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2022 (11) TMI 1498 - AT - Income TaxValidity of assessment u/s 144C as barred by limitation - section 153 applicability to an order passed u/s 144C(13) pursuant to direction of the DRP - HELD THAT - We find that the very recently Delhi Bench-D of the Tribunal, New Delhi in a bunch of cases of Super Brands Ltd (UK) 2022 (9) TMI 1236 - ITAT DELHI have adjudicated identical issue by following the judgment of Roca Bathroom Products Pvt. Ltd, 2022 (6) TMI 848 - MADRAS HIGH COURT wherein quash the assessment order as barred by limitation as held provisions of Sections 144C and 153 are not mutually exclusive, but are rather mutually inclusive. The period of limitation prescribed under Section 153 (2A) or 153 (3) is applicable, when the matters are remanded back irrespective of whether it is to the Assessing Officer or TPO or the DRP, the duty is on the assessing officer to pass orders. Even in case of remand, the TPO or the DRP have to follow the time limits as provided under the Act. The entire proceedings including the hearing and directions have to be issued by the DRP within 9 months as contemplated under Section 144C (12) of the Income Tax Act. Irrespective of whether the DRP concludes the proceedings and issues directions or not, within 9 months, the Assessing officer is to pass orders within the stipulated time. he outer time limit of 33 months in case of reference to TPO under Section 153, would not refer to draft order, but only to final order and hence, the entire proceedings would have to be concluded within the time limits prescribed. When no period of limitation is prescribed, orders are to be passed within a reasonable time, which in any case cannot be beyond 3 years. However, when the statute prescribes a particular period within which orders are to be passed, then such period, irrespective of whether it is short or long, shall be applicable. Adjustments in intimation issued u/s 143(1)(a) retained without issuing show cause notice illegal and bad in law - Adjustment was made in the Intimation issued under section 143(1)(a) of the Act and the AO has computed the total income taking the income processed under section 143(1)(a) as the base. Against this adjustment, the appellant has not filed any appeal. As against this, the ld. A/R has contended that Intimation u/s 143(1)(a) was never made available/received by the appellant and, therefore, there was no occasion or opportunity for filing the appeal. Even the details of the adjustment are not made known to the appellant. In these circumstances, in the interest of natural justice, we deem it appropriate to direct the AO to provide the details of adjustment made in processing the return under section 143(1)(a) and liberty to the assessee-appellant to file appeal within 30 days of receipt of the details before the ld. CIT (A). Thus this ground of the assessee is allowed for statistical purposes. Disallowance of deduction claimed u/s 80IA in respect of Captive Power Plants (CPPs) in respect of the undertakings at Chanderia Lead and Zinc Smelter, Zawar Mines and Rajpura Dariba, on the basis of the order passed under section 92CA(3) by TPO - As decided in own case for assessment year 2008-09 assessee has been held eligible for deduction under section 80IA of the Act in respect of Captive Power Plant, Debari. Since power generation has been started during the assessment year 2004-05, therefore, the AO has not considered as to whether the depreciation for earlier year was allowable against set off of income of the earlier year because the commencement of Captive Power Plant is from assessment year 2004-05. There has been clear cut lack of enquiry for ascertaining the quantum of deduction u/s 80IA. Disallowance of deduction u/s 80IA for generation and transfer of Steam which is included in the profit computed for CPPs at Chanderiya and Dariba - We find that the matter is squarely covered by the decision of Coordinate Bench of the Tribunal in assessee s own case for the assessment year 2012-13 wherein the Tribunal by following its earlier order in assessee s own case for the assessment year 2008-09 adjudicated the issue in favour of the assessee held that the word 'power' has to be given a meaning which is in common parlance and in common parlance the word 'power' shall mean the energy only. The energy can be of any form, be it mechanical, be it electrical, be it wind or be it thermal. The steam produced by the assessee on the principle of interpretation of statute shall only be termed as power and shall qualify for the benefits available under section 80-IA(iv), held the Tribunal. Under these circumstances, we fully concur with the decision on the issue arrived at by CIT( ) that assessee is in the business of generation of power and that the steam so generated by the industrial undertaking and receipt from the business of industrial undertaking is within the meaning of section 80-IA which would qualify for this benefit. Allocation of head office expenses to eligible units - We find that the coordinate Bench of the Tribunal in assessee s own case 2018 (1) TMI 758 - ITAT JAIPUR for the assessment year 2006-07 has adjudicated the issue by following its earlier order in 2017 (4) TMI 1642 - ITAT JODHPUR for the assessment year 2005-06 wherein restore this issue to the file of the AO for re-computing the reduction of deduction u/s 80IA. AO would restrict the apportionment to the extent of Director s fee, charity and donations. The Ground partly allowed as discussed hereinabove for statistical purpose. Thus partly allow the ground of the assessee on the above terms. Accordingly following the earlier year s order of the coordinate Bench in assessee s own case the Assessing Officer is directed to re-work allocation of the expenses related to the director s fees, auditor s fees and donation for charity to the tax holiday units. Enhancing the income of the eligible units u/s 80IC in respect of Pantnagar Zinc and Lead Plant (PLZP) and Pantnagar Silver Metal Plant (PSMP) allegedly on account of TP adjustment - We find that the approach adopted by the AO/CIT (A) while adjudicating the issue of deduction u/s 80IC in respect of HZP is mutatis mutandis similar to the issue in hand in respect of Pantnagar Zinc and Lead Plant (PLZP) and Pantnagar Silver Metal Plant (PSMP). We find force in the submissions of the assessee that this issue was principally considered by the Co-ordinate Bench of the Tribunal in the assessee s own case for the assessment year 2011-12. The Co-ordinate Bench further while dealing with the issue in assessee s own case Transfer price adopted by the Assessee on the basis of Central Excise Valuation Rules and also specifically noting the fact that the Zinc Cathode Sheets were not a separately marketable commodity and as such had no market price for comparison. We direct the A.O. to allow the claim of deduction of the A.O. in respect of the Haridwar Zinc Plant under Section 80IC. Addition on account of mark-up on business support services - HELD THAT - appellant incurred certain expenses by way of payment to Third Parties for routine administrative function on behalf of the its overseas Associated Enterprises (AE) which has been charged back to the relevant AEs at cost for the reason that no value addition is made by the appellant and it is only a reimbursement by the AE on cost to cost basis. The TPO and the ld. CIT D/R, however, held that the appellant provided agency services to its AEs and, therefore, mark-up should have been charged by the appellant for providing the services. Further payment has been received by the appellant from its AE over a period ranging from 23 days to 110 days and, therefore, mark-up should have been charged. CIT D/R referred to para 7.36 of OECD Transfer Pricing Guidelines to contend that if administrative (agency) services to its International AE acting as an intermediary, mark-up should be applied. The services provided by the assessee-appellant are not its basic function and, therefore, considering the amount involved and the effort of the employees of the appellant, mark-up should have been charged. As per the said Guidelines, when an Associated Enterprise incur the costs on behalf of the group members, cost that the group members would have incurred directly had they been independent, it may be appropriate to pass on the costs to group recipients without a mark-up and to apply a mark-up only to the costs incurred by the intermediary in performing its agency function. In the present case, we are of the view that the assessee-appellant is not performing any agency function but has only incurred some costs which are charged from the AEs. Thus, assessee-appellant is merely acting as pass through entity on which no mark-up is required to be charged. Assessee appeal allowed. Disallowance u/s 14A both under normal provisions and for computing Book profit under MAT as per section 115JB - HELD THAT - AO cannot, apply the provisions of section 14A of the Act, automatically once the appellant is found to have earned exempt income. With respect to the allegation of the AO that the appellant did not maintain separate books of accounts for exempt income, reference is made to the recent decision of South Indian Bank Ltd. 2021 (9) TMI 566 - SUPREME COURT wherein the Court has observed that the assessing officer cannot make disallowance of deduction under Section 14A of the Act merely because the Appellant has not maintained separate accounts for expenses incurred in earning tax-free income. AO must, in order to make any disallowance u/s 14A record satisfaction that having regard to the accounts of the Appellant, suomoto disallowance made under section 14A by the appellant is not correct. In the facts of the present case, it will be appreciated that no valid satisfaction has been recorded by the assessing officer in the assessment order, before applying Rule 8D. In that view of the matter, the action of the assessing officer in invoking the provisions of section 14A read with Rule 8D of the Rules, without recording prerequisite satisfaction, needs to be reversed at the threshold and disallowance is liable to be deleted. MAT computation - Addition made by the AO MAT under MAT provisions u/s 14A r.w.r 8D of the Rules is liable to be deleted. Deduction u/s 35(2AB) - allowability of expenditure on scientific research - HELD THAT - Similar issue has come up before the Jodhpur Bench of the Tribunal in assessee s own case for the assessment year 2012-13 while principally agreeing to claim of Assessee regarding allowability of expenditure on scientific research, had directed to obtain a copy of Form 3CL. We find no infirmity with the order of the CIT(A) and hence, this ground of appeal of the Assessee is dismissed. Nature of expenses - Disallowance of Grass Root expenses - HELD THAT - We find that similar issue of Grass Root Expenses is covered by the decision of Jodhpur Bench of the Tribunal in assessee s own case for the assessment year 2012-13 wherein the Tribunal following its earlier order in assessee s own case for the assessment year 2011-12 allowed the ground of the assessee CIT( ) was not justified in exercising the power of enhancement and even otherwise on merits such grass root expenditure was allowable u/s 37. Addition u/s 40A(9) - Disallowance of staff welfare expenses being the expenses towards canteen facility, school activities, sport club, scholarship, other club etc. - HELD THAT - We find that the issue of Staff Welfare Expenses is covered by the decision of Jodhpur Bench of the Tribunal in assessee s own case for the assessment year 2012-13 wherein the Tribunal following its earlier order assessee s own case for the assessment year 1999-2000 deleted the disallowance under section 40A(9). TDS credit - It is the right of the assessee to get credit of the TDS deducted by deductors against tax liability. The AO is directed to verify the claim of the assessee and allow credit for TDS as per provisions of Income-tax law. The ground is allowed for statistical purposes.
