TMI 563 - ITAT DELHI as above in which Hon'ble Madras High Court decision 2021 (2) TMI 1152 - MADRAS HIGH COURT has been followed, we hold that the order passed by the TPO is time barred and hence, is not legally sustainable. We note that no contrary order of Hon'ble Jurisdictional High Court has been cited before us in this regard. - Decided in favour of assessee.

Issues Involved:
1. Transfer Pricing Adjustments
2. Adjustment in respect of Purchase of Bonds
3. Adjustment in respect of interest paid on Structured Loan
4. Adjustment on account of Rating Support Fees
5. Disallowance of Mark to Market loss
6. Disallowance under Sec 14A r.w. Rule 8D
7. Short credit of TDS
8. Jurisdictional challenge regarding time limit to pass the order

Detailed Analysis:

1. Transfer Pricing Adjustments:
The learned AO, under the directions of the DRP, made a disallowance of Rs. 45,35,45,982 based on Chapter X of the Act. The TPO and DRP did not consider the Supreme Court's observation in CIT v Glaxo SmithKline Asia (P) Ltd. and the Finance Act 2012's rationale, which aimed to curb tax arbitrage by shifting income to low tax entities. The TPO failed to demonstrate that the appellant's motive was tax evasion, as both the appellant and its AEs were taxed at the same rate. The TPO also challenged the commercial expediency of the appellant's transactions and did not record reasons to show the conditions of section 92C(3) were satisfied.

2. Adjustment in respect of Purchase of Bonds:
The TPO determined the arm's length price for the purchase of 170 units of 9.15% Axis Bank Limited Bond at Rs. 17,12,05,640, making an arbitrary adjustment of Rs. 9,90,640. The DRP upheld this without considering the appellant's benchmarking analysis using Bloomberg data or the corroborative analysis of bonds sold to unrelated parties on the same day. The TPO also failed to appreciate differences in prices due to trade timing and interest rate movements.

3. Adjustment in respect of interest paid on Structured Loan:
The TPO determined the arm's length price for interest paid on structured loans at Rs. 8,41,44,658, making an adjustment of Rs. 26,58,55,342. The TPO misunderstood structured loans as derivative transactions and erroneously adopted the average annualized interest rate of Nifty linked debentures. The appellant argued that the interest on structured loans was dependent on event occurrences, unlike the certain interest on Nifty linked debentures.

4. Adjustment on account of Rating Support Fees:
The TPO determined the arm's length price for rating support services at Rs. NIL, while the DRP set it at Rs. 12,86,00,000, making an adjustment of Rs. 18,67,00,000. The appellant had paid Rs. 31.53 crores for rating support services based on a Memorandum of Understanding with its holding company, EFSL. The TPO and DRP failed to appreciate the explicit support provided by the AE and disregarded the evidence furnished by the appellant.

5. Disallowance of Mark to Market loss:
The AO disallowed Rs. 5,25,65,533 for Mark to Market loss on trading in derivative instruments, treating it as notional loss. The appellant claimed this as an ascertained loss due to price movements between the contract date and the balance sheet date.

6. Disallowance under Sec 14A r.w. Rule 8D:
The AO made a disallowance of Rs. 73,953,997 under Sec 14A r.w. Rule 8D, against Rs. 4,85,961 disallowed by the appellant. The AO invoked Rule 8D without recording dissatisfaction with the appellant's accounts and failed to consider net interest for calculating disallowance.

7. Short credit of TDS:
The AO allowed TDS credit of Rs. 47,62,88,676 against the appellant's claim of Rs. 54,67,28,068, resulting in a short credit of Rs. 7,04,39,392. Consequently, interest was charged under sections 234B and 234C.

8. Jurisdictional challenge regarding time limit to pass the order:
The appellant argued that the Transfer Pricing Order dated 01/11/2016 was barred by limitation as per section 153 r.w.s. 92CA(3A). The ITAT admitted this additional ground, noting that the TPO's order was passed one day late, making it time-barred. The ITAT relied on the Hon'ble Madras High Court's decision in Pfizer Healthcare India P. Ltd. and the ITAT Delhi Bench's decision in M/s. Louis Dreyfus Commodities India Pvt. Ltd., which held that orders passed beyond the statutory time limit are invalid.

Conclusion:
The ITAT held that the TPO's order was time-barred and not legally sustainable. Consequently, the transfer pricing adjustments based on the TPO's order were deleted. Other issues raised by the appellant were deemed academic and not addressed. The appeal was partly allowed.

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