THE RAMCO CEMENTS LIMITED,RAJAPALAYAM vs. ACIT, CORPORATE CIRCLE, MADURAI

आदेश / O R D E R PER MANOMOHAN DAS, JM: This appeal by the assessee is directed against the order of the

learned Assistant Commissioner of Income Tax, Corporate Circle, Madurai,

National Faceless Assessment Centre [AO] dated 29-09-2022 consequent

to the direction of the Dispute Resolution Panel dated 29-06-2022.

the name and style of “the Ramco Cements Limited” (formerly Madras

Cements Ltd.) and is engaged in the business of producing Portland

cement, ready mix concrete and Dry Mortar Products, wind firms etc. The

:: 2 ::

assessee filed its return of income for the Assessment Year 2018-19 on 26-

11-2018 by declaring of Rs. 577,77,68,240/-. Subsequently, the case was

selected for scrutiny under CASS and notice under section 143(2) of the

Act served upon the assessee. The matter was referred to the Transfer

Pricing Officer [TPO] under section 92CA(1) of the Act after obtaining the

approval of the Ld. Principal Commissioner of Income Tax [PCIT] for

determination of Arm’s Length Price in respect of the international

transactions of the assessee. The TPO vide order dated 01-07-2021

proposed adjustment of Rs. 5,82.23,432/- and accordingly a draft

assessment order was passed by the Ld. AO on 27-09-2021. The assessee

against the said draft assessment order filed objections before the Dispute

Resolution Panel [DRP]. The DRP, Bengaluru vide directions dated 29-06-

2022 issued certain directions on the basis of which the Ld. AO vide order

dated 29-09-2022 passed the final assessment order by making additions

of Rs. 5,82,23,432/- Rs. 35,03,19,168/-, Rs. 76, 81, 223/- and Rs.

2,31,21,250/- to the total income of the assessee by disallowing certain

deductions as was claimed by the assessee.

Tribunal and raised the following issues:

Appeal against the Assessment order passed u/s 143(3) r.w Sec 144C(13) r.w. Sec 144B dated 29-9-2022 The under mentioned grounds of appeal are independent of and without prejudice to one another. A. LIMITATION

1) The impugned Assessment Order dated 29-9-2022 is barred by limitation in as much as the Assessing Officer/DRP had passed Orders beyond the time limit specified in the Income Tax Act and as such the impugned Order is not valid in law.

B. REDUCTION IN DEDUCTION CLAIMED u/s 80IA BY THE ASSESSEE- Rs.35,03,19,168/-

2) The learned AO/DRP erred on facts and in law in the computing the profits of the eligible undertakings under sec 80-1A by deducting the book depreciation, instead of Income Tax Depreciation.

3) The computation made by the learned Assessing Officer (AO) /Dispute Resolution Panel (DRP) is contrary to the provisions of Sec 80-IA read with Sec 80AB, CBDT Circular No 281 of 1980 and Supreme Court decisions in this regard.

4) The learned AO/DRP erred in referring to the decisions that are not relevant in the context of deduction under Section 80IA as applicable from the assessment year 1981-82 onwards but were rendered in the context of other provisions of the Income Tax Act.

C. DISALLOWANCE UNDER SEC 14A READ WITH RULE 8D- Rs.76,81,223/-

5) The learned AO/DRP erred in law and facts in disallowing a sum of Rs.76,81,223/- under Sec 14A since factually no expenses were incurred by the assessee for earning the exempt income.

6) The disallowance of Rs. 76,81,223/- u/s 14A is contrary to the direction of the DRP which confirmed a disallowance of only Rs. 25,08,417/-, which was the amount of disallowance proposed in the Draft Assessment order.

7) The learned AO/DRP is not justified in adumbrating a new theory to ascertain the scope of disallowance under section 14 A by linking investments with day to day cash flows in the years in which the said investments were made, as this contrary to the judicial decisions in this regard.

8) The learned AO/DRP is not justified in ignoring the facts of the appellant's case and the well laid out decisions in a catena of cases on the application of rule 8D (2) (ii) (erstwhile Rule 8d(2)(iii)| in respect of exempt income earned by the assessee.

