2024 (8) TMI 1135 - AT - Income Tax

Designation of Income-tax Authorities under the Income-tax Act - Determination of designation in the hierarchy of Income Tax Authorities - Whether Additional Commissioner can be the TPO? - HELD THAT - The authorization by Board only refers to the designation of an Income Tax Authority for a particular vacancy the transfer/ posting orders assign a particular officer to that vacancy. To put it in simple words, the Board authorization creates a vacancy and by virtue of transfer/posting orders the Department fills the said vacancy with the designated incumbent. As pointed earlier, the definition of Joint Commissioner in Section 2(28C) includes Additional Commissioner, therefore, in our considered view there is no infirmity or irregularity in appointing officer in the grade of Additional Commissioner to a position designated for Joint Commissioner. Thus, in view of our above findings we find no merit in both the arguments advanced by the ld.Counsel assailing validity of order passed u/s. 92CA of the Act. As a result, additional ground of appeal is dismissed. Allowability of Pro-rata amount for the year in respect of Leasehold Lands - Assessee had made claim by way of a Note in computation of income - AO rejected the claim on the ground that the amount has not been claimed in the return of income or in the revised return of income - HELD THAT - AO has allowed assessee s claim of pro-rata amount on the leasehold land. Since, the claim of assessee has been allowed in the past i.e. A.Y 2006-07 and 2007-08 on similar set of facts, in principle we hold that assessee s claim of deduction of pro-rata amount in respect of leasehold lands deserves to be accepted, however, we deem it appropriate to restore the issue to the A.O for the limited purpose to examine quantum of claim. Ground No.1 of appeal is allowed in the aforesaid terms. Write back of provision for doubtful debts - contention of the assessee is that the quantum of aforesaid claim has been inadvertently computed - HELD THAT - During assessment proceedings the assessee furnished details of write back of doubtful debts along with certificate from Chartered Accountant. We find that in A.Y. 2006-07 2019 (2) TMI 278 - ITAT MUMBAI similar claim made by the assessee was denied by the A.O. The matter travelled to the Tribunal. The Tribunal restored the issue back to the file of A.O - Taking into consideration entire facts, we deem it appropriate to restore this issue back to the file of A.O for re-examination. The Assessing Officer shall also consider the fresh claim made by the assessee before the Tribunal. Interest on Income-tax refund u/s. 244A - It is undisputed that the assessee after finalization of interest amount in proceedings u/s. 154 has not filed revised return of income, nevertheless the assessee in computation of income by way of Note No.2 has mentioned that in case interest amount is reduced or withdrawn, subsequently on completion of assessment the interest chargeable to tax for the year should be considered accordingly. Or in alternate the assessee reserve the right to claim interest withdrawn by the Department as deduction for the total income for the year in which interest is withdrawn. Nevertheless, the powers of the Appellate Tribunal are not impinged to entertain fresh claim made by assessee during appellate proceedings. It is a well settled law that Government cannot charge tax in excess of what is due. Since, assessee has offered to tax excess amount the AO is directed to grant relief on the excess amount offered to tax by the assessee. Disallowance u/s. 14A r.w.r. 8D - No suo- moto disallowance was made by the assessee for earning of exempt income - Contention of the assessee is that own funds of the assessee are much more than the investments, hence, no disallowance u/r.8D(2)(ii) is warranted - HELD THAT - It is no more res-integra that where the assessee has mixed bag of funds comprising of own interest free funds and borrowed interest bearing funds and if, own interest free funds of the assessee are sufficient to cover the investment made, it shall be presumed that the investments are made by the assessee from available interest free funds. Re.HDFC Bank Ltd. 2016 (3) TMI 755 - BOMBAY HIGH COURT . The assessee has substantiated availability of own interest free funds in the form of Share Capital and Reserves Surplus from the Balance Sheet and Funds Flow Statement. In view of the above, disallowance u/r.8D(2)(ii) is directed to be deleted. Disallowance u/s. 8D(2)(iii) - Provisions of Rule 8D would apply from the Assessment Year 2008-09 i.e. the impugned assessment year before us. Prior to Assessment Year 2008-09 disallowance u/s. 14A was made merely on estimations. Hence, the manner of making disallowance prior to Assessment Year 2008-09 would not apply to Assessment Year 2008-09 and thereafter. Hence, we are not in agreement with the first submission of the assessee, therefore, rejected. The second/alternate contention of the assessee is that disallowance be restricted to investments yielding exempt income. The Special Bench in the case of Vireet Investments Pvt.Ltd. 2017 (6) TMI 1124 - ITAT DELHI has held that for the purposes of disallowance u/s. 8D only investments yielding dividend income should be considered. The alternate prayer of the assessee is in line with the principle laid down by Special Bench, hence, we find merit in the alternate prayer made by the ld.Counsel for the assessee. The Assessing Officer is directed to compute disallowance u/r. 8D(2)(iii) on investments yielding exempt income only. Disallowance u/s. 14A r.w.r. 8D while computing book profit u/s. 115JB - HELD THAT - Special Bench in the case of Vireet Investments Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI has held that while computing book profits u/s. 115JB of the Act disallowance made u/s.14A r.w.r. 8D shall not be considered. The Hon ble Karnataka High Court in the case of Sobha Developers Ltd. 2021 (1) TMI 378 - KARNATAKA HIGH COURT has reiterated that disallowance made u/s. 14A could not be added to book profits of assessee u/s.115JB. Nature of expenditure - Expenditure on issue of FCCN Foreign Currency Convertible Bonds - FCCNs issued by the assessee are in the nature of convertible debentures - HELD THAT - We find that identical issue was considered by the Co-ordinate Bench in assessee's own case in Assessment Year 2006-07 2019 (2) TMI 278 - ITAT MUMBAI allowed expenditure on issuance of FCCN as stating whether the debenture issued is convertible or non-convertible, it is in the nature of loan. Therefore, any expenditure incurred in relation to issuance of such debenture is allowable as expenditure. Deduction u/s. 80G - assessee has claimed deduction u/s. 80G of the Act in respect of donation made during the year - HELD THAT - We find that the assessee is having negative income (loss), therefore, there is no occasion for the assessee to claim benefit of deduction u/s. 80G of the Act. Consequently, ground No.7 of the appeal is dismissed as infructuous. Adjustment u/s. 92CA (3) of the Act in respect of export of vehicles - HELD THAT - TPO in respect of product 207-D-31 picked the transaction with one AE i.e. Tata Uganda Ltd. having average FOB of Rs. 257,861 and compared it to a transaction with non-AE Nitol Motors Ltd. with an average FOB of 272670. The