2025 (2) TMI 327 - AT - Income Tax

Validity of order of AO passed u/s 143(3) r.w.s. 144C(13) r.w.s. 144B to give effect to the order of DRP u/s 144C(5) - Final assessment order is against the principles of natural justice - denial of Deduction on Income from Other Sources and Capital Gains u/s 80IAB - HELD THAT - We hold that Dispute Resolution Panel has no jurisdiction to consider any other issue where there is no variation proposed in the Draft Assessment Order. In this case since there was no proposed variation in the Draft Assessment Order regarding deduction u/s 80IAB claimed by Assessee the Dispute Resolution Panel was right in rejecting the objection raised by the Assessee on the ground that DRP do not have any jurisdiction since there was no proposed variation. Accordingly the order of Dispute Resolution Panel is upheld on this issue. Accordingly Ground No.7 of the Assessee is dismissed. Deduction for income from other sources and capital gains u/s 80-IAB which was not claimed in the return of income or during assessment proceedings - Without prejudice even otherwise as per Section 80A(5) assessee has to claim deduction under section 80IAB of the Act in the Return of Income. As per section 80AC no deduction under Chapter-VIA shall be allowed unless assessee furnished Return of Income within the due date mentioned under section 139(1) of the Act. In this case admittedly assessee had not claimed deduction u/sec.80IAB for Income from Other Sources and Short-Term Capital Gain. We have already mentioned that assessee had not made any such claim in the Form No.10CCB. In these facts and circumstances of the case assessee was not eligible to make a claim for deduction under section 80IAB for Income from Other Sources and Short Term Capital Gain. Therefore on this ground also the assessee s claim for deduction under section 80IAB for Income from Other Sources and Short Term Capital Gain is not maintainable. TP Adjustment - Embassy Office Parks REIT holds 100% shares of Assessee company. Embassy Office Parks REIT is a Trust. It is claimed that income of Embassy Office Parks REIT is exempt - assessee has bench marked the impugned transaction by using other method - HELD THAT - As observed that the details of the loan compared by the assessee are not available completely. Also the assessee has selected comparables where tenure is from one year to five years only. Therefore these comparables selected by assessee are not appropriate. Also the method adopted is not appropriate. Therefore we agree with the TPO in rejection of the method adopted by the assessee. TPO has compared the State Bank of India overdraft s interest rates which is also inappropriate. The overdraft is always secured whereas assessee s loan is unsecured. Assessee s loan is for a period of 15 years whereas the Overdraft was for a short period. Therefore TPO has erred in considering the SBI Overdraft Interest Rate. In these facts and circumstances of the case since neither assessee nor TPO has done a proper benchmarking analysis. We are of the opinion that a proper benchmarking analysis is required in this case qua interest paid by assessee. Therefore we set-aside the order of the TPO to TPO/AO qua interest paid by assessee to its parent for denovo adjudication. The TPO/AO shall carryout a proper benchmarking analysis qua interest paid by assessee to its parents. We direct the TPO/AO to provide an opportunity of hearing to Assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Tribunal considered the following core legal issues:

1. Whether the final assessment order was against the principles of natural justice due to lack of opportunity for the appellant to be heard.

2. The appropriateness of the method used to determine the arm's length price for interest on borrowings from Embassy Office Parks REIT.

3. The correctness of the computation of book profits under Section 115JB of the Income Tax Act.

4. The eligibility for deduction under Section 80-IAB on income from other sources and capital gains.

5. The levy of interest under Sections 234A, 234B, and 234C of the Income Tax Act.

6. The initiation of penalty proceedings under Section 274 read with Section 270A of the Income Tax Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Natural Justice

The appellant argued that the assessment order was passed without providing an opportunity to be heard, violating the principles of natural justice. The Tribunal did not provide a detailed analysis of this issue, as it was not pleaded by the appellant during the proceedings.

Issue 2: Arm's Length Price for Interest on Borrowings

Legal Framework and Precedents: The dispute revolved around the method used to determine the arm's length price for interest paid on a loan from Embassy Office Parks REIT. The appellant used the 'Other Method' while the TPO used the 'CUP Method' with a reference rate from the State Bank of India.

Court's Interpretation and Reasoning: The Tribunal found that neither the appellant's nor the TPO's methods were appropriate. The appellant's comparables were not suitable due to differences in tenure and security of the loans. The TPO's comparison with a secured overdraft facility was also inappropriate.

Conclusion: The Tribunal set aside the TPO's order and remanded the matter for a fresh benchmarking analysis, instructing the TPO/AO to provide a hearing opportunity to the appellant.

Issue 3: Computation of Book Profits under Section 115JB

This issue was not specifically addressed in detail as the appellant focused on other grounds during the proceedings.

Issue 4: Deduction under Section 80-IAB

Legal Framework and Precedents: The appellant claimed a deduction for income from other sources and capital gains under Section 80-IAB, which was not claimed in the return of income or during assessment proceedings.

Court's Interpretation and Reasoning: The Tribunal upheld the DRP's decision, noting that the DRP lacked jurisdiction to consider issues not proposed as variations in the draft assessment order.

Conclusion: The Tribunal dismissed the appellant's claim, citing lack of jurisdiction and non-compliance with procedural requirements for claiming deductions.

Issue 5: Levy of Interest under Sections 234A, 234B, and 234C

The Tribunal directed the Assessing Officer to verify the appellant's claims regarding interest calculations and to recalculate if necessary.

Issue 6: Penalty Proceedings

This issue was not specifically addressed in detail as the appellant focused on other grounds during the proceedings.

3. SIGNIFICANT HOLDINGS

Core Principles Established:

- The Tribunal emphasized the necessity of proper benchmarking analysis in transfer pricing cases.

- It reinforced the jurisdictional limits of the Dispute Resolution Panel, particularly concerning issues not proposed as variations in draft assessment orders.

Final Determinations:

- The Tribunal allowed the appeal for statistical purposes regarding the arm's length price for interest on borrowings, directing a fresh benchmarking analysis.

- The Tribunal dismissed the appellant's claim for deduction under Section 80-IAB due to procedural non-compliance and jurisdictional limitations.

- The Tribunal set aside issues related to interest calculations for verification and recalculation by the Assessing Officer.

- Other grounds not pleaded were dismissed as not pressed.