2017 (12) TMI 985 - AT - Income Tax

Validity of assessment - requirements of eligible assessee as contemplated u/s. 144C(1) - Held that - If an assessee does not fulfill the condition of eligible assessee then Draft Assessment Order is to be quashed. From the conditions, as contemplated under clause (15), it is evident from the use of word and that both the conditions have to be fulfilled. Admittedly, in the present case, no adjustment has been proposed by Id. TPO and, therefore, assessee did not fulfill the condition of eligible assessee as contemplated u/s. 144C(15)(b). Therefore, the draft assessment order is to be quashed. Further, we find from the directions of the Tribunal that the matter had been restored back only to the Assessing Officer on the issue relating to section 14A and, therefore, there was no requirement of making any reference to the TPO. In the second round of proceedings, the Assessing Officer was required to pass the assessment order within the limitation prescribed u/s. 153. On this count the contention of assessee is that Assessment Order should have been passed under section 153(2A). This plea cannot be accepted because Assessing Officer was only required to give effect to the finding and direction of Tribunal and, therefore could pass order at any time. Under such circumstances, the assessment order passed by the Assessing Officer cannot be held to be barred by limitation and, accordingly, is to be upheld in the eyes of law. Addition u/s 14A - Held that - We find that Assessing Officer has, inter alia, observed in paras 7.1 and 7.2 that in terms of the decisions of Hon ble Bombay High court in the case of Godrej & Boyce Manufacturing Ltd. v. Dy. CIT 2010 (8) TMI 77 - BOMBAY HIGH COURT even in the remand proceedings the assessee failed to furnish any corroborative evidence to show how investments were made by it and through which funds. Therefore, in the absence of discharge of onus the expenditure had to be disallowed. From the above it is evident that proportionate disallowance is to be made for earning exempt income. We, accordingly confirm the findings of Assessing Officer.

Summary

Issues Involved:
1. Eligibility of the assessee under Section 144C of the Income-tax Act, 1961.
2. Limitation period for passing the assessment order.
3. Disallowance under Section 14A of the Income-tax Act, 1961.

Detailed Analysis:

1. Eligibility of the Assessee under Section 144C:
The assessee argued that it was not an "eligible assessee" as defined under Section 144C(15)(b) of the Income-tax Act, 1961, because the Transfer Pricing Officer (TPO) had not issued an order under Section 92CA(3). The Dispute Resolution Panel (DRP) rejected this objection, stating that the term "eligible assessee" includes any foreign company. However, the Tribunal referred to the decision of the Hon’ble Delhi High Court in the case of Honda Cars India Ltd. v. Dy. CIT, which held that both conditions under Section 144C(15)(b) must be fulfilled for an assessee to be considered "eligible." Since the TPO did not propose any variation to the returned income, the assessee did not meet the criteria of an "eligible assessee." Consequently, the draft assessment order was quashed.

2. Limitation Period for Passing the Assessment Order:
The assessee contended that the assessment order should have been passed by 31st March 2012, as per the limitation prescribed under Section 153(2A). The Tribunal noted that the Assessing Officer (AO) was required to give effect to the Tribunal's earlier order and could pass the order at any time, as supported by the decision of the Hon’ble Delhi High Court in Basu Distributors (P.) Ltd. v. ITO. Therefore, the assessment order was not barred by limitation and was upheld.

3. Disallowance under Section 14A:
The assessee claimed that no direct expenditure was incurred in earning interest from HUDCO Tax-Free Bonds, as investments were made from free reserves in earlier years. The AO made a disallowance under Section 14A, which was confirmed by the DRP. The Tribunal observed that the assessee failed to furnish separate accounts for exempt and non-exempt income or any evidence to prove that investments in HUDCO Bonds were made from non-interest-bearing funds. The AO noted that funds once brought into the business lose their identity, and even if assumed to be from capital/free reserves, borrowing becomes inevitable, incurring interest costs. The Tribunal upheld the proportionate disallowance for earning exempt income, confirming the AO's findings.

Conclusion:
The appeals filed by the assessee were dismissed, with the Tribunal quashing the draft assessment order due to non-fulfillment of eligibility criteria under Section 144C, upholding the assessment order as not barred by limitation, and confirming the disallowance under Section 14A for earning exempt income.