Assessing Officer /TPO while cherry picking transactions with AE turn blind eye to the other transactions with Non-AE, where the average FOB is lower and number of units sold is much higher. A perusal of the table would show that the average sale price per unit charged to AEs is higher than the average sale price per unit of comparable uncontrolled transactions. Though, the TPO held that internal CUP is not acceptable but he has not specified what other method he has applied to benchmark the transaction. Similarly, in respect of product 207-4x4-483, the TPO selected the transaction with non-AE where the average price charged is more than price charged from AE ignoring the fact that there are transaction with other non-AEs where the average price charged is less than average price charged from AEs. The TPO further failed to consider the fact that the assessee has sold only two units to the non-AE where the average price charged is more than the average price per unit charged to AEs. Thus, we are in agreement with the ld.Counsel for the assessee that to determine ALP of the transaction average price charged to AEs should have been compared to the average price of the comparable uncontrolled transactions in respect of each product/model of vehicle. TPO has resorted to cherry picking which is unacceptable in making Transfer Pricing adjustment. Thus, the adjustment made in respect of export of vehicles deserves to be deleted. Hence, ground No.8 of appeal is allowed. Adjustment u/s.92CA(3) in respect of transaction with Hispano Carrocera, S.A - HELD THAT - It is an admitted position that as against total assets of Hispano aggregating to Euro 21.95 million the assessee has extended unsecured loans to the tune of Rs. 15 million, which count for more than 51% of the book value of total assets of Hispano. Thus, conditions set out in section 92A(2)(c) are satisfied. A perusal of Form 3CEB at page 70 to 95 of the paper book shows that while disclosing information in Clause 7 Part B i.e. the list of AEs, the assessee has disclosed the name of Hispano Carrocera S.A at Sl.No.7 in Annexure -I and against the column nature of relationship with AE it is mentioned Direct/Indirect participation in capital, control and management . Thus, in view of self declaration made by the assessee in Form-3CEB there is no element of doubt that Hispano is an AE of assessee. Adjustment u/s. 92CA(3) of the Act in respect of interest on loans granted to AE - Assessee submitted that the Contract Rate of Interest with the AEs is more than the base LIBOR/EURIBOR rates - HELD THAT - The assessee has also brought to our attention table at page -16 of the assessment order indicating contracted rate, the base Libor/Euribor rates and the rate applied by the DRP. The assessee has also referred to effective base rates as per European Central Bank. From perusal of aforesaid table prima facie it appears that the rates charged by the assessee from its AEs is higher than the base LIBOR/EURIBOR rates. Similar adjustments were made by the TPO in the preceding Assessment Years, the DRP restricted the rate of interest to LIBOR 200bps. The Tribunal in Assessment Year 2007-08 2019 (5) TMI 15 - ITAT MUMBAI deleted the adjustment and restored the issue back to the file of AO to re-adjudicate the issue after considering submissions of the assessee. We deem it appropriate to restore this issue back to the file of Assessing Officer with similar directions. In the result, ground No.9 of appeal is allowed for statistical purposes. Adjustment u/s. 92CA in respect of purchase of property from Hispano Carrocera - HELD THAT - As it cannot be said that the valuer was oblivious of the encumbrances or has not considered the total value of encumbrances on the said property. The valuer has categorically stated that the total value of encumbrances is to be deducted from the value determined. The assessee has also placed on record Government Agency report on construction and value of property purchased by the assessee from Hispano. A perusal of the said report shows the cost of construction to be applied on the office area and workshop area separately. The assessee has paid net amount of Euro 21.34 million to Hispano after deducting payments made to various parties in discharge of encumbrances. In the absence of any contrary material valuation certificate produced by the assessee from an independent valuer has to be accepted in determination of value of the property. TPO cannot arbitrarily adopt a value without there being any substantive basis. The insurance value possibly could be only of the building and not the land as there was no question of insuring land. Thus we are of the considered view that the TPO erred in adopting insured value of the property. The transfer pricing adjustment cannot be made on adhoc basis. TPO has to apply one of the prescribed method as is notified during the relevant point of time. We see no plausible reason to sustain the addition, hence, the adjustment on account of purchase of property from Hispano is liable to be deleted. We hold and direct accordingly. In the result, ground No.11 of appeal is allowed. Adjustment u/s. 92CA(3) - property leased to Hispano adopting 10% of property as fair annual value - HELD THAT - The recitals of Lease Agreement show that the property has been leased out on monthly rent of Euro 80,000, excluding Value Added Tax charged by the State. The said rent has been calculated at Euro rate of 4% in accordance with stringent market conditions. Thus, in view of specific clause of rent in the lease agreement we observe that the findings of the TPO on this issue are contrary to the facts on record. Hence, the adjustment made on account of notional rent @10% of value of property is unsustainable, accordingly, we direct the TPO/Assessing Officer to delete the same. Short TDS credit - assessee submits that the AO has erred in granting short credit of TDS by Rs. 2.94 crores - HELD THAT - AO is directed to examine TDS in the case of assessee during the relevant period and allow the credit of short amount, if any, in accordance with law. Thus, ground of appeal is allowed for statistical purpose. Levy of interest u/s. 234D is mandatory and consequential, hence, ground of appeal is dismissed being without any merit. Admission of additional ground - Assessment order time barred by limitation, hence, liable to be quashed - HELD THAT - Co- Cordinate Bench in the case of Lanxess India (P) Ltd. 2022 (7) TMI 1532 - ITAT MUMBAI after considering the decision rendered in the case of Vedanta Limited 2020 (1) TMI 168 - MADRAS HIGH COURT dismissed similar ground held that we are inclined to held that procedure of issuing draft assessment order laid down in the section 144C is to be followed with effect from 1-10-2009. In the instant case, though the assessment year involve is 2009-10, the draft assessment order has been issued on 28-3-2013, much after the specified date of 1-10-2009 and therefore we do not find any violation of the law by the Assessing Officer in issuing the draft assessment order on 28-3-2013 and passing of the final assessment order dated 26-2-2014 by the Assessing Officer. Therefore, the final assessment order passed by the Assessing Officer is well within the limitation provided in law. Thus, the additional grounds raised by the assessee are accordingly dismissed.

