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TMI Blog2021 (9) TMI 1399X X X X Extracts X X X X X X X X Extracts X X X X ..... [ 2021 (2) TMI 1152 - MADRAS HIGH COURT] has been followed, we hold that the order passed by the TPO is time barred and hence, is not legally sustainable. We note that no contrary order of Hon'ble Jurisdictional High Court has been cited before us in this regard. - Decided in favour of assessee. - I.T.A. No. 899/Mum/2018 - - - Dated:- 22-9-2021 - Shri Shamim Yahya (AM) Shri Pavankumar Gadale (JM) Assessee by : Shri Madhur Agrawal Department by : Shri Sunil Deshpande O R D E R Per Shamim Yahya (AM) :- This appeal by the assessee is directed against the direction of learned CIT(A) under section 144C(5) of the I.T. Act dated 29.9.2017 pertaining to assessment year (A.Y.) 2013-14. 2. Grounds of appeal read as under : Each of the following grounds are independent of, and without prejudice to one another: The learned Assistant Commissioner of Income-tax-3(1)(2), Mumbai (hereinafter referred to as 'the AO') while passing the order dated 28.11.2017 under section 143(3) r.w.s. 144C(13) of the Income Tax Act, (hereinafter referred to as 'the Act') in pursuance of directions of Hon'ble Dispute Resolution Panel (WZ), Mumbai ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngth price computed by the Appellant. d. Based on Ike facts and circumstances of the case and in law, the learned TPO erred and the Hon'ble DRP further erred in upholding / confirming the action of the TPO in disregarding the approach adopted by the learned AO in respect of subject transactions in the assessment proceedings for AY 2012- 13 and prior years, although the facts were the same in AY 2012-13 and prior years, thereby disregarding the principles of Ground No.2 - Adjustment in respect of Purchase of Bonds Purchase of 9.15% Axis Bank Limited Bond 1) On the facts and in the circumstances of the case and in law, the TPO erred and the Hon'ble DRP further erred in determining the arm's length price for the purchase of 170 units of 9.15% Axis Bond (maturity date 31 December 2022) on 27 February 2013 from an AE at Rs. 17,12,05,640 instead of the transaction price of Rs 17,21,96,280 thereby making an arbitrary adjustment of Rs. 9,90,640. 2) On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in upholding/confirming the action of the learned TPO in disregarding the benchmarking analysis conducted by the Appellant conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es interest payment was certain but merely linked to the performance of underlying nifty index. 10) On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in ignoring that the Appellant's contention that it has recovered the interest cost paid on structured loans by back to back hedging the funds raised through structured loans. 11) On the facts and in the circumstances of the case and in law, the TPO erred and the Hon'ble DRP further erred in challenging and disregarding the business prudence and commercial expediency of the Appellant in entering into structure loan transaction. Ground No.4 - Adjustment on account of Rating Support Fees a. Based on the facts and circumstances of the case and in law, the TPO erred in determining the arm's length price for the rating support services availed from the AE at Rs.NIL and the Hon'ble DRP erred in determining the arm's length price for the rating support services availed from the AE at Rs.12,86,00,000 out of the total compensation of Rs.31,53,00,000 thereby making an adjustment of Rs. 18,67,00,000. b. Based on the facts and circumstances of the case and in law, the TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rising on trading in derivative instruments as ascertained loss due to movement in prices of derivative securities between contract date and Balance Sheet date. Accordingly, the same shall be allowed as deductible business loss. Hence, the Appellant submits that the disallowance shall be deleted. Ground No.6 - Disallowance under Sec 14A r.w. Rule 8D a. The AO erred in making the disallowance of Rs. 73,953,997 u/s 14A of the Act r.w. Rule 8D of the Income Tax Rules, 1962 (hereinafter referred to as 'the Rules') against Rs.4,85,961 suo motto disallowed by your appellant in the return of income filed. Your Appellant submits that it has not incurred any expenditure in excess of Rs.4,85,961/- towards earning exempt income; hence, AO shall be directed to restrict the disallowance to Rs. 4,85,961/-. b. The AO erred in invoking rule 8D of the Rules without recording his