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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI BASKARAN BR & SHRI PAVAN KUMAR GADALE
IN THE INCOME TAX APPELLATE TRIBUNAL “J” BENCH, MUMBAI BEFORE SHRI BASKARAN BR, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No. 7278/Mum/2017 (A.Y: 2010-11) & CO No. 21/Mum/2019 (2010-11) (Arising out of ITA No. 29/Mum/2018) Mercator Ltd Vs. DCIT 3rd Floor, Mittal Tower- Range 5(2) B Wing, Nariman Point Aayakar Bhavan, MK Mumbai- 400021. Road, Mumbai-400020. �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACM5007A Appellant .. Respondent ITA No. 29/Mum/2018 (A.Y: 2010-11) Dy. CIT Vs. Mercator Lines Ltd Range 5(2)(2), RNo.571 3rd Floor, Mittal Tower- Aayakar Bhavan, MK B Wing, Nariman Point Road, Mumbai – 400 021. Mumbai - 400020. �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACM5007A Appellant .. Respondent Assessee by : Mr.Nikhil Tiwari.AR Revenue by : Mr.KrishnaKumarMishra.DR Date of Hearing 30.11.2022 Date of Pronouncement 22.12.2022 आदेश / O R D E R PER PAVAN KUMAR GADALE JM:
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The cross appeal is filed by the assessee and the revenue against the order of the Commissioner of Income Tax (Appeals) (CIT(A))-57, Mumbai passed u/s 250 of the Act and the assessee has filed the cross objection(CO) in the revenue appeal.
The assessee has raised the following grounds of appeal:
Based on the facts and circumstances of the case, Mercator Limited (formerly known as 'Mercator Lines Limited' and hereinafter referred to as the 'Appellant') craves leave to prefer an appeal against the order passed by the Learned Commissioner of Income-Tax (Appeals) - 57 [hereinafter referred to as the 'CIT(A)] under section 250 of the Income-tax Act, 1961 (hereinafter referred to as the 'Act') in respect of the order passed by the Deputy Commissioner of Income-tax-Range 5(2), Mumbai (hereinafter referred to as the 'AO') under section 143(3) r.w.s. 144C of the Act, on the following grounds which are independent and without prejudice to each other: General ground 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in partially confirming the action of TPO/AO in making transfer pricing adjustment on account of alleged interest on loan given to various subsidiaries, transaction of corporate guarantee and disallowance u/s 14A of the Act. Non applicability of transfer pricing regulations
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On the facts and in the circumstances of the case and in law, the Learned AO/CIT(A) failed to appreciate that the transfer pricing regulations does not apply to the since the Appellant is a company registered under the Tonnage Tax Scheme (TTS) of the Act and its income is computed as per the said scheme. Transfer pricing adjustments Interest on loans/ quasi equity given by the Appellant to its Associated Enterprises ('AEs') On facts and circumstances of the case, the learned CIT(A): 3. erred in partially confirming the action of AO/TPO in making a transfer pricing adjustment on account of interest on loans given by the Appellant to its AEs to the income of the Appellant; 4. erred in confirming the action of AO/TPO in holding that the Appellant should have charged interest from its AE - Mercator Offshore Limited ('MOL'), as against Nil charged by the Appellant from MOL without appreciating that the impugned transaction is a part of shareholder activity which does not require separate compensation and thereby no benchmarking is required under transfer pricing regulations; 5. erred in confirming the action of AO/TPO in holding that higher interest should have been charged by the Appellant from its AE - Mercator International Pte Limited ('MIL'), as against Rs 41,86,17,364 charged by the Appellant from MIL without appreciating that the impugned transaction is a part of shareholder activity which does not require separate compensation and thereby no benchmarking is required under transfer pricing regulations;
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erred in confirming the action of AO/TPO in holding that Appellant should have charged interest from its AE - Mercator Offshore Holdings Pte Limited ('MOHPL'), as against Nil charged by the Appellant from MOHPL without appreciating that the impugned transaction is a part of shareholder activity which does not require separate compensation and thereby no benchmarking is required under transfer pricing regulations; 7. Without prejudice to the above, erred in not appreciating that the above transaction is at arm's length using 'combined approach/bundled approach' under Transactional Net Margin Method ('TNMM') and thereby separate benchmarking under CUP is not warranted; 8. Without prejudice to the above, erred in considering the all in cost ceiling External Commercial Borrowings (ECB') rates issued by Reserve Bank of India (RBI') as Comparable Uncontrolled Price ('CUP') for benchmarking the transactions; 9. Without prejudice to the above, erred in not considering the rate of interest paid by Mercator Lines Singapore Pte Limited ('MLS') on zero coupon bonds which was Nil, as the appropriate rate for the purpose of adjustment; 10. Without prejudice to the above, erred in not considering the rate of interest paid by Varsha Marine Pte Ltd, Singapore and Vidya Marine Pte Ltd, Singapore to third parties which was LIBOR plus 0.95 percent as the appropriate rate for the purpose of adjustment; 11. Without prejudice to the above, erred in not considering the rate of interest paid by Appellant on Foreign Currency Convertible Bonds ('FCCB') which was 1.5% as the appropriate rate for the purpose of adjustment;
