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TMI Blog2015 (7) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... issue relating to Technical knowhow payment and restore the same to the file of the AO/TPO for fresh consideration. Addition made u/s 145A - adjustment of closing stock value with Excise duty amount - Held that:- the provisions of sec. 145A mandates that the value of purchase and sale of goods and inventory shall be adjusted to include the amount of tax, duty, cess or fee actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Hence, for the purposes of Income tax, an assessee is required to follow only inclusive method of accounting the tax, duty etc. In the instant case, we notice that the AO has adjusted the value of closing stock only, to include the amount of tax, duty etc., where as the provisions of sec. 145A requires that the value of purchases and sales should also be adjusted to include the amount of tax, duty etc. Thus, the action of the AO, which was approved by Ld CIT(A), was not in accordance with the mandate of the provisions of sec. 145A of the Act. Compliance of provisions of sec. 145A in part only, would give misleading result. Accordingly, we set aside the order of Ld CIT(A) on this i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006-07. All these appeals were heard together and hence they are being disposed of by this common order, for the sake of convenience. 2. We shall take up the appeal filed for AY 2004-05. The assessee company is engaged in the business of manufacture and sale of chemicals. Along with the return of income filed for AY 2004-05, the assessee also filed Transfer pricing study report in Form 3CEB, wherein it was reported that the assessee has entered into international transaction in the form of payment of Royalty amount of ₹ 5.76 crores and technical knowhow amount of ₹ 0.79 crores. Hence the AO referred the matter of determination of Arms Length Price (ALP) to the Transfer Pricing Officer (TPO). 3. Before TPO, the assessee relied upon Technical Assistance Agreement entered by the assessee with its AE Perstorp AB Sweden entered on 03-02-1998 and further submitted that the impugned payments have been approved by RBI. The TPO asked the assessee to furnish details like, Basis of the royalty payment, working of royalty, cost incurred by the owner towards the royalty and whether any other AE is paying royalty. However, the assessee did not furnish any of the details that w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of remittance of TDS during the year under consideration. There should not be any dispute that the reference to the Transfer Pricing Officer is part of assessment proceedings and as per the provisions of sec. 92CA of the Act, the AO may refer the matter of determination of ALP of international transaction to the Transfer pricing officer, with the previous approval of Commissioner, if he considers it necessary or expedient so to do. Since the provisions of sec. 92CA are part of assessment procedure, we are of the view that the international transaction referred to in sec. 92CA shall refer only to the international transaction, which was entered during the year relevant to the assessment year which is before the AO. Accordingly, we are of the view that the AO cannot refer the international transactions that were carried on in any of the past years, whose assessments have already been completed. 8. Further, there is no dispute with regard to the fact that the above said royalty amount of ₹ 5.76 crores pertained to the period from Sep. 1998 to March, 2002. Hence the said payment does not pertain to the international transaction entered during the year under conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls. In the preceding paragraph, we have rejected the contentions of the assessee and hence the ALP of the technical knowhow payment is required to be determined as per the provisions of the Act. Accordingly, we are of the view that the issue relating to the determination of ALP of Technical knowhow payment requires fresh examination. Accordingly, we set aside the decision rendered by the Ld CIT(A) in respect of the issue relating to Technical knowhow payment and restore the same to the file of the AO/TPO for fresh consideration. 12. We shall now take up the appeal filed for AY 2005-06, wherein following issues arise for our consideration:- (a) Addition made u/s 145A of the Act on account of adjustment of closing stock value with Excise duty amount. (b) T.P. adjustment of Royalty amount. 13. The first issue relates to the addition made by the AO u/s 145A of the Act. The assessee has followed Exclusive method of accounting for Excise duty and hence the closing stock value declared in the Profit and loss account did not include the value of Excise duty. Hence the AO enhanced the value of closing stock by the amount of duty related to it. The Ld CIT(A) also confirmed the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the AO that both the inclusive method and exclusive method give same financial result. 17. The next issue relates to the T.P adjustment of Royalty payment. Since the assessee failed to furnish the details that were called for by the TPO, he determined the ALP of royalty payment as NIL. 18. The Ld A.R submitted that the assessee ultimately did not pay the royalty amount and accordingly reversed the same in the financial year relevant to AY 2006-07. Accordingly it was submitted that the international transaction has resulted into a fiscal nullity and accordingly it was contended that there was no requirement of determining ALP. In our view, any future event should not influence the current transaction. Even the accounting standards provide that the contingencies and events taking place in the subsequent period could be recognized only if it is ascertained before the finalization of accounts and further the controversy relating to the said contingency or event should be subsisting as on the date of preparation of the financial statements. In the instant case, it was not shown to us that both the conditions have been