dissatisfaction with respect to accounts of the Appellant. c. In alternative and without prejudice to the above, the AO erred in not considering the net interest for calculating disallowance as per Rule 8D(2)(ii) of the I.T. Rules. d. In the alternative and without prejudice to the above, disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue. In this regard the assessee has relied upon various case laws including that from National Thermal Power Corporation Vs. CIT (229 ITR 383) for admission of additional ground. In this connection learned Counsel of the assessee has furnished a chart stating various limitations as per section 153 of the Act alongwith the facts of the present case. Sr. No Dates Particulars 1 29/11/2013 Return of income filed u/s 139(1) of the Act 2 5/9/2014 Notice u/s 143(2) of the Act issued 3 31/3/2015 Revised return of income filed u/s 139(4) of the Act 4 19/1/2016 Reference u/s 92CA(1) of the Act made to Transfer Pricing Officer (TPO) 5 31/12/ 2015 Time Limit u/s 153(1) of the Act for passing order expires (if no reference made to TPO) [21 Months from the end of assessment year in which income was first assessable i.e. 9 months in 2014 + 12 months in 2015] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44 of their order respectively. Assessee has entered into a Memorandum of Understanding (MOU) dated 16/04/2012 with its holding company namely Edelweiss Financial Services Limited (EFSL). It has been agreed that assessee will avail the benefit of financial strength of consolidated financial statement of EFSL in obtaining credit rating from various credit rating agencies which will help the assessee to borrow the funds from banking and non-banking sources at cheaper interest rate as compared to borrowing on the basis of its standalone financial statement. The amount for which rating support is to be availed by the assessee has been mutually decided at Rs. 4,204 Crores. It was also decided that the assessee shall pay a fees @ 0.75% on Rs. 4,204 Crores being the amount for which rating support is to be availed by the assessee. Thus, the assessee paid Rs. 31.53 Crores as rating support fees to EFSL. The Arm's Length Price (ALP) of the above transactions has been bench marked using any other method as Most Appropriate Method (MAM) in transfer pricing study report. The Transfer Pricing Officer (TPO) vide his order dated 1/11/2016 passed u/s 92CA(3) of the Act has computed the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been given to the assessee @ 11.50% using the credit rating on the basis of consolidated financial statements of EFSL [refer page 361 of paper book]. The assessee has received benefit in the range of 2.25% to 2.74% on entire borrowing from the banks, on issue of commercial papers, on issue of debentures and on issue of various other structured products. Therefore, payment of credit rating support @ 0.75% may be allowed. - Furthermore, the assessee has borrowed Rs. 5,217 Crores whereas the rating support fees is paid on Rs. 4,204 Crores as agreed in MOU. In the alternative and without prejudice to the above, the assessee submits that if at all Your Honour come to conclusion that rating support fees is to be allowed @ 0.50% only, then the assessee request your honors to apply the said rate on entire borrowing of Rs. 5,217 Crores as the assessee could borrow to such extent with cheaper rate solely on the basis of consolidated financial statements of EFSL. Grounds of appeal no 3; adjustment on account of interest paid on structured loan: This issue has been discussed by the TPO and DRP at page 62 to 67 and 52 to 56 of their order respectively. The assessee issued Nifty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscussed by the TPO and DRP at page 60 to 62 and 42 to 44 of their order respectively. The assessee bought 9.15% Axis Bank Limited 31.12.2022 Bond from its AE, M/s. Edelweiss Finance Investment Limited (EFIL). Allegedly, the same bond was bought by EFIL from Kotak Mahindra Bank on same day. The difference in price at which bonds were bought by assessee from EFIL and EFIL bought from Kotak Mahindra Bank has been added to the returned income of the assessee. Transaction is tabulated as under: Sr. No No of bonds Price at which assessee bought from EFIL Price at which EFIL bought from Kotak Adjustments 27/02/2013 80 Bonds 9,12,44,520 9,06,38,280 6,06,240 27/02/2013 90 Bonds 8,09,51,760 8,05,67,360 3,84,400 Total adjustment made 9,90,640 Adjustment has been upheld by the DRP. Submission of the assessee is as under: The