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Without prejudice to the above, erred in not considering the rate of interest payable by MLS on syndicate loan from ICICI Bank, Singapore, BNP Paribas, Singapore etc which was 3 months LIBOR plus 0.95 percent ie effective interest rate of 1.44 percent, as the appropriate rate for the purpose of adjustment; 13. Without prejudice to the above, erred in not considering the average rate of interest on the aforesaid loans i.e. 1.57 percent as the appropriate rate for the purpose of adjustment; 14. Without prejudice to the above, erred in not considering the rate of interest paid by MLS on loan availed from DBS bank which was 1 year LIBOR plus 1 percent ie effective interest rate of 2.41 percent, as the appropriate rate for the purpose of adjustment; 15. Without prejudice to the above, erred in not considering the rate of interest paid by MLS on non- convertible bonds issued by it, which was 2.5 percent, as the appropriate rate for the purpose of adjustment; 16. Without prejudice to the above, erred in not providing the benefit of variation of 5 percent from the arithmetic mean as provided in the provisio to Section 92C(2) of the Act, while making the adjustment to the value of international transactions of the Appellant. Adjustment on account of fees on corporate quarantee issued by the Appellant for the benefit of the AES On facts and circumstances of the case, the learned CIT(A): 17. erred in confirming the action of TPO/AO in making transfer pricing adjustments on account of alleged international transaction of corporate guarantee provided
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to MOL as against no corporate guarantee charged by Appellant to MOL 18. erred in not appreciating the fact that issue of corporate guarantee is outside ambit of expression 'international transaction' under section and hence transfer pricing regulations do not apply to the same; 19. erred in disregarding the fact that corporate guarantee had been advanced by the Appellant as a matter of commercial prudence primarily to protect the business interest of the group by fulfilling the shareholders obligations since any financial incapacitation of the AE would affect the investment of the Appellant; 20. erred in disregarding the fact that in absence of corporate guarantee, the Appellant being the holding company would have provided the funds to the subsidiary by increasing the share capital, hence provision of corporate guarantee does not warrant charging any compensation; 21. Without prejudice to the above, erred in not appreciating that owing to the higher credibility of the Appellant, the aforementioned liability, if any, of its AES is unlikely to crystallize since it would be covered to the extent of realization of assets of the AE, in case of default, if any. Also, the Learned CIT(A) has failed to consider the business rationale behind corporate guarantee issued to the AEs; 22 Without prejudice to the above, erred in not considering the rate of 0.5 percent paid by the MLS to the Axis Bank in Singapore for the guarantee provided by such banks, as comparable data;
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Without prejudice to the above, erred in not restricting adjustment to the extent of the loan taken by the AE vis- a-vis the guarantee given by the Appellant; 24. Without prejudice to the above, erred in not restricting the adjustment to the extent of the unsecured portion of loan taken by the AE vis-à-vis the guarantee given by the Appellant. Corporate tax additions On facts and circumstances of the case, the learned CIT(A): 25. erred in upholding disallowance under section 14A of the Act, without appreciating that no addition under section 14A of the Act can be made to the income of the Appellant since the Appellant is covered under the TTS under the Act; 26. Without prejudice to the above, erred in upholding the disallowance under section 14A of the Act of Rs 2,54,56,000 as against Rs 1,36,34,299 computed by the Appellant; Levy of Interest under section 234C of the Act 27. erred in upholding interest under section 234C of the Act; Levy of Interest under section 234D of the Act 28. erred in upholding interest under section 234D of the Act; Penalty proceedings 29. erred in initiating penalty proceedings under section 274 rws 271(1)(c) of the Act The Appellant further prays that any other relief as your Honour may deem fit be granted. Each of the above
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ground is independent and without prejudice to one another. The Appellant craves leave to add, to alter, to amend or to delete any or all of the above grounds of appeal, at or prior to hearing of the appeal, so as to enable your Honour to decide the appeal according to
The assessee has raised the additional grounds of appeal as under: 30. Ground of appeal 30 – Time barred assessment liable to be quashed. erred in passing draft assessment order by following procedure laid down under section 144C of the Act without appreciating that provision of Section 144C is not applicable during AY 2010-11, thus the assessment order passed is beyond the time limit prescribed under section 153 of the Income Tax Act, 1961 and hence bad in law and liable to be quashed.
The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal, so as to enable your Honours to decide this appeal according to law.
Time limit for passing order under Section 92CA of the Income-tax Act, 1961 ('the Act')
On the facts and circumstances of the case and in law, the Learned Transfer Pricing Officer erred in passing transfer pricing assessment order under Section 92CA(3) of the Act on 30 January 2014, which was barred by
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limitation, thereby rendering the transfer pricing order as null and void as per the provisions of Section 92CA(3A) read with Section 153 of the Act.
