2016 (11) TMI 1302 - AT - Income Tax

Validity of assessment u/s 144C - Held that - the claim of the assessee company that as the insertion of Sec. 144C had created new rights and obligations not only in favour of assessee but also in favour of DRP and concerned assessing officer therefore by implication the said statutory provision would partake the color and character as that of a Substantive provision is not found to be acceptable and is hereby rejected. In the case of the assessee company the A.0 who remained under a statutory obligation to frame the assessment not later then 31.01.2012 is found to have framed the same as on 19.01.2012 therefore the same is within the period of limitation. Thus the claim of the assessee company that the assessment framed by the A.0 is barred by limitation is rejected. Treating remittances by the assessee company to its AE towards Share application money as loans and advances - adjustment/addition towards impugned interest computed @14% p.a w.r.t the aforesaid amount in the hands of the assessee company - Held that - We herein set aside the order of the Ld. CIT(A) to the extent the latter had upheld the order of the A.0 treating remittances to the extent of US 6, 60, 000/- by the assessee company to its AE i.e M/s Taurian CISA at Abdidjan Ivory Coast of South Africa (the WOS of the assessee company) towards Share application money as loans and advances and on the said basis had thus sustained the consequent adjustment/addition towards impugned interest computed @14% p.a w.r.t the said amount in the hands of the assessee company. That the order of the Ld. CIT(A) to the extent relatable to remittance of US 2, 00, 000 to its aforesaid WOS and the consequent adjustment/addition as regards the same is however sustained however the A.O/TPO is herein directed to work out and restrict the said adjustment/addition by adopting rate of interest as 6 months LIBOR plus 150 basis point for the delayed receipt of the payments by the assessee company from its aforesaid WOS/AE. Disallowance of lease rentals - whether the lease transaction executed by the assessee company was a Finance lease and not an Operating lease ? - Held that - We herein set aside the order of the Ld. CIT(A) to the extent the latter had upheld the order of the A.0 who despite holding the lease transaction as that being in the nature as that of a Finance lease had however declined to allow the claim of the assessee company towards depreciation and Interest and herein direct the A.0 to verify the amount of loan and the amounts of interest payments made by the assessee company during the year under consideration towards such loans taken for purchase of railway wagons through finance lease method and allow the claim of interest payment accordingly. Still further the A.O is directed to verify the rate and amount of depreciation on the railway wagons to which the assessee company would stand entitled as per Sec. 32(1) of the Act r.w the Income tax rules and allow depreciation in the hands of the assessee company. Disallowance of difference in value of the forward contracts as on the date on which contract was entered into and the rate prevailing as at the end of the financial year on the ground that the same represents notional loss - Held that - As before us it was at the very outset submitted by the Ld. A.R for the assessee company that as the A.0 vide his assessment order dated. 26/03/2013 so passed for A.Y. 2009-10 had allowed the impugned loss in the said year therefore the same may not be allowed in the year under consideration. We have considered the aforesaid submission of the Ld. A.R and in the background of the said factual position going by the statement of the Ld. A.R that as the impugned loss had been allowed by the A.0 while framing assessment in the hands of the assessee company for A.Y. 2009-10 therefore the same may not be allowed in the year under consideration the said ground of appeal is dismissed as not pressed by the assessee company. Levy of Interest u/s 234A 234B and 234C is mandatory automatic and consequential no infirmity can be attributed to the general observation of the CIT(A) therein directing the A.0 to levy interest at the time of giving appeal effect to his order

Summary

Issues Involved:

1. Validity of assessment order.
2. Reference to Transfer Pricing Officer (TPO).
3. Non-compliance with CBDT instructions.
4. Share application money treated as loans and advances.
5. Addition of interest.
6. Disallowance of lease rentals.
7. Disallowance of loss on forward exchange contracts.
8. Disallowance of provision for leave encashment.
9. Disallowance under Section 14A.
10. Levy of interest under Sections 234B and 234C.
11. General grounds for appeal.

Detailed Analysis:

1. Validity of Assessment Order:
The assessee challenged the validity of the assessment order on the grounds that it was passed beyond the limitation period under Section 153(1) of the Act. The Tribunal held that Section 144C, which provides for a draft assessment order in cases involving Transfer Pricing adjustments, was applicable. The Tribunal noted that the provisions of Section 144C were procedural and not substantive, thus applicable retrospectively. Since the draft assessment order was issued within the prescribed time, the final assessment order dated 19.01.2012 was within the period of limitation. Hence, the assessment order was deemed valid.

2. Reference to Transfer Pricing Officer (TPO):
The assessee's contention that the reference to the TPO was invalid due to non-satisfaction of necessary conditions was not pressed during the hearing. Therefore, this ground of appeal was dismissed.

3. Non-compliance with CBDT Instructions:
The assessee argued that the reference to the TPO was contrary to CBDT Instruction No. 3 of 2003. However, this ground was also not pressed during the hearing and was dismissed.

4. Share Application Money Treated as Loans and Advances:
The Tribunal examined whether the remittance of share application money to the assessee's wholly-owned subsidiary (WOS) was correctly treated as loans and advances. It was observed that shares were allotted for a part of the remittance, while the balance amount was refunded. The Tribunal concluded that the remittance for which shares were allotted could not be re-characterized as a loan due to delay in allotment. However, the balance amount refunded was rightly treated as a loan. The Tribunal directed the AO/TPO to compute interest on the refunded amount using the 6-month LIBOR plus 150 basis points.

5. Addition of Interest:
The Tribunal directed the AO/TPO to compute interest on the refunded share application money using the 6-month LIBOR plus 150 basis points, thereby partly allowing the assessee's appeal.

6. Disallowance of Lease Rentals:
The Tribunal upheld the disallowance of lease rentals, agreeing with the lower authorities that the lease transaction was a finance lease and not an operating lease. However, the Tribunal directed the AO to allow the assessee's claim for depreciation and interest on the leased assets as per the provisions of the Act.

7. Disallowance of Loss on Forward Exchange Contracts:
The assessee's claim for the loss on forward exchange contracts was disallowed by the AO as notional loss. The Tribunal noted that the AO had allowed the loss in the subsequent assessment year (A.Y. 2009-10). Therefore, the assessee's appeal on this ground was dismissed as not pressed.

8. Disallowance of Provision for Leave Encashment:
The Tribunal noted that the issue of allowability of provision for leave encashment under Section 43B(f) was pending before the Supreme Court. Therefore, the matter was restored to the AO to be decided in conformity with the Supreme Court's judgment.

9. Disallowance under Section 14A:
The assessee did not press this ground during the hearing. Consequently, it was dismissed as not pressed.

10. Levy of Interest under Sections 234B and 234C:
The Tribunal upheld the levy of interest under Sections 234B and 234C, noting that it was mandatory, automatic, and consequential.

11. General Grounds for Appeal:
Since the assessee did not seek to add, alter, or amend any grounds of appeal during the hearing, this ground was dismissed as general in nature.

Conclusion:
The appeal of the assessee was partly allowed, with specific directions provided for each issue as discussed above. The order was pronounced in the open court on 16/09/2016.