Summary

Issues Involved:

1. Validity of Order Passed u/s 92CA(3)
2. Allowability of Pro-rata Amount for Leasehold Lands
3. Write Back of Provision for Doubtful Debts
4. Interest on Income-tax Refund u/s 244A
5. Disallowance u/s 14A r.w.r. 8D
6. Disallowance u/s 14A r.w.r. 8D while Computing Book Profit u/s 115JB
7. Expenditure on Issue of FCCN
8. Deduction u/s 80G
9. Adjustment u/s 92CA(3) in Respect of Export of Vehicles
10. Adjustment u/s 92CA(3) in Respect of Transaction with Hispano Carrocera, S.A
11. Adjustment u/s 92CA(3) in Respect of Interest on Loans Granted to AE
12. Adjustment u/s 92CA(3) in Respect of Purchase of Property from Hispano Carrocera
13. Adjustment u/s 92CA(3) in Respect of Notional Interest on Alleged Excess Consideration Paid for Property
14. Adjustment u/s 92CA(3) in Respect of Property Leased to Hispano
15. Short TDS Credit
16. Interest u/s 234D
17. Assessment Order Time Barred by Limitation

Detailed Analysis:

1. Validity of Order Passed u/s 92CA(3):
The assessee challenged the validity of the order passed u/s 92CA(3) by an Additional Commissioner, arguing that the TPO should be a Joint Commissioner, Deputy Commissioner, or Assistant Commissioner as per Explanation to section 92CA. The Tribunal held that the definition of Joint Commissioner includes Additional Commissioner, and thus, the Additional Commissioner can act as TPO. Hence, the order was valid.