On the facts and circumstances of the case and in law, the Ld. AO erred in passing a draft assessment order in the case of the Appellant in lieu of the final assessment order given that the Appellant does not fall within the definition of "eligible assessee" as per Section 144C of the Act as the transfer pricing order is invalid and thus entire assessment of section 144C(1) of the Act are not applicable to the Appellant; is bad in law as provisions Final assessment order barred by limitation
On the facts and circumstances of the case and in law, the learned AO erred in not appreciating that the time limit prescribed under section 153 is the outer time limit for passing the final assessment order and hence, the final assessment order dated 2 April 2014 is time barred and liable to be quashed.
At the time of hearing, the Ld.AR has submitted that the grounds of appeal no. 1 to 24 pertains to transfer pricing issues and ground no 25 and 26 are corporate tax additions on disallowance u/s 14A of the Act and ground no 27 and 28 are in respect of levy of interest u/s 234C and 234D of the Act and ground of appeal no 29 with regard to initiating penalty u/s 274 r.w.s 271(1)(c) of the Act which is premature.
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The Ld AR has made submissions on the application of admission of additional grounds of appeal being a legal issue and further mentioned that the assessment order passed by the AO is barred by the limitation as the time limit for passing the assessment order of impugned assessment year does not get extended by the application u/s 144C of the Act. The Ld. AR emphasized that the TPO has passed the transfer pricing order on 30.01.2014 and therefore it is barred by limitation and prayed for admission of the legal grounds of appeal. Per Contra, the Ld.DR has objected to the admission of additional grounds of appeal. We consider submissions of the both parties and the legal issue aspects of the grounds of appeal raised and admit the additional grounds of appeal and heard the matter.
The brief facts of the case that the assessee is a Limited company engaged in the business of shipping and cargo handling services. The asssesssee has filed the return of income electronically on 08.10.2010 for the A.Y 2010-11 disclosing a total income of Rs.13,64,08,697/- and the return of income was processed u/s 143(1) of the Act. Subsequently the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act are issued. The
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AO on perusal of the facts and details found that the assessee has international transactions with its Associate Enterprise (AE) and further the assessee is engaged in shipping and cargo handling services, therefore the assessee has offered income of shipping business under Tonnage Tax Scheme under Chapter XII-G of the Income Tax Act, 1961. The matter was referred to the TPO u/s 92CA of the Act with the prior approval of Commissioner of Income Tax for determination of ALP. Whereas on the issues of transfer pricing, the TPO has made the adjustments considering the transfer pricing study report, submissions, the comparables and passed the order U/sec92CA of the Act on 30.01.2014 with the T.P adjustments as under:
S.No Nature of TP adjustment Amount 1 Arm’s Length interest on loan Advanced 34,35,01,289 to the AEs 2 Arm’s Length Guarantee Fee on 8,10,96,267 corporate guarantee extended to the AEs 3 Arm’s Length compensation on issuance 7,49,54,970 of comfort letters to the AEs Total 49,95,52,526
Further the AO has observed that the assessee has received dividend income of Rs.3,06,37,344/- in the F.Y 2009-10 and was claimed exempted in the computation of
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income filed. The AO found that the assessee has not made disallowance in respect of expenses allocated for earning of exempted income and a show cause notice was issued. The assessee has filed the explanations mentioning that expenses are meet in the common pool of funds and composite books of accounts therefore it is not possible to exactly pinpoint that specific expenses incurred for earning of exempt income and taxable income. The AO however has applied the provisions of Sec. 14A r.w.r 8D and relied on the factual aspects and worked out the disallowance under Section 14A r.w.r 8D which works out to Rs. 2,54,56,000/-. Further the AO on perusal of the adjustment in administrative and general expenses found that the assessee has made common cost expenses as per section 115&U/sec115VJ of the Act and they have to be proportionate and on reasonable basis. After considering the facts of percentage of qualifying income and non qualifying income dealt at Para 6 of the order, the AO has made disallowance of administrative and general expenses of Rs.1,55,04,863/- and finally assessed the total income of Rs.67,69,22,090/- and passed the order u/s 143(3) r.w.s 144C of the Act dated 03.01.2014.
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Aggrieved by the order the assessee has filed an appeal with the CIT(A), whereas the CIT(A) has considered the grounds of appeal, submissions of the assessee and findings of the A.O and has confirmed the disallowance u/s 14A of the Act and granted relief in other grounds of appeal and partly allowed the assessee appeal. Aggrieved by the order of the CIT(A), the assessee and the revenue has filed an appeal before the Hon’ble Tribunal.
At the time of hearing the Ld. AR submitted that though the assessee has raised the various grounds of appeal on the transfer pricing issues as discussed and referred in the above paragraphs, the assessee is now pressing only the additional grounds of appeal which is covered in favour of the assessee and the Ld.AR has substantiated the submissions on the validity of passing of the T P order and emphasized on the provisions of Sec. 92CA(3) of the Act and mentioned that the transfer pricing order (TPO) has to be passed 60 days prior to due date of assessment as per Sec. 153(1) of the Act and further substantiated on the provisions, explanations, judicial decisions and prayed for quashing of the T P order. Per Contra, the Ld. DR supported the order of the CIT(A).