bonds have been purchased by the EFIL from Kotak Mahindra Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve Bank of India (RBI) as a Non-banking financial company and primarily engaged in the business of financing and corporate lending against security of shares, stock, bonds, debenture or other similar instrument on short, medium and long term basis. Besides, the Company also trades in securities. During the Assessment Year 2013-14 ('AY 2013-14'), ECLF had entered into the following international transaction and specified domestic transactions with its AEs. Sr. No. Nature of Transaction Amount Method Specified Domestic Transactions 1 Interest on Demand Loans Paid 34,90,79,216 CUP 2 Commission and Brokerage paid, clearing charges for trading in shares 5,92,272/- CUP 3 Referral Fees Paid 12,26,65,575/- CUP 4 Rating Fees Paid 31,53,00,000/- Other 5 Purchase of Securities (Stock in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act made to Transfer Pricing Officer (TPO) 5 31/12/ 2015 Time Limit u/s 153(1) of the Act for passing order expires (if no reference made to TPO) [21 Months from the end of assessment year in which income was first assessable i.e. 9 months in 2014 + 12 months in 2015] 6 31/10/2016 Time limit for passing order u/s 92CA(3) expires as per section 92CA(3A) of the Act [i.e. 60 days prior to the date on which period of limitation stated in section 153 expires -i.e. 31.12.2016] Excluding 31.12.2016, 60 days expires on 1.11.2016 [i.e. 60 days = 30 days of December, 2016 and 30 days of November, 2016]. Thus, last date of passing order is 31/10/2016 7 1/11/ 2016 TPO passed order u/s 92CA(3) of the Act 8 30/12/2016 Draft order passed by AO 9 31/12/2016 Time Limit u/s 153(4) of the Act for passing order expires [if reference made u/s 92CA(1) of the Act to TPO] [21 Months from the end of assessment year in which income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons contained under section 92CA(3) read with section 153 of the Act. 16. Undisputedly, sub-section (3A) to section 92CA has been inserted w.e.f. 01.06.2007 providing time limit for the Transfer Pricing Officer to pass the order i.e. within a period of 60 days prior to the date of completion of assessment as per section 153. So, u/s 92CA (3A) read with section 153, TPO was required to pass the order within the period of 60 days prior to the date on which the period of limitation referred to in section 153 expires i.e. 21 months. 17. In the instant case, undisputedly assessment order was passed on 31.03.2013 and the TPO was required to pass the order within 60 days prior to the date on which period of limitation referred to in section 153 expires. 18. Now, the question arises as to how the period of 60 days prior to the date of TP order i.e. 31.03.2013 is to be computed. 19. Hon'ble Madras High Court in case of M/s. Pfizer Healthcare India Pvt. Ltd. (supra) while dealing with the issue held that for computing the period of 60 days, the last date as per section 153 should be excluded. Operative part of the judgment is extracted for ready perusal as under :- 30. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t given in section 153 is relevant for determining the time available with the TPO for passing order u/s 92CA(3). 5.28. Turning to the facts of the instant case, we find that the AO passed the final assessment order on 29.1.2015, which is well within a period of one month from the end of the month in which direction was received from the DRP on 24.12.2014. As such, we hold that the final assessment order passed by the AO is within the time prescribed u/s 144C(13). Further since the draft order has also been passed within a reasonable time, the same is also not barred by limitation. The contention of the Id. AR that the draft order passed in this case was barred by limitation, is there/ore, found to be without any substance and hence repelled. B. Time limit for passing of order by the TPO 6.1. The Id. AR also challenged the passing of the order by the TPO. It was submitted that the TPO passed order on 31.5.2014, which was time barred and, hence, the same should be annulled leading to the quashing of the final assessment order. In the opposition, the Id. DR supported the Revenue's stand. 