ECL Finance Limited Vs ACIT (ITAT Mumbai)
As per sub-section 3 to section 92CA inserted with effect from 1.6.2007 time limit for TPO to pass the order is within the period of sixty days prior to the date of completion of the order as per section 153 of the Act. Since reference under section 92CA sub section (1) has been made to the TPO the time limit for passing the assessment order as per section 153(4) is extended by 12 months from the time limit as in section 153(1) of the Act. Hence, time limit to pass assessment order in this case is 31.12.2016. Since the TPO order is passed on 1.11.2016, on the touchstone of the aforesaid decisions it is clear that the TPO order passed is time barred as the due date in this case was 31.10.2016.
Following the same reasoning as Coordinate Bench decision as above in which Hon’ble Madras High Court decision has been followed, we hold that the order passed by the TPO is time barred and hence, is not legally sustainable.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
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 (hereinafter referred to as ‘the DRP’) erred in assessing the total income of the assessee at Rs.2,52,39,54,290 as against Rs. 1,94,95,27,610 declared by the assessee in its revised return of income filed dated 31.03.2015.
Ground No.1 – Transfer Pricing Adjustments
a. Based on the facts and circumstances of the case and in law, the learned Transfer Pricing Officer (hereinafter referred to as ‘TPO’) and the learned AO, under the directions issued by the Hon’ble DRP, erred in making a disallowance of Rs. 45,35,45,982 to the Appellant’s total income based on the provisions of Chapter X of the Act.
b. Based on the facts and circumstances of the case and in law, the TPO erred and the Hon’ble DRP further erred in not considering the observation of the Hon’ble Supreme Court in the case of CIT v Glaxo SmithKline Asia (P) Ltd. (236 CTR 113) and the rationale, as provided in the Memorandum to the Finance Act 2012, behind bringing the specified domestic transaction within the ambit of transfer pricing regulations i.e. to curb tax arbitrage opportunities to taxpayers by shifting of income to nil or low tax paying entities such as over invoicing in a tax holiday undertaking or an undertaking having carry forward losses of past years.
a. Based on the facts and circumstances of the case and in law, the TPO erred and the Hon’ble DRP further erred in upholding/confirming the action of the TPO in not demonstrating that the motive of the Appellant was to evade taxes by manipulating the prices in its specified domestic transactions as rating support fees and interest on structured loans have already been offered to tax by the respective Associated Enterprises (hereinafter referred to as ‘AEs’) and that both the Appellant and AEs are subjected to and assessable at the same rate of tax.
b. Based on the facts and circumstances of the case and in law, the TPO erred and the Hon’ble DRP further erred in challenging the commercial expediency of the Appellant while availing the rating support services & support services from the AEs.
c. Based on the facts and circumstances of the case and in law, the learned AO/TPO erred and the Hon’ble DRP further erred in not recording any reasons to show that conditions mentioned in clause (a) to (d) of section 92C(3) of the Act were satisfied before disreganingllic arm’s length 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 201213 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 considering the data obtained from Bloomberg database without providing cogent reason.
3) 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 corroborative benchmarking analysis submitted by Appellant wherein these same bonds were sold by the Appellant on the same day to unrelated parties.
4) 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 of selecting AE’s purchase from unrelated parties on a different date as comparable transactions for the purpose of benchmarking without appreciating differences in prices on account of various factors such as the timing of the trade, interest rate movements, etc.
5) Without prejudice, the learned AO/TPO erred in not considering the mean of consolidated comparables uncontrolled transaction i.e. comparables considered by the Appellant and the TPO.
6) On the facts and in the circumstances of the case and in law, the TPO erred and the Hon’ble DRP further erred in denying the benefit of 3 percent variation as per the proviso to the Section 92C(2) of the Act.
Ground No.3 – Adjustment in respect of interest paid on Structured Loan Interest on Structured Loan
7) 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 interest paid on structured loans to AE at Rs. 8,41,44,658 as against the transaction of Rs. 35,00,00,000 thereby making an adjustment of Rs. 26,58,55,342
8) On the facts and in the circumstances of the case and in law, the TPO erred and the Hon’ble DRP further erred in comprehending structured loans, a form of a derivative transaction and erroneously adopted average annualized interest rate in respect of Nifty linked debentures, as arm’s length price in respect of interest paid on structure loans.
9) On the facts and in the circumstances of the case and in law, the TPO erred and the Hon’ble DRP further erred in the undertaking an incorrect benchmarking despite acknowledging that the said transaction was in the nature of a derivative activity for which payment of interest is dependent upon happening or non-happening of an event, whereas in respect of Nifty linked debentures 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 erred in rejecting the detailed functional, asset and risk analysis carried out by the Appellant in respect of rating support services availed from the AE.
c. Based on the 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 of arbitrarily disregarding the evidence furnished to demonstrate the role played/information provided by the AE (which is not available in public domain) to the credit rating agencies.
d. Based on the facts and circumstances of the case and in law, the TPO erred and the Hon’ble DRP further erred in not appreciating the explicit support provided by the AE in respect of rating support services transaction and drawing erroneous analogy from the OECD – guidelines/Base Erosion and Profit Shifting (‘BEPS’) Action Plan.
e. Based on the facts and circumstances of the case and in law, the learned TPO erred and the Hon’ble DRP further erred in rejecting the credit rating of the Appellant on a standalone basis certified by an Independent Government Certified Valuer without pointing out any deficiency or insufficiency in the same.
f. Based on the facts and circumstances of the case and in law, the learned TPO erred and the Hon’ble DRP further erred in not appreciating/ overlooking the benefit which got accrued to the Appellant on account of rating support services availed from the AE.
g. Based on the facts and circumstances of the case and in law, the Hon’ble DRP erred in restricting the arm’s length compensation for the rating support fee only in the instances wherein corporate guarantee was given by the AE.
h. Based on the facts and circumstances of the case and in law, the Hon’ble DRP erred in holding the arm’s length compensation on the adhoc basis of 0.50 per cent of the guaranteed amount.
i. The