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We heard the rival submissions and perused the material on record. The Ld. AR has made submissions on the additional grounds of appeal raised on the validity of passing of Transfer Pricing order. The asssesssee has filed the submissions as under: A) Validity of Transfer pricing order and final assessment order: The Learned Transfer Pricing Officer (TPO) has passed the transfer pricing order on 30 January 2014. As per Section 92CA(3A) read with Section 153 of the Income-tax Act, 1961 ('the Act') the transfer pricing order has to be passed 60 days prior to due date of completion of assessment as per Section 153(1) of the Act.
As per provisions of Section 153 of the Act, the time limit to pass the assessment order is 24 months from end of relevant assessment year. Further as per provisions of Section 153(4) of the Act, if reference is made under Section 92CA of the Act, then time limit to pass order under Section 153 of the Act is extended by 12 months. Accordingly, for AY 2010-11, time limit for completion of the period of limitation for passing the assessment order would expire on 31 March 2014.
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Consequently, the time limit to pass the transfer pricing order under Section 92CA(3A) of the Act for AY 2010-11 would expire before 60 days prior to 31 March 2014 i.e. 29 January 2014, as tabulated below: Particulars No of days Date Due date for passing 31.03.2014 assessment order u/s 143 of the Act Calculation of 60 days prior period March 30 days February 2014 28 days January 2014 2 days Total 60 days Due date for passing transfer 29.01.2014 pricing order u/s 92CA(3) Date of transfer pricing order 30.01.2014 in instant case
Since, the transfer pricing order has been passed on 30 January 2014, the said order is time barred as per provisions of Section 92CA(3A) r.w.Section 153 of the Act, and ought to be quashed in view of the following decisions: Pfizer Healthcare India Pvt Ltd (WP 1120/2021) dated 31 March 2022 (Madras HC) Accenture Solutions Pvt Ltd (ITA No. 8008/M/2019 dated 7 July 2022 (Mumbai Tribunal)
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ECL Finance Ltd (ITA No. 899/M/2018) dated 22 September 2021 (Mumbai Tribunal) Hon'ble Madras High Court in case of Saint Gobain India (P) Ltd (444 ITR 636) Hon'ble Delhi ITAT in case of Louis Dreyfus Commodities India (Private) Limited [2022] 138 Hon'ble jurisdictional Mumbai ITAT in case of ECL Finance Limited (ITA 899/Mum/2018 taxmann.com 556) dated 22 September 2021) Emerson Electric (Company) India Pvt Ltd (ITA No 933/M/2021) dated 18 May 2022 Further, as per provisions of section 144C of the Act, 'eligible assessee' refers to any person in whose case the variation referred to in section 144C(1) of the Act arises as a consequence of the order of the Transfer Pricing Officer passed under Section 92CA(3) of the Act. However, since the transfer pricing order passed in the case of the Appellant is invalid and thus, no variation could be said to arise from the transfer pricing order passed under section 92CA(3) of the Act. Accordingly, the Appellant does not meet the definition of 'eligible assessee' as per section 144C of the Act and thus, the final assessment order passed is invalid and needs to be quashed. Invalidity of the assessment order
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Additionally, the Appellant also wishes to challenge that the final assessment order passed on 2 April 2014 is barred by limitation since it is passed beyond the time limit prescribed under section 153 of the Act being 31 March 2014. As per provisions of Section 153 of the Act, the time limit to pass the assessment order is 24 months from end of relevant assessment year. Further as per provisions of Section 153(4) of the Act, the time limit if reference is made under Section 92CA of the Act, then time limit to pass order under Section 143 of the Act is extended by 12 months. The following is the time limit for passing assessment order in the present case: Particulars Date of order Time limit for passing assessment order 31.03.2013 for A.Y 2010-11 i.e 24 months from 31.03.2011 Time limit for passing assessment order 31.03.2014 for AY 2010-11 where reference is made under Section 92CA of the Act i.e. 36 months (24 months +12 months) from 31 March 2011
Appellant case Transfer pricing order u/s 92CA(3) of the 30.01.2014 Act Draft assessment order 05.03.2014 Final assessment order 02.04.2014
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Thus, considering the above, the time limit for passing of final assessment order should be 31 March 2014. However, the Ld. AO has passed the final assessment order on 2 April 2014 i.e., beyond the time limit of 31 March 2014. In this regard, the Appellant would like to place reliance on the decision of Hon'ble Madras High Court in case of Roca Bathroom Products Private Limited (W.A. Nos. 1517 and 1519 of 2021) (Madras HC) dated 9 June 2022 has held that the Section 153 and Section 144C are not mutually exclusive as both contain provisions relating to Section 92CA and are independent and overlapping and hence period of limiting as per Section 153 is applicable. It further held that outer time limit of 33 months in case of reference to TPO under Section 153, would not refer to draft order, but only to final order and hence, the entire proceedings would have to be concluded within the time limits prescribed under Section 153 of the Act. The Hon'ble HC also held that non-obstante clause in Section 144C would not exclude the operation of Sec. 153 as a whole since it implies that irrespective of availability of larger time to conclude the proceedings, final orders are