9) The learned AO/DRP is not justified in misinterpreting the mandate of section 14A that separate and proper books of accounts ought to be maintained in respect of tax -free receipts, which is contrary to the Supreme Court decisions in this regard.

10) The learned AO erred in making the disallowance u/s 14A on the basis of mere probabilities, assumptions and estimates by reasoning that "the incurrence of establishment expenses, other administrative and general expenses etc. cannot be ruled out in regard to maintaining of investment portfolio", as such presumption is contrary to judicial decisions which have held that only expenditure proved to have been incurred in relation to the tax-free income and which has a proximate relationship and causal connection with the tax-free income can be disallowed.

11) The learned AO/DRP is not justified in ignoring the fact that expenses disallowed under section 14A have been deleted on identical facts in other cases, including by the jurisdictional Madras High Court.

:: 4 ::

D. DISALLOWANCE OF DEDUCTION CLAIMED U/S 80G- Rs. 2,31,21,250/-

12) The AO/DRP erred in law and in facts in disallowing the assessee's claim u/s 80G on the ground that amounts donated out of the CSR funds of the assessee are not eligible for deduction u/s 80G.

13) The disallowance u/s 80G is contrary to the express provisions of the said Section 80G that grant deduction for the payments made, once the conditions laid down in the said Section are fulfilled.

14) The disallowance u/s80G is contrary to the several judicial decisions which have held that deduction u/s 80G is allowable, notwithstanding that they were made out of CSR funds.

For these and other grounds that may be urged at the time of hearing it is respectfully prayed that the additions/disallowances made in the assessment be deleted.

The Appellant craves leave to amend, alter, add or withdraw any of the above grounds.

materials available on record.

The Ld. AR submitted that the final assessment order dated 29-09-2022 as

passed by the Ld. AO is a time barred order. The Ld. AO has passed the

final assessment order after expiry of the limitation period as provided

under section 144C (13). According to Ld. AR, the Ld. AO had to pass the

final assessment order on or before 31-07-2022. The Ld. DR on the other

hand submitted that the Ld. AO was compelled by the circumstances to

pass the final assessment order after 31-07-2022. The Ld. DR claimed that,

the directions of the DRP was not reached the hands of the Ld. AO before

31-07-2022. The Assessment Unit had to write a letter to the DRP for

disposal of the matter so that final assessment order could be passed within

the prescribed time limit. The Assessment Unit had written the said letter

vide dated 19-09-2022 as under:

:: 5 ::

“It is not known whether the DRP has passed order in this case as the same is not visible in the system. Since the case is getting time barred by limitation on 30.09.2022, it is requested to kindly intimate whether the order has been received by JAO and if so, kindly upload the same in the system so that the necessary order can be passed before the limitation subsides”. 5. By submitting the copy of the aforesaid letter before the Bench, the

Ld. DR submitted that, as the order of the DRP was not before the Ld. AO

the assessment order as passed on 29-09-2022 should not be treated as

time barred order. The Ld. AR disputing the submission of the Ld. DR

claimed that the DRP directions was received by the assessee on 29-06-

2022 and the TPO gave effect to the directions of the DRP vide letter dated

07-07-2022. Hence, the Ld. AO has also received the order of the DRP

before the expiry of the limitation period. The Ld. AR claimed that the Ld.

AO passed the assessment order after a delay of 59 days and accordingly

urged the Bench to quash the assessment order as passed on 29-09-2022.

The Ld. AR in support of his submissions relies on the decision of the ITAT,

Delhi Bench dated 13-03-2023 in the case of Fiberhome India Ltd vs. DCIT,

Circle – 2(1), New Delhi; decision of the ITAT, “D” Bench, Chennai dated

22-04-2016 in the case of Wintek Technology India P Ltd vs. The Dy.

Commissioner of Income Tax, Corporate Circle III, Chennai and decision of

the Hon’ble High Court of Madras [2021] 124 taxmann.com 536 (Madras).

materials available on record.

