2022 (6) TMI 1196 - AT - Income Tax

Validity of assessment order passed u/s. 143(3) r.w.s. 144C(13) read with section 144B - Reference to Dispute Resolution Panel u/s 144C - period of limitation - HELD THAT - As amply clear from section 144C(7) that DRP before issue of any direction referred to in sub-section(5) may make such further enquiry or calls any further enquiry and get the result reported to it. Hence there is no provision in the Act that DRP's direction as contained in section 144C(5) may be subject to any further verification by any Income-tax authority other than giving effect by the AO. Hence the plea that since the TPO gave effect to the DRP's direction subsequent to the DRP's direction cannot in any manner be considered to expand the time limit as prescribed in the Act. Even from this date of TPO's giving effect, the final assessment order is time barred in any case. As already noted by us, Ld. DR's plea that TPO's giving effect to the DRP's direction on 18.02.2022 can be considered as sufficient compliance to the time barring provision contained in section 144C(13) is not legally sustainable. Undoubtedly, in this case, the assessment order has been passed beyond the time limit prescribed u/s. 144C(13) being more than one month after the date of receipt of the directions of the DRP by the AO, as per the information provided in the paper book submitted by the assessee's counsel. The factual veracity of these dates has not been disputed by the Revenue. In this view of the matter, we agree with the contention that the order passed by the AO is void ab initio and liable to be quashed as the final assessment order is time barred. Appeal of assessee allowed.

Issues Involved:
1. Jurisdiction of assessment and limitation period.
2. Addition under the head "any other allowable deduction."
3. Addition on account of international transaction pertaining to interest on outstanding receivables.
4. Initiation of penalty proceedings under section 270A of the Act.

Detailed Analysis:

1. Jurisdiction of Assessment and Limitation Period:
The primary issue raised by the assessee was that the final assessment order dated April 6, 2022, was barred by limitation as it was passed beyond the maximum time limit prescribed under section 144C(13) of the Income-tax Act, 1961. The assessee argued that the order was required to be passed by February 28, 2022, since the DRP's directions were received by the AO on January 27, 2022. The Revenue contended that the TPO's effectuation of the DRP's directions on February 18, 2022, should be considered. However, the Tribunal agreed with the assessee, stating that the scheme of the Act does not involve the TPO in giving effect to the DRP's directions, and the final assessment order was indeed time-barred. Consequently, the assessment order was quashed as void ab initio.

2. Addition under the Head "Any Other Allowable Deduction":
The assessee challenged the addition of INR 19,11,08,847 made by the AO under the head "any other allowable deduction." This included:
- Notional Income on Government Grants (INR 15,30,16,504): The assessee argued that this amount pertains to notional adjustments made due to government grants/custom duty exemption under IND-AS guidelines and should not be included in the taxable income. The DRP erred in stating that depreciation on government grants was credited to the P&L account.
- Notional Income on Security Deposits (INR 47,67,516): The assessee contended that this amount pertains to notional interest income on security deposits, which should be excluded from taxable income as per IND-AS mandate.
- Actual Payment on Lease Rent (INR 2,86,37,817): The assessee argued that this amount pertains to actual lease rent paid, which is an allowable business expense.
- Reversal of Provision for Rent Equalization (INR 46,87,009): The assessee claimed that this amount pertains to the reversal of a provision for rent equalization, which was previously offered to tax, resulting in double addition.

Since the appeal was decided on jurisdictional grounds, these merit-based issues were not adjudicated and were deemed academic.

3. Addition on Account of International Transaction Pertaining to Interest on Outstanding Receivables:
The assessee contested the addition of INR 3,60,744 related to the adjustment in the arm's length price (ALP) of the international transaction concerning interest on outstanding receivables. The assessee argued that:
- Outstanding receivables should not be treated as a separate international transaction.
- The nature of outstanding receivables should not be re-characterized as unsecured loans.
- The company is debt-free, and imputing interest on outstanding receivables is erroneous.
- The weighted average period of realization was below the period agreed under the inter-company agreement.
- If interest needs to be charged, it should consider the average receivable days of comparable companies.

These contentions were also not adjudicated due to the jurisdictional decision.

4. Initiation of Penalty Proceedings under Section 270A:
The assessee also challenged the initiation of penalty proceedings under section 270A. However, this issue was rendered academic due to the quashing of the assessment order on jurisdictional grounds.

Conclusion:
The Tribunal quashed the final assessment order as time-barred under section 144C(13) of the Income-tax Act, 1961. Consequently, the other grounds raised by the assessee were not adjudicated, and the stay application was dismissed as infructuous. The judgment was pronounced on June 16, 2022.

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