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to be passed within time limit prescribed in Section 153 of the Act. Similar view has also been upheld by Hon'ble Delhi Tribunal in case of Super Brands Ltd. (UK) (ITA No. 3115/Del/2009) dated 20 September 2022 and Hon'ble Ahmadabad Tribunal in case of Cadila Healthcare Ltd. (ITA No. 710/Ahd/2019) dated 9 September 2022 Thus, considering the aforesaid, it is clear that the assessment order passed by Ld. AO on 2 April 2014 is time barred as per Section 153 of the Act and needs to be quashed 9. We found that the facts and submissions envisaged by the Ld. AR cannot be overlooked and are realistic. Further on the identical disputed issue, the Ld.AR has relied on the judicial decisions on the validity of TPO order as under: (i) Honble High Court Of Madras decision in DCIT Vs Saint Gobain Ind Pvt Ltd, (444 ITR 636 )(Madras ) held as under: I .Section 92CA, read with section 153, of the Income-tax Act, 1961 Transfer pricing- Reference to TPO (sub-section (3A)) - Assessment year 2016-17 In relevant assessment year, petitioner-company entered into international transaction and filed its income tax return on 30-11-2016 Assessing Office made reference to TPO for determination of ALP of international transactions Revenue contended that Assessing Officer had time upto 23:59:59 hours of 31-12-2019 to pass
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assessment order which would mean that time limit to pass order would expire on 00.00 hours of 1-1-2020 Whether limitation period for passing assessment order by Assessing Officer as prescribed under section 153 would expire at 23:59:59 on 31-12-2019 and not on 00.00 hours of next date - Held, yes [Para 14] [In favour of assessee] II. Section 92CA, read with section 153, of the Income-tax Act, 1961 Transfer pricing. Reference to TPO (sub-section (3A)) Assessment year 2016-17 In relevant assessment year, petitioner-company entered into international transaction and filed its income tax return on 30-11-2016 Assessing Office made reference to TPO for determination of ALP of international transactions - TPO passed order under section 92CA(3) on 1-11-2019 - Revenue contended that Assessing Officer had time upto 23:59:59 hours of 31-12-2019 to pass assessment order which would mean that time limit to pass order would expire on 00.00 hours of 1-1-2020, thus, order of TPO would be within time limit as period of limitation as per section 92CA(3A) would expire on 60 days prior to 00.00 am of 1-1-2020 i.e. 2-11-2019 - Whether last date for passing assessment order as per section 153 expired on 31-12-2019 and as per section 92CA(3A) words 'prior to' would indicate that for computing time limit of 60 days for TPO's order said date i.e. 31-12-2019 must be excluded Held, yes – Whether thus, TPO was required to pass order before 1-11-2019 i.e. on or before 31-10-2019 and impugned order passed by TPO on 1-11-2019 was barred by limitation - Held, yes [Paras 28, 29 and 39] [In favour of assessee] III. Section 92CA, read with section 153, of the Income-tax Act, 1961 Transfer pricing - Reference to TPO (sub-section (3A)) - Assessment year 2016-17 - Whether word 'may' used in section 92CA(3A) has to be construed as shall and word 'may' is used to imply that TPO can pass order any day before expiry of 60 days, thus, time frame fixed is mandatory in nature - Held, yes [Paras 33 and 39] [In favour of assessee] Words and phrases: Words 'may' and 'prior to' as occurring in section 92CA(3A) of Income- tax Act, 1961
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(ii) The Honble Tribunal Bombay bench decision in the case of Accenture Solutions Pvt ltd Vs DCIT (ITA No. 8008/M/2019 dated 7.07.2002 (Mum Trib) has observed at Page 7 Para 7 to 17 of the order read as under: 7. We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto. 8. At the very outset, the Ld. A.R. for the assessee challenged the impugned order passed by the AO/DRP to the extent of making adjustment on account of ALP, on the legal ground that “the TP order in this case is passed by the Ld. TPO beyond the time limit prescribed under section 92CA(3A) read with section 153 of the Act rendering the TP order and consequential assessment order illegal, null and void ab-initio and liable to be quashed. So we would first decide this legal issue before going into the merits of the case. 9. The Ld. A.R. for the assessee challenging the impugned order passed by the Ld. TPO contended that the order passed by the Ld. TPO is passed beyond the time limit prescribed under section 92CA(3A) read with section 153 of the Act and consequent assessment order, to the extent of TP adjustment, is not sustainable and brought on record the factual position to calculate the period of limitation under the Act necessary to decide the issue in controversy in tabulated form which is as under:
The Ld. A.R. for the assessee while discussing the factual position qua the order passed by Ld. TPO and
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statutory provisions applicable thereto contended inter alia that the order passed by Ld. TPO dated 01.11.2018 is not sustainable in the eyes of law being barred by limitation; that the last date to pass the TP order by Ld. TPO was 31.10.2018; that the order passed by the Ld. TPO is barred by limitation as the period of 60 days is completed in accordance with the provisions of section 153 of the Act by excluding the last date and relied upon the decision rendered by the Hon’ble Madras High Court in case of M/s. Pfizer Healthcare India Pvt. Ltd. & Ors. Vs. DCIT in WA No.1120 of 2021 & ors. judgment dated 31.03.2022.