:: 6 ::

Therefore, we will adjudicate the case on the limitation issue only and will

not adjudicate the other issues.

pass final assessment order after receiving the directions from DRP as

contained under section 144C(13) of the Act which says as under:

“Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153 [or section 153B], the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received”. 9. In the instant matter, DRP issued directions vide order dated 29-06-

2022. However, the Ld. AO passed the final assessment order on 29-09-

2022. Therefore, it is clear that, the Ld. AO has passed the final assessment

order after expiry of the prescribed period for passing of the final

assessment order. Now the question is what would be the fate of the final

assessment order which has passed after the prescribed period of time. The

Ld. AR relies on certain decisions of the ITAT and Hon’ble High Court of

Madras as we already mentioned above.

Ltd. vs. DCIT, Circle – 2 (1), New Delhi considered a similar issue and vide

order dated 13-03-2023 decided the issue against the Revenue. The order

read as under:

“3. The pertinent facts for adjudication of the case are as under:

Date of filing return -- 29.11.2017

Date of order of the TPO -- 22.01.2021

Date of draft order by the AO - 03.03.2022

Date of order of the DRP - 16.12.2021

Date of Assessment Order - 26.02.2022

“Reference to dispute resolution panel.

144C. (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee.

(2) On receipt of the draft order, the eligible assesse shall, within thirty days of the receipt by him of the draft order, --

(a) file his acceptance of the variations to the Assessing Officer; or

(b) file his objections, if any, to such variation with, --

(i) the Dispute Resolution Panel; and

(ii) the Assessing Officer.

(3) The Assessing Officer shall complete the assessment on the basis of the draft order, if –

(a) the assessee intimates to the Assessing Officer the acceptance of the variation; or

(b) no objections are received within the period specified in sub-section (2).

(4) The Assessing Officer shall, notwithstanding anything contained in section 153 or section 153B, pass the assessment order under sub-section (3) within one month from the end of the month in which, --

(a) the acceptance is received; or

(b) the period of filing objections under sub-section (2) expires.

(5) The Dispute Resolution Panel shall, in a case where any objection is received under sub-section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment.

(6) The Dispute Resolution Panel shall issue the directions referred to n sub- section (5), after considering the following, namely:-

(a) draft order;

(b) objections filed by the assessee;

(c) evidence furnished by the assessee;

(d) report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority;

(e) records relating to the draft order;

(f) evidence collected by, or caused to be collected by, it; and

(g) result of any enquiry made by, or caused o be made by, it

(7) The Dispute Resolution Panel may, before issuing any directions referred to in sub-section (5), --

(a) make such further enquiry, as it thinks fit; or

(b) cause any further enquiry to be made by any income-tax authority and report the result of the same to it.

(8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order.

Explanation – For the removal of doubts, it is hereby declared that the power of the Dispute Resolution Panel to enhance the variation shall include and shall be deemed always to have included the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee.

(9) If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members.

(10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer.

(11) No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to the interest of the assessee or the interest of the Revenue, respectively.

(12) No direction under sub-section (5) shall be issued after nine months from the end of the month in which the draft order is forwarded to the eligible assessee.

(13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153 [or section 153B], the assessment without

:: 9 ::

providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received.

(14) The Board may make rules for the purposes of the efficient functioning of the Dispute Resolution Panel and expeditious disposal of the objections filed under sub-section (2) by the eligible assessee.

(14A) The provisions of this section shall not apply to any assessment or reassessment order passed by the Assessing Officer with the prior approval of the Principal Commissioner or Commissioner as provided in sub-section (12) of section 144BA.

(15) For the purposes of this section, ---

(a) “Dispute Resolution Panel” means a collegium comprising of three Principal Commissioners or Commissioners of Income-Tax constituted by the Board for this purpose;

(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”.

(India) Pvt. Ltd vs. The Dy. Commissioner of Income Tax, Corporate Circle

III, Chennai ITA No. 1017 / Mds / 2015 vide order dated 22-04-2016

considered the similar issue and decided the case in favour of the assessee.