2. Allowability of Pro-rata Amount for Leasehold Lands:
The assessee claimed a deduction for the pro-rata amount of leasehold land, which was disallowed by the AO for not being claimed in the return of income. The Tribunal restored the issue to the AO for examining the quantum of the claim, noting that similar claims were allowed in earlier years.

3. Write Back of Provision for Doubtful Debts:
The assessee claimed a write-back of provision for doubtful debts. The Tribunal restored the issue to the AO for re-examination, considering the details provided by the assessee and the fact that similar claims were allowed in earlier years.

4. Interest on Income-tax Refund u/s 244A:
The assessee offered to tax the entire interest u/s 244A initially allowed but later reduced in rectification proceedings. The Tribunal directed the AO to grant relief for the excess amount offered to tax, as the government cannot charge tax in excess of what is due.

5. Disallowance u/s 14A r.w.r. 8D:
The AO made a disallowance under Rule 8D. The Tribunal held that since the assessee had sufficient own funds to cover investments, no disallowance u/r 8D(2)(ii) was warranted. The Tribunal directed the AO to compute disallowance u/r 8D(2)(iii) only on investments yielding exempt income.

6. Disallowance u/s 14A r.w.r. 8D while Computing Book Profit u/s 115JB:
The Tribunal held that disallowance made u/s 14A should not be added to book profits u/s 115JB, following the decision of the Special Bench in Vireet Investments Pvt. Ltd.

7. Expenditure on Issue of FCCN:
The assessee claimed deduction for expenditure on issuing Foreign Currency Convertible Bonds (FCCN). The Tribunal allowed the expenditure, following its earlier decision in the assessee's own case for the preceding assessment year.

8. Deduction u/s 80G:
The assessee claimed deduction u/s 80G. The Tribunal dismissed the ground as infructuous, noting that the assessee had negative income (loss).

9. Adjustment u/s 92CA(3) in Respect of Export of Vehicles:
The TPO made adjustments for transactions with AEs, selecting only certain transactions. The Tribunal found that the TPO's cherry-picking was unacceptable and deleted the adjustment.

10. Adjustment u/s 92CA(3) in Respect of Transaction with Hispano Carrocera, S.A:
The Tribunal first determined that Hispano was an AE of the assessee based on the substantial loans extended, satisfying the conditions of section 92A(2)(c). The Tribunal then addressed specific adjustments related to Hispano.

11. Adjustment u/s 92CA(3) in Respect of Interest on Loans Granted to AE:
The Tribunal restored the issue to the AO for re-adjudication, considering the assessee's claim of internal CUP and the effective base rates.

12. Adjustment u/s 92CA(3) in Respect of Purchase of Property from Hispano Carrocera:
The TPO made an adjustment based on the insured value of the property. The Tribunal deleted the adjustment, accepting the valuation report from an independent valuer and noting that the TPO cannot arbitrarily adopt a value without substantive basis.

13. Adjustment u/s 92CA(3) in Respect of Notional Interest on Alleged Excess Consideration Paid for Property:
This ground was consequential to the adjustment for the purchase of property. Since the Tribunal deleted the primary adjustment, this ground became infructuous and was dismissed.

14. Adjustment u/s 92CA(3) in Respect of Property Leased to Hispano:
The TPO estimated lease value at 10% of the property value. The Tribunal found that the property was leased at a monthly rent as per the lease agreement, and hence, the adjustment was unsustainable and directed its deletion.

15. Short TDS Credit:
The Tribunal directed the AO to examine and allow the credit for any short amount of TDS in accordance with the law.

16. Interest u/s 234D:
The Tribunal noted that the levy of interest u/s 234D is mandatory and consequential, and dismissed the ground as without merit.

17. Assessment Order Time Barred by Limitation:
The assessee challenged the assessment order as time-barred, relying on the decision in Vedanta Limited. The Tribunal dismissed the ground, following the decision of the Division Bench of the Andhra Pradesh High Court in Zuari Cement Ltd., which held that the procedure of issuing a draft assessment order under section 144C is to be followed with effect from 1-10-2009.