However, on the other hand, the Ld. D.R. for the Revenue to repel the argument addressed by the Ld. A.R. for the assessee contended that the Ld. TPO passed order in this case well within the time i.e. on 01.11.2018. 12. In order to determine if the order dated 01.11.2018 passed by the Ld. TPO is barred by limitation as contended by the Ld. AR for the assessee, we would advert to the provisions contained under section 92CA(3) read with section 153 of the Act. 13. 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 of the Act. So, under section 92CA (3A) read with section 153, Ld. 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. 14. Undisputedly, the TP order was passed by the Ld. TPO on 01.11.2018 whereas the Ld. TPO was required to pass the order within 60 days prior to the date on which
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the period of limitation referred to in section 153 of the Act expires i.e. 31.10.2018. 15. Now the question arises as to how the period of 60 days prior to the date of transfer pricing order i.e. 01.11.2019 is to be computed. 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 :- Particulars Relevant dates Assessment Year 2015-16 End of A.Y 31.03.2016 Due date for completion of assessment 31.12.2017 under Sec.1 53(1) i.e 21 months from end of A.Y Extension of 12 months in case of transfer 31.12.2018 pricing reference as per sec 153(4) of the Act Time limit for passing the order u/s 92CA(3A) i.e 60 days prior to the date prescribed under 153 Less date on which limitaitn expires u/s 1 day 153 i.e 31.12.2018 Less Remaining days of December 30 days Less Number of days of November 30 days Due date for passing the order u/s 92CA(3) 31.10.2018 Date of passing TP order u/s 92CA(3) 01.11.2018
"30. Now, coming to the question of how the 60 day period is to be computed, the critical question would be whether the period of 60 days would be computed including the 31st of December or excluding it. Section 153 states that no order of assessment shall be made at any time after time expiry of 21 months from the end of
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the assessment year in which the income was first assessable. The submission of the revenue is to the effect that limitation expires only on 12 am of 01.01.2020. However, this would mean that an order of assessment can be passed at 12 am on 01.01.2020, whereas, in my view, such an order would be held to be barred by limitation as proceedings for assessment should be completed before 11.59.59 of 31.12.2019. The period of 21 months therefore, expires on 31.12.2019 that must stand excluded since Section 92CA(3A) states 'before 60 days prior to the date on which the period of limitation referred to Section 153 expires'. Excluding 31.12.2019, the period of 60 days would expire on 01.11.2019 and the transfer pricing orders thus ought to have been passed on 31.10.2019 or any date prior thereto. Incidentally, the Board, in the Central Action Plan also indicates the dale by which the Transfer Pricing orders are to be passed as 31.10.2019. The impugned orders are thus, held to be barred by limitation." 16. Identical issue has been decided by the co-ordinate Bench of the Tribunal in case of ECL Finance Ltd. vs. ACIT in ITA No.899/M/2018 order dated 22.09.2021 in favour of the assessee by following M/s. Pfizer Healthcare India Pvt. Ltd. (supra) case rendered by Hon’ble Madras High Court. 17. In view of what has been discussed above and following the order passed by the Hon’ble Madras High Court in case of M/s. Pfizer Healthcare India Pvt. Ltd. (supra) and order passed by the co-ordinate Bench of the Tribunal in case of ECL Finance Ltd. (supra), we are of the considered view that as per limitation prescribed under section 153 of the Act that assessment order was required to be passed within a period of 21 months from the end of assessment year i.e. A.Y. 2015-16 i.e.
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31.03.2016, meaning thereby the assessment order under section 153(1) was to be completed within 21 months from the end of assessment year i.e. on 31.12.2017 with further extension of 12 months in case of transfer pricing reference as per section 153(4) of the Act was made which expires on 31.12.2018. So the limitation for passing the order under section 92CA(3) is 60 days prior to the date prescribed under section 153 of the Act. In the instant case due date for passing the order under section 92CA(3) of the Act is 31.10.2018 whereas the TP order in this case is passed on 01.11.2018 which is beyond the period of limitation because the same was required to be passed 60 days before the date of which limitation expires under section 153 of the Act i.e. o. 31.10.2018, hence barred by limitation.