The order reads as under:

“4. We have considered the rival submissions on either side and also perused the material available on record. Admittedly, the direction of DRP was received by the Assessing Officer on 3.12.2014. The assessment order was in fact passed on 20-02-2015. The contention of the ld. DR is that the DRP directed the TPO to verify the calculation of working capital and the verification was done by the TPO only on

:: 10 ::

21.1.2015. Without verification by the TPO, the Assessing Officer cannot pass any assessment order, therefore, according to the ld. DR, the assessment order was passed within the time limit provided under the Act. We have carefully gone through the provisions of section 144C of the Act. Sec. 144C(7) of the Act enables the DRP to make such further enquiry as it thinks fit. It can also direct the enquiry to be done by the income-tax authorities and report the result to the DRP. After independently making enquiry or considering the report filed by the income-tax authorities, the DRP by virtue of sub-sec(8) of sec. 144C of the Act, may confirm, reduce or enhance the variations proposed in the draft assessment order. It is further provided that the DRP shall not set aside any proposed variation or issue any direction u/s sub-sec.(5) of sec. 144C for further enquiry. In view of sub- sec.(7) and (8) of sec. 144C, the DRP cannot direct the TPO to make further verification either with regard to working capital or otherwise. At the best, during the pendency of the proceedings before the DRP, it may call for report from the income-tax authorities. In view of the specific provisions in sub-se.(7) & (8) of sec. 144C of the Act, the direction of the DRP to verify the calculation of working capital produced by the assessee is beyond the jurisdiction of the DRP. Therefore, this Tribunal is of the considered opinion that in the guise of giving direction to the TPO to verify the calculation of the working capital, the DRP cannot extend the time limit provided u/s 144C(13) of the Act. Sec. 144C (13) enables the Assessing Officer to pass the assessment order within one month from the end of the month in which the direction of the DRP was received. This time limit provided u/s 144C (13) cannot be extended by any authority under the Income Tax Act, 1961 in the guise of asking some other authority to make further calculation or verification. This Tribunal is of the considered opinion that the order passed by the Assessing Officer on 20.2.2015 is beyond the period of limitation provided under the Income- tax Act, hence, it is barred by limitation. Accordingly, the order of the Assessing Officer is quashed and the appeal of the assessee is allowed.

India (P) Ltd. vs. Joint Commissioner of Income -Tax, Chennai [2021] 124

taxmann.com 536 (Madras) vide para No. 22 observed as under:

“ Limitation has been prescribed for each stage/process in an assessment, commencing with the filing of a return, transfer pricing proceedings under section 92, filing of objections to a draft assessment order in terms of section 144C(2), passing of final order of assessment after expiry of the period for filing of objections in terms of section 144C(4), issuance of directions by the DRP in terms of section 144C(12) and passing of final assessment order after receipt of directions from the DRP in terms of section 144C(13). An assessment involving issues of transfer pricing is thus measured by limitation at every step. Further, the Hon’ble High Court of Madras in the case of M/s.Pfizer Healthcare India Private Limited vs. Dy. Commissioner of Income Tax, Corporate Circle- 5(2) decided the similar issue in favour of the assessee vide order dated 11.11.2022. The Hon’ble High Court vide para No. 13 of the order observed that, the transmission of a transfer pricing order from the TPO to the Assessing Officer is an internal administrative act and cannot impact statutory limitation, which is the exclusive prerogative of Section 153 alone.

:: 11 ::

ld. DR that the Ld. AO had not received the direction of the DRP on 29-06-

2022. The communication of such order / direction is an internal

administrative exercise of the Department. The assessee is not concerned

with the date when the direction of the DRP was communicated to the Ld.

AO. He, the assessee had received the direction of the DRP through mail

on 29-06-2022. Therefore, it is manifestly clear that the Ld. AO had passed

the final assessment order after expiry of the limitation period as prescribed

under section 144C (13) of the Act. Accordingly, we set aside the final

assessment order dated 29-09-2022 and appeal of the assessee is allowed.

Sd/- Sd/- (मंजूनाथा.जी) (मनोमोहन दास) (MANJUNATHA.G) (MANOMOHAN DAS) लेखा सद�य/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER चे�ई/Chennai, �दनांक/Dated: 07th July, 2023. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�/CIT 5. गाड� फाईल/GF 2. ��यथ�/Respondent िवभागीय 4. �ितिनिध/DR