2014 (7) TMI 214 - AT - Income Tax

Issuance of notice passed u/s 153C of the Act - Whether the DRP was justified in issuing its directions beyond the time limit specified u/s 144C (12) of the Act and whether the final assessment order passed by the AO u/s 153C of the Act based on the time barred directions of the DRP was tenable in law Held that - The issuance of a notice u/s 153C of the Act was in accordance with and according to intent and purpose of the Act - If there were to be any lacunae in the issuance of such notice u/s 153C of the Act, the provisions of section 292B of the Act will take care of the same - there was no any infirmity in the search proceedings and order made u/s 153C of the Act Decided against Assessee. Validity of reference to TPO No pending assessment on the date of search/requisition - No incriminating material found during search Held that - Since no incriminating materials were found in the course of search/requisition, the AO was not justified in making a reference to the TPO and the transfer pricing adjustment made for assessment years 2003-04 to 2008- 09 are invalid - This contention of the assessee, according to us, is too far-fetched - in view of 2nd proviso to section 153A, normal assessment pending during the proceedings u/s 153A or 153C will abate and only single assessment is to be made both for disclosed and undisclosed income. If the contention of the assessee is accepted, it will lead to absurd situation whereby even reported income in a return of income could not be taxed when the same abate on account of initiation of proceedings u/s 153A or 153C. Such a situation can never be in the contemplation of Legislature and we, out rightly reject the main contention of the assessee - The findings of DRP were not correct as no documents were seized during the search conducted by the Police at the premises of Mr Hisham - Only cash was seized - When an assessment u/s 143(3) has already been made prior to the search proceedings, then such completed proceedings are final and they do not abate - No addition can be made in an assessment u/s 153C in the absence of any incriminating material. What is the scope of assessment or re-assessment of total income u/s 153A (1) (b) and the first proviso Held that - If any books of accounts or other documents relevant to the assessment had not been produced in the course of original assessment and found in the course of search in our humble opinion such books of accounts or other documents have to be taken into account while making assessment or reassessment of total income under the aforesaid provision - as per the Circular No.3 of 2012 dated 12.6.2012 which was the supplementary memorandum explaining the Official amendments moved in the Finance Bill, 2012 as reflected in the Finance Act, 2012, it has been made explicit that The date of effectivity of the provision mentioned in clause 63 of the Finance Bill, 2012 and the Notes on clauses (clause 60) thereof is 1st April, 2009, i.e., the provision would apply to all cases filed before the DRP on or after 1st April, 2009, irrespective of the assessment year - the DRP was within its domain and also justified in exercising the powers conferred under Explanation to s. 144C (8) of the Act - the DRP has no power to treat transactions in respect of which either no adjustment was proposed by the learned TPO or such transaction does not form part of the report u/s 92E - in view of Explanation to s. 144C(8), it is clear that DRP is empowered to take cognizance of any new issue which comes to the notice of the panel during the course of proceedings before it Decided in favour of Revenue. Jurisdiction of the DRP in considering new grounds Held that - The expenditure on AMP was not part of report by the assessee in its 3CEB report - When the issue of expenditure on AMP brought to the notice of DRP, in its fairness, the DRP directed the TPO to look into the issue and submit a report, on the basis of which, the TPO had determined the ALP on AMP expenditure too - Such being the situation, the assessee cannot take a stand that the view expressed by the TPO on a specific direction by the DRP, would amount to review - the non-declaration of AMP expenditure in 3CEB report of the assessee and subsequent difference/grievance with the AO/DRP, the determination of ALP on AMP expenditure on remand from the DRP by the TPO, in our view, was within the sphere of s. 92CA of the Act Decided against Assessee. Order u/s 153C of the Act was barred by time as per section 153B of the Act Held that - Section 153B lays down the time-limit for making an assessment order u/s 153C of the Act. The search was conducted at the premises of Tamiz on 5.8.2008 - The last of the authorization for requisition was executed during August 2008 - the only asset that has been seized was cash of ₹ 9.7 crores - During the course of assessment proceedings u/s 153C, a reference u/s 92CA (1) was made - an order u/s 92CA was passed on 31.10.2011 - the applicable provision which deals with the time-limit for making an assessment order u/s 153C was the fifth proviso to s. 153B(1) prior to its amendment by Finance Act, 2012. Section 144C (13) has been amended by Finance Act, 2012 to provide that the notwithstanding effect shall extend to s. 153B - The extended period of limitation is applicable only to those cases where the normal period of limitation u/s 153B to make assessment u/s 153C has not expired on the date on which the Finance Act, 2012 received the President s assent. The Finance Act, 2012 received the President s assent on 28.5.2012 - the period of limitation to pass an order u/s 153C had already expired on 31.12.2011 which was much earlier to the date on which the Finance Act, 2012 received the President s assent and, hence, the re-assessment orders u/s 153C were barred by limitation. Relying upon S.S. Gadgil v. Lal & Co 1964 (4) TMI 19 - SUPREME Court - the time within which notice could be issued against a person deemed to be an agent of a non-resident was extended to two years from the end of the assessment year - Now the notice issued on 27th March, 1957 was clearly within a period of two years from the end of the AY 1954-55 and if the amended provision applied, the notice would be a valid notice - the notice was not a valid notice inasmuch as the right of the ITO to re-open the assessment of the assessee under the un-amended provision became barred on 31st March, 1956, and the amended provision did not operate against him so as to authorise the ITO to commence proceedings for re-opening the assessment of the assessee in a case where before the amended provision came into force, the proceedings had become barred under the amended provision. It was intended to make the amendment to remove any omission or flaws in the Statute and as such, it was neither clarificatory nor procedural in nature - there was no trace of any mention in the Memorandum to illustrate that it applies to objection/application filed on or after 1.10.2009 - the time-limit to pass the orders u/s 153C r.w.s. 153B of the Act has expired on 31.12.2011 itself and that the Finance Act, 2012 received the President s nod (assent) only on 28.5.2012 - the re-assessments orders passed u/s 153C of the Act on 29.10.2012 were barred by limitation - the re-assessment orders for all the AY is to be set aside Decided in favor of Assessee.