(iii) Similarly The Honble Tribunal in the case of M/s Emerson Electric (Company) Pvt Ltd ltd Vs DCIT (ITA No. 933/M/2021 dated 18.05.2002 (Mum Trib) has observed at Page 5 Para 5 to 17 of the order read as under: 5. We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto. 6. Assessee has filed the present appeal raising grounds challenging the arms length price of the international transactions by way of transfer pricing grounds and no corporate tax issue is there in the present appeal. 7. At the very outset, the Ld. A.R. for the assessee challenged the impugned order passed by the AO/DRP on the legal ground that “the transfer pricing order passed in
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this case under section 92CA of the Act is passed beyond the time limit prescribed under section 92CA(3A) read with section 153 of the Act rendering the TP order illegal, null and void ab-initio and liable to be quashed”. So we would first decide this legal issue which was also decided by the Ld. DRP and was decided against the assessee. 8. The Ld. A.R. for the assessee challenging the impugned order passed by the Ld. TPO contended that the order passed by the Ld. TPO is beyond the time limit prescribed under section 92CA(3A) read with section 153 of the Act and consequent assessment order passed by the AO is also not sustainable and brought on record the factual position necessary to decide the issue in controversy in a tabulated form which is as under:
The Ld. A.R. for the assessee while discussing the factual position qua the order passed by the Ld. TPO and statutory provisions applicable thereto contended inter alia that the order passed by the Ld. TPO dated 01.11.2019 is not sustainable being barred by limitation; that the last date to pass the transfer pricing order by the Ld. TPO was 31.10.2019; that the order passed by the Ld. TPO is barred by limitation as the period of 60 days is completed in accordance with the provisions of section 153 of the Act by excluding the last date and relied upon the decision rendered by the Hon’ble Madras High Court in case of M/s. Pfizer Healthcare India Pvt. Ltd. & ors. vs. DCIT in WANo.1120 of 2021 & ors. judgment dated 31.03.2022. 10. However, on the other hand, the Ld. D.R. for the Revenue to repel the argument addressed by the Ld. A.R. for the assessee contended that the Ld. TPO passed order in this case well within the time i.e. on 01.11.2019.
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In order to determine if the order dated 01.11.2019 passed by the Ld. TPO is barred by limitation as contended by the Ld. AR for the assessee, we would advert to the provisions contained under section 92CA(3) read with section 153 of the Act. 12. 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, under section 92CA (3A) read with section 153, Ld. 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. 13. Undisputedly the assessment order was passed on 01.11.2019 whereas the Ld. TPO was required to pass the order within 60 days prior to the date of which period of limitation referred to in section 153 of the Act expires. 14. Now the question arises as to how the period of 60 days prior to the date of transfer pricing order i.e. 01.11.2019 is to be computed. 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. Now, coming to the question of how the 60 day period is to be computed, the critical question would be whether the period of 60 days would be computed including the 31st of December or excluding it. Section 153 states that no order of assessment shall be made at any time after time expiry of 21 months from the end of the assessment year in which the income was first assessable. The submission of the revenue is to the effect
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that limitation expires only on 12 am of 01.01.2020. However, this would mean that an order of assessment can be passed at 12 am on 01.01.2020, whereas, in my view, such an order would be held to be barred by limitation as proceedings for assessment should be completed before 11.59.59 of 31.12.2019. The period of 21 months therefore, expires on 31.12.2019 that must stand excluded since Section 92CA(3A) states 'before 60 days prior to the date on which the period of limitation referred to Section 153 expires'. Excluding 31.12.2019, the period of 60 days would expire on 01.11.2019 and the transfer pricing orders thus ought to have been passed on 31.10.2019 or any date prior thereto. Incidentally, the Board, in the Central Action Plan also indicates the dale by which the Transfer Pricing orders are to be passed as 31.10.2019. The impugned orders are thus, held to be barred by limitation." 15. Identical issue has been decided by the co-ordinate Bench of the Tribunal in case of ECL Finance Ltd. vs. ACIT in ITA No.899/M/2018 order dated 22.09.2021and in case of Louis Dreyfus Commodities India Pvt. Ltd. vs. DCIT in ITA No.2381/Del/2014 order dated 11.03.2021 in favour of the assessee by following M/s. Pfizer Healthcare India Pvt. Ltd. (supra) case rendered by Hon’ble Madras High Court. 16. In view of what has been discussed above and following the order passed by the Hon’ble Madras High Court in case of M/s. Pfizer Healthcare India Pvt. Ltd. (supra) and order passed by the co-ordinate Bench of the Tribunal in case of ECL Finance Ltd. (supra) and Louis Dreyfus Commodities India Pvt. Ltd. (supra) on the identical issue, we are of the considered view that as per limitation prescribed under section 153 of the Act that assessment order was required to be passed within a
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period of 21 months from the end of assessment year i.e. A.Y. 2016-17 and a further period of 12 months is to be added in case reference is made under section 92CA of the Act to the Ld. TPO, meaning thereby the period of 60 days expires to pass the transfer pricing order on 31.10.2019 whereas the transfer pricing order has been passed in this case on 01.11.2019 i.e. beyond the period of 60 days, hence barred by limitation. 17. Since the order passed by the Ld. TPO is held to be barred by limitation the same is illegal, null and void ab- initio, hence quashed. Consequently, the assessment order passed by the AO, qua transfer pricing adjustment only, is also without jurisdiction and as such is no order in the eyes of law hence quashed. Keeping in view the findings returned by the Bench on legal issue we deem it not necessary to go into the grounds raised by the assessee on merit. Consequently, appeal filed by the assessee is allowed.