fulfilled. In fact, had it known to the assessee that it need ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, we set aside the decision rendered by the Ld CIT(A) in respect of this issue and restore the same to the file of the AO/TPO for fresh consideration in accordance with the law. 20. We shall now take up the appeal filed for AY 2006-07, where in following issues are urged by the assessee:- (a) Validity of assessment order passed by the AO. (b) T.P. adjustment made u/s 92CA(3) of the Act. (c) Additions made u/s 145A of the Act. (d) Interest charged u/s 234B and 234C of the Act. (e) Validity of initiation of penalty proceedings u/s 271(1)(c) of the Act. 21. The first issue relates to the validity of the assessment order passed by the assessing officer. The assessment order for AY 2006-07 has been passed by the AO on 30-12-2009 and in that order; the AO has made addition proposed by the TPO. The Ld A.R submitted that the provisions of sec. 144C (1) is attracted in the case of eligible assesses , if the assessing officer, after 1st day of October 2009, proposes to make any variation in the income or loss returned by the eligible assessee. The Ld A.R submitted that the expression Eligible assessee is defined in sec. 144C(15)(b) of the Act, according to which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er s action in not following the procedures prescribed in sec. 144C of the Act cannot be found fault with, since the same is in accordance with the view expressed by the CBDT, whose circulars and instructions are binding upon the AO. The Ld D.R further submitted that the AO has assumed the jurisdiction for the assessment year under consideration in a valid manner and hence noncompliance with the procedure prescribed in sec. 144C would not make the assessment order a nullity. In this regard, he placed reliance on the decisions rendered by the Hon ble Supreme Court in the cases of Guduthur Bros Vs. ITO (1960)(40 ITR 298)(SC) and Kapurchand Shrimal Vs. CIT (131 ITR 451). 23. We heard the parties on this legal issue. The year under consideration is AY 2006-07 and the assessee filed its return of income o 30-11-2006. Hence the AO should have initiated assessment proceedings by 30-11-2007 by issuing notice u/s 143(2) of the Act. The AO made a reference to the T.P.O on 7.7.2008 and the T.P.O passed the order u/s 92CA(3) of the Act on 21.10.2009, i.e. after expiry of 15 months from the date of reference. 24. In the mean time, the Finance (No.2) Act, 2009 received the assent of the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alized his mistake and accordingly issued a Corrigendum on 15th April, 2013 modifying the assessment order passed on 26-03-2013 and stated that the assessment order passed on 26-03-2013 should be read as Draft assessment order purported to have been passed u/s 144C of the Act. It is also pertinent to note that the Corrigendum was issued after the expiry of limitation period prescribed in sec. 153 of the Act. Thus, it is seen that the assessing officer was very much sure about the applicability of provisions of sec. 144C and hence he issued a Corrigendum, which the Hon ble High Court of Madras has held that the mistake committed by the AO is not curable. Even otherwise, it can be seen that the AO has issued corrigendum after the expiry of limitation period prescribed u/s 153 of the Act for completion of the assessment. Once the assessment order is passed, the assessing officer shall become functus officio and hence he could not have issued Corrigendum. 27. On the contrary, in the instant case, the AO has passed the final assessment order on 30-12-2009 on a bonafide belief that the provisions of sec. 144C shall apply from AY 2010-11 onwards and hence there was no attempt on his pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No express remand for this purpose, as is contended, was necessary. Our attention was drawn to a decision of a learned single judge of the Kerala High Court reported in Jos Chacko Poothokaran v. Income-tax Officer, Ernakulam Circle, in which, in similar circumstances, it has been held that since an appeal was not taken by the Commissioner of Income-tax to the Appellate Tribunal under sub-section (2) of section 33, the order of the Appellate Assistant Commissioner became final and the Income-tax Officer could no longer proceed to reassess the penalty. The reason given is, in our opinion, beside the point. What the Appellate Assistant Commissioner did was to vacate the order and direct refund of the penalty in view of an illegality which had occurred during the course of the assessment proceedings. On receipt of the record it was open to the Income-tax officer to take up the matter from the point at which the illegality supervened and to correct his proceedings. It was pointed out in the course of the statement of the case by the appellants that such proceedings could only be taken during the course of assessment proceedings and those proceedings are concluded. In our opinion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd record a finding thereon. If no such finding is recorded, sub-s. (3) of s. 25A of the Act becomes clearly attracted. When a claim is made in time and the assessment is made on the HUF without holding an inquiry as contemplated by s.25A(1), the assessment is, liable to be set aside in appeal as it is in clear violation of the procedure prescribed for that purpose. The Tribunal was, therefore, right in holding that the assessments in question were liable to be set aside as there was no compliance with s. 25A(1) of the Act. It is, however, difficult to agree with the submission made on behalf of the assessee that the duty of the Tribunal ends with making a declaration that the assessments are illegal and it has no duty to issue any further direction. It is well known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh unless forbidden from doing so by the statute. The statute does not say that such a direction cannot be issued by the appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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