6.2. We have heard the rival submissions and perused the relevant material on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;. Whereas, ordinarily the use of the word shall signifies mandatory compliance, the word 'may' signifies directory compliance. But at times, the word may can also be read as shall1 and vice versa. In fact, all depends upon the context and the background of the provision in which such a word is used. 6.6. Section 127 deals with the power to transfer cases. Subsection (1) of this provision provides that: The Director General or Chief Commissioner or Commissioner may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from one or more Assessing Officers subordinate to him (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) also subordinate to him'. Dispute arose in Sahara Hospitality Ltd. vs. CIT (2013) 352 ITR 38 (Bom) as to whether or not giving the assessee a reasonable opportunity of being heard before the transfer of case by the Chief Commissioner, in the backdrop of the use of the word may in the provision, be considered as man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Officer was must if the given contingencies did not exist. In this regard, the Hon'ble High Court observed that : There is no doubt about the fact that the use of expression may and shall to some extent serves an indicia to the intention of the legislature and helps in deciding as to whether the given requirement is directory or mandatory in character, but the use of expression may or shall is never considered decisive in that regard'. It was thus held that the moment the estimated value exceeded the returned value of the asset by more than what is envisaged by r. 3B, then the WTO had no option, but to make a reference and he is not to wait for a request from the assessee to make a reference. Similar view has been expressed by the Hon'ble Delhi High Court in Sharbati Devi Jhalani vs. CWT Ors. (1986) 159 ITR 549 (Del). It is vivid from the above discussion that the use of word may' or 'shall' in a provision is not conclusive of its mandatory or directory nature. One needs to go through the text of the provision and the context in which such a word has been used. 6.8. Reverting to section 92CA, we find that the Finance Act, 2007 inserted sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... third proviso and clause (viii) of the Explanation to the section, comes at 7th June, 2014. Period of 60 days prior to such time limit coming as per section 153, available with the TPO for passing his order, comes to an end on 8th April, 2014. As against this, the order was actually passed by the TPO on 31st May, 2014. Thus, the order passed by the TPO is patently time barred. C. Consequences of valid draft order and TPO's time barred 7. The Id. AR argued that since the draft order as well as the order of the TPO were time barred, the final assessment order passed by the AO was liable to be set aside. We have held above that the draft order was passed within time and only the order of the TPO is time-barred. When an order is passed without jurisdiction or beyond the permissible time, it is considered as null and void. The effect of passing a null and void order is that it is considered as non est, meaning thereby, that it entails all the consequences of not having been passed at all and is ignored for all practical purposes. The Hon'ble Madras High Court in Vijay Television (P.) Ltd. vs. DRP (2014) 369 ITR 113 (Mad) considered a case in which the assessment order w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date on which limitation referred to in section 153 expires, which actually expires on 20.01.2013. 25. Computation of period of 60 days given by the taxpayer extracted in the preceding para no.20 cannot be faulted with on any ground because from 31.03.2013, the date of passing order of the AO, 60 days was to be computed by excluding the date of order i.e. 31.03.2013. So, while excluding the date 31.03.2013, the day of passing the order, the order was required to be passed by the TPO by 29.01.2013 whereas the impugned order has been passed on 31.01.2013 which is barred by limitation. 26. In view of what has been discussed above and following the decision rendered by Hon'ble Madras High Court and the order passed by the coordinate Bench of the Tribunal in cases of M/s. Pfizer Healthcare India Pvt. Ltd. and Honda Trading Corporation (supra) respectively and mandate of section 92CA (3) read with section 153 of the Act, impugned order passed by the Id. TPO is barred by limitation which was required to be passed by 29.01.2013 and as such is hereby quashed. 27. Consequent additions made on account of transfer pricing adjustment by way of determining the ALP transaction by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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