We considering the facts, circumstances and the ratio of the judicial decisions discussed above found that the order passed by the TPO is barred by the limitation is illegal and void ab-initio and is quashed. Consequently assessment order passed after transfer pricing adjustment is without jurisdiction. Since the additional grounds of appeal are allowed in favour of the assessee the original grounds of appeal in respect of transfer pricing issues are not adjudicated and are left open.
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Whereas in the original grounds of appeal nos 25 and 26, the asssesssee has challenged the disallowance u/s 14A of the Act. The Ld. AR referred to the submissions filed in the asssessement proceedings dealt at Para 5 of the assessment order. The Ld.AR emphasized that the assessee has substantial own funds in comparison to the investments and referred to the Audited financial statements and contended that the investments are made out of own funds which are more than the size of the investments, and hence no disallowance of interest is attributed under section 14A r.w,r 8D and relied on the following judicial decisions as under: (i.) The Honble Supreme Court in the case of South Indian Bank Ltd Vs CIT [2021] 438 ITR 1 SC hasobserved: Section 14A of the Income-tax Act, 1961 Expenditure incurred in relation to exempt income not includible in total income (General) Assessee-scheduled banks earned income from investments made in tax-free securities - Assessing Officer made proportionate disallowance of interest attributable to funds invested to earn tax free income under section 14A on grounds that separate accounts were not maintained for investment in tax-free securities Whether since interest free own funds available with assessee exceeded their investments; investments would be presumed to be made out of assessee's own funds and proportionate disallowance was not warranted under section 14A on ground that separate accounts were not maintained by assessee for investments and other
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expenditure incurred for earning tax-free income - Held, yes [Para 27] [In favour of assessee] Circulars and Notifications: Circular No. 18 of 2015, dated 2-11-2015
(ii.)Honble High Court of Bombay in the case of CIT Vs. Reliance Utilities & Power Ltd, [2009] 178 taxman 135 Bombay has observed as under:
Section 36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed capital - Assessee- company was engaged in business of generation of power - It had made investments in its sister concern from January, 2000 to March, 2000- Assessing Officer was of view that sum of Rs. 213 crores was invested out of assessee's own funds and Rs. 147 crores was invested out of borrowed funds Accordingly, Assessing Officer disallowed a part of interest claimed On appeal, assessee-company contended that it had interest-free funds worth Rs. 398 crores comprising of share capital, reserves and surplus and depreciation reserves and, thus, entire investment had been made in sister concern out of interest-free funds Commissioner (Appeals) accepted assessee's contention and directed Assessing Officer to allow entire amount of interest under section 36(1)(iii) Tribunal upheld order of Commissioner (Appeals) - On instant appeal, it was seen that Commissioner (Appeals) as also Tribunal had recorded a clear finding that assessee had interest-free funds of its own which had been generated in course of year commencing from 1-4-1999 Further, in terms of balance-sheet there was an availability of Rs. 398.19 crores including Rs. 180 crores of share capital - Whether
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if there are funds available, both, interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of interest-free funds generated or available with company, provided said funds are sufficient to meet investments Held, yes Whether since, in instant case, said presumption was clearly established in view of findings recorded by Commissioner (Appeals) and Tribunal, impugned order passed by said authorities was to be affirmed - Held, yes
We considering the facts, circumstances and the ratio of the judicial decisions applicable to the assessee and the Ld.AR has demonstrated the availability of substantial own funds in the financial statements for making the investments. But the A.O. has to verify and examine the evidences considering the judicial decisions and also the ratio of decision of Vireet Investment Pvt Ltd Vs. ACIT, 165 ITD 27 (Delhi SB) where only those investments which yield exempted income are considered for computing the average value of investments in respect of computing the disallowance under rule 8D(2)(iii) of the IT Rules.
We considering the facts and law discussed shall restore the disputed issue to the file of the AO to verify, examine and consider the judicial decisions and re- compute the disallowance u/s 14A r.w.r 8D of the Income
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Tax Rules and the grounds of appeal are allowed in favour of the asssessee for statistical purpose and finally the assessee appeal is partly allowed for statistical purposes.
ITA No. 29/Mum/2018, A.Y 2010-11 & C.O No. 21/Mum/2019, A.Y 2010-11
Since the assessee appeal is allowed by quashing the transfer pricing order, the revenue appeal and the CO filed by the assessee does stand on its legs and accordingly the revenue appeal and the CO of the assessee are dismissed.
In the result, the appeal filed by the revenue and CO by the asssessee are dismissed and the asseessee appeal is allowed for statistical purposes. Order pronounced in the open court on 22.12.2022. Sd/- Sd/- (BASKARAN BR) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 22.12.2022
KRK, PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent.
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संबं�धत आयकर आयु�त / The CIT(A) 4. आयकर आयु�त(अपील) / Concerned CIT �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Mumbai 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// 1. ( Asst. Registrar) ITAT, Mumbai