Summary

Issues Involved:
1. Jurisdiction of the DRP in issuing directions beyond the time limit specified under section 144C(12).
2. Validity of search proceedings and order under section 153C.
3. Validity of reference to TPO when the assessment was no more pending as on the date of search/requisition and no incriminating material was found during the search.
4. Jurisdiction of the DRP in considering new grounds.
5. DRP exceeding its jurisdiction by issuing directions in respect of AMP Expenditure.
6. Whether the order under section 153C was barred by time as per section 153B.

Detailed Analysis:

1. Jurisdiction of the DRP in Issuing Directions Beyond the Time Limit Specified Under Section 144C(12):
The main contention was whether the DRP issued its directions within the time limit specified under section 144C(12). The assessee argued that the directions were issued beyond the nine-month period, making them invalid. The DRP's directions were dated 16.08.2012 but dispatched to the AO on 04.09.2012 and received on 06.09.2012. The Tribunal held that the DRP had lost control over its directions once they were dispatched to the assessee on 30.08.2012, within the nine-month period. Therefore, the directions were considered issued within the time limit, and the final assessment order was tenable in law. This ground was dismissed.

2. Validity of Search Proceedings and Order Under Section 153C:
The assessee contended that the order under section 153C was invalid due to the lack of requisite conditions such as satisfaction notes and proper handing over of seized cash. The Tribunal found that the cash belonged to the assessee, as confirmed by statements from relevant parties. Since the AO for both the searched person and the assessee was the same, the requirement to hand over the seized material did not apply. The Tribunal upheld the validity of the search proceedings and the order under section 153C, dismissing this ground.

3. Validity of Reference to TPO When the Assessment Was No More Pending as on the Date of Search/Requisition and No Incriminating Material Was Found During the Search:
The assessee argued that the reference to the TPO was invalid as no incriminating material was found during the search. The Tribunal noted that with the introduction of sections 153A, 153B, 153C, and 153D, the assessments could be reopened irrespective of the presence of incriminating material. However, for assessment years 2003-04 to 2006-07, the Tribunal held that the assessments were to be restricted to incriminating material found during the search, as these assessments had attained finality before the search. Consequently, the assessments for these years were quashed. This ground was partly allowed.

4. Jurisdiction of the DRP in Considering New Grounds:
The assessee contended that the DRP was not justified in considering new grounds and remanding the issue of AMP expenditure to the TPO. The Tribunal held that the DRP had the power to consider any matter arising out of the assessment proceedings relating to the draft order, including new issues. This power was conferred by the Explanation to section 144C(8), which was applicable retrospectively from 01.04.2009. Therefore, this ground was dismissed.

5. DRP Exceeding Its Jurisdiction by Issuing Directions in Respect of AMP Expenditure:
The assessee argued that the DRP exceeded its jurisdiction by issuing directions on AMP expenditure, which was not part of the TPO's order. The Tribunal found that the DRP had the power to consider any new issue arising during the proceedings, as clarified by the Explanation to section 144C(8). The Tribunal upheld the DRP's directions on AMP expenditure, dismissing this ground.

6. Whether the Order Under Section 153C Was Barred by Time as per Section 153B:
The assessee argued that the order under section 153C was barred by limitation as it was passed beyond the period specified under section 153B. The Tribunal noted that the period of limitation for making an assessment under section 153C was thirty-three months from the end of the financial year in which the last of the authorizations for search was executed or twenty-one months from the end of the financial year in which the assets were handed over, whichever was later. The Tribunal found that the order was passed beyond this period, making it time-barred. This ground was allowed.

Conclusion:
The Tribunal quashed the assessments for the assessment years 2003-04 to 2008-09, as certain jurisdictional aspects were decided in favor of the assessee. Consequently, the issues raised on merits were not adjudicated. The final decision on the grounds was as follows:
1. Ground No. III (1): Dismissed
2. Ground No. II (1): Dismissed
3. Ground No. XVI: Partly Allowed
4. Ground No. V (2): Dismissed
5. Ground No. V (1): Dismissed
6. Ground No. III (2) & (3): Allowed