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TMI Blog2017 (12) TMI 985X X X X Extracts X X X X X X X X Extracts X X X X ..... ranch Offices, Representative Offices, Subsidiary and subsidiary branches) all around the world. The assessee filed its return of income for the three assessment years under consideration as under:- Assessment year Returned Income 2003-04 Rs. 4,50,81,340/-. 2004-05 Rs. 4,99,31,010/-. 2005-06 Rs. 24,71,640/- 4. For all the three years under consideration, the assessment was completed u/s. 143(3). 5. In all the three years under consideration, the assessee earned interest from HUDCO Tax Free Bonds on account of investment. The assessee claimed that no direct expenditure was incurred in earning the said income because investments in these bonds had been made in earlier years out of free reserves. Thus, no disallowance had been made u/s. 14A by assessee. The Assessing Officer had made disallowance u/s. 14A which was confirmed by Id. DRP in all the three assessment years under consideration. Thereafter, the assessee preferred appeal before the ITAT and the Tribunal vide its order dated 19.11.2010 restored the matter back to the file of the Assessing Officer after, inter alia, making following observations :- "2.2 The matter was carried in appeal. The learned CIT (A) passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's objection was rejected observing that section 144C(15)(b) also means any foreign company. The second reason for denying the assessee's claim was that since assessee had filed objection u/s. 144C and had not raised any such objection that it is not an eligible assessee in the first round of the proceedings, therefore, now the assessee was estopped by his own conduct to raise this objection. On merits, Id. DRP, inter alia, observed that the assessee having failed to discharge its onus u/s. 14A of the Act and conclusively establish as to which of these funds were deployed in tax free investments, it had to be concluded that there was no legal or accounting basis for assessee's contentions and, accordingly, Assessing Officer passed the assessment order on 27.11.2015 (for assessment year 2003-04) and 19.11.2015 (for assessment years 2004-05 and 2005-06) giving effect to the directions of Id. DRP. Being aggrieved with the said orders, assessee has filed appeal before the Tribunal. 9. For the sake of brevity, we will take up facts obtaining in assessment year 2003-04 as the issues are common in all the three assessment years. The grounds of appeal for assessment year 2003-04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h circumstances disallowance of proportionate amount of interest expenditure made u/s. 14A is uncalled for. Such disallowance is required to be deleted. 8. That the assessee has placed on record source of funds for making investment of Rs. 2.00 crores in HUDCO Bonds for a term of seven years. The Assessing Officer has not considered the same at the time of issuing this assessment order dated 27.11.2015. This is bad in law and not called for. (9) That no opportunity was provided by Hon'ble DRP - 1 to rebut the ratio of Hon'ble Bombay Tribunal decision in case of HDFC Bank Ltd. v. DCIT Dt 29.09.2015, as the said decision was not cited by revenue but suo motu by Hon'ble DRP without confronting. (10) That the ld Assessing Officer has made disallowance of proportionate amount of interest amounted to Rs. 7,52,495/- without considering the fact that the assessee invested its own interest free funds for purchase of HUDCO Bonds of Rs. 2.00 crores. Hence such disallowance of proportionate amount of interest expenditure u/s. 14A is uncalled for. This disallowance is required to be deleted. (11) That before making disallowance of proportionate amount of interest u/s. 14A of the Act, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; ** (b) "eligible assessee" means,- (i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and (ii) any foreign company." 12. He, therefore, submitted that draft assessment order can be passed only in case of eligible assessee and eligible assessee means any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of Id. TPO u/s. 92CA(3) and it should be case of foreign company. Ld. counsel pointed out that both the conditions are cumulative and merely because the assessee is a foreign company does not meet the requirements of eligible assessee as contemplated u/s. 144C(1). Ld. counsel further submitted that assessment order passed by the Assessing Officer in pursuance to the direction of ld. DRP also cannot be sustained on the ground of limitation also because the Assessing Officer should have given effect to the Tribunal's order by 31st March, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the above two categories. 12. First of all, the petitioner is admittedly not a foreign Company. Secondly, the Transfer Pricing Officer has not proposed any variation to the return filed by the petitioner. The consequence of this is that the Assessing Officer cannot propose an order of assessment that is at variance in the income or loss return. The Transfer Pricing Officer has accepted the return filed by the petitioner. In view of the which, neither of the two conditions are satisfied in the case of the petitioner and thus the petitioner for the purposes of Section 144C(15)(b) is not an "eligible assessee ". Since the petitioner is not an eligible assessee in terms of Section 144C(15)(b), no draft order can be passed in the case of the petitioner under Section 144C(1)." 15. Thus, in the aforementioned case, the Hon'ble High Court has not considered whether cumulative conditions have to be fulfilled as contemplated u/s. 144C(15)(b) or only one condition is to be fulfilled for invoking the provisions of section 144C. However, it has been held that if an assessee does not fulfil the condition of eligible assessee then Draft Assessment Order is to be quashed. From the conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment on February 28, 2005, overruling the objections stating (i) that the Tribunal had set aside the assessment partly limited to the question of payments made under section 40A(3) only and the case did not fall within the purview of section 153(2A) and (ii) that the departmental appeal relevant to assessment year 1992-93 was decided on November 25, 2003. On a writ petition : Held, dismissing the petition, that according to the assessee, it had not violated the provisions of section 40A(3) since no expenditure exceeding rupees twenty thousand had been incurred in cash but by effecting entries in the books of account and hence they were as undisputable as payments made by account payee cheques or account payee bank draft. It was only on this restricted aspect of the assessment that the Tribunal had remanded the case to the Assessing Officer. The entire assessment exercise had not been undertaken de novo and hence section 153(2A) was not attracted in the facts of the case; no period of limitation is prescribed as per the provisions of section 153(3)(ii)." 16. Under such circumstances, the assessment order passed by the Assessing Officer cannot be held to be barred by limitation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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