Issues Involved:
1. Assessment order barred by limitation. 2. Adjustments in intimation issued under section 143(1)(a) without issuing show cause notice. 3. Disallowance of deduction claimed under section 80IA in respect of Captive Power Plants (CPPs). 4. Disallowance of deduction under section 80IA for generation and transfer of steam. 5. Allocation of head office expenses to eligible units. 6. Enhancing the income of eligible units under section 80IC of the Act. 7. Addition on account of mark-up on business support services. 8. Disallowance under section 14A of the Act, both under normal provisions and for computing Book profit under MAT. 9. Disallowance of deduction under section 35(2AB) of the Act. 10. Disallowance of Grass Root expenses. 11. Disallowance of staff welfare expenses. 12. Incorrect allowance of TDS credit. 13. Incorrect computation of interest under section 234B and 234C. 14. Initiating penalty proceedings under section 270A r.w.s. 274 of the Act. Detailed Analysis: 1. Assessment order barred by limitation: The assessee contended that the assessment order dated 29.07.2022 was beyond the time limit prescribed under section 153(1)/(4) of the Act, which required the order to be passed on or before September 30, 2021. The Tribunal, relying on the decision of the Hon'ble Madras High Court in CIT vs Roca Bathroom Products Pvt Ltd, held that the assessment order was barred by limitation and quashed the same. 2. Adjustments in intimation issued under section 143(1)(a) without issuing show cause notice: The AO made adjustments aggregating to Rs. 65,44,93,450 in the intimation issued under section 143(1)(a) without issuing a show cause notice. The Tribunal directed the AO to provide details of the adjustment and allowed the assessee to file an appeal within 30 days of receipt of the details. 3. Disallowance of deduction claimed under section 80IA in respect of Captive Power Plants (CPPs): The TPO reduced the claim under section 80IA by considering the transfer pricing of the power supplied by CPP to other manufacturing units at a lower rate than what was claimed by the assessee. The Tribunal, following its earlier decisions, held that the price charged by SEB was the best indicator of the market price and allowed the claim of the assessee. 4. Disallowance of deduction under section 80IA for generation and transfer of steam: The AO disallowed the deduction claimed for the generation and transfer of steam, considering it as a by-product with no cost. The Tribunal, following its earlier decisions, held that steam is a form of power and allowed the deduction under section 80IA. 5. Allocation of head office expenses to eligible units: The AO apportioned head office expenses to the eligible units on a turnover basis, reducing the deduction under section 80IA and 80IC. The Tribunal, following its earlier decisions, held that the apportionment should be done on a reasonable basis and not on turnover. The AO was directed to re-work the allocation of expenses related to director's fees, auditor's fees, and donations. 6. Enhancing the income of eligible units under section 80IC of the Act: The TPO applied the Profit Split Method (PSM) for determining the arm's length price for the transfer of cathode, rejecting the cost plus approach adopted by the assessee. The Tribunal, following its earlier decisions, held that the cost plus approach was appropriate and allowed the claim of the assessee. 7. Addition on account of mark-up on business support services: The AO made an addition of Rs. 66,54,233 on account of mark-up on business support services. The Tribunal held that the assessee was merely acting as a pass-through entity and no mark-up was required to be charged, allowing the claim of the assessee. 8. Disallowance under section 14A of the Act, both under normal provisions and for computing Book profit under MAT: The AO made a disallowance under section 14A read with Rule 8D. The Tribunal, following its earlier decisions, held that the AO did not record valid satisfaction before applying Rule 8D and deleted the disallowance. It also held that disallowance under section 14A cannot be added while computing book profits under section 115JB. 9. Disallowance of deduction under section 35(2AB) of the Act: The AO disallowed the deduction claimed under section 35(2AB) for want of Form 3CL. The Tribunal, following its earlier decision, upheld the disallowance. 10. Disallowance of Grass Root expenses: The AO disallowed Grass Root expenses considering them as prospecting operations. The Tribunal, following its earlier decisions, held that such expenses were allowable under section 37(1) and deleted the disallowance. 11. Disallowance of staff welfare expenses: The AO disallowed staff welfare expenses under section 40A(9) and Explanation 2 of section 37. The Tribunal, following its earlier decisions, held that these expenses were allowable and deleted the disallowance. 12. Incorrect allowance of TDS credit: The Tribunal directed the AO to verify the claim of the assessee and allow credit for TDS as per provisions of the Income-tax law. 13. Incorrect computation of interest under section 234B and 234C: The Tribunal directed the AO to compute interest under section 234B and 234C in accordance with the law. 14. Initiating penalty proceedings under section 270A r.w.s. 274 of the Act: The ground was not pressed by the assessee and was dismissed as not pressed. Conclusion: The Tribunal allowed the appeals of the assessee partly, quashing the assessment orders as barred by limitation, and allowed various claims and deductions as per the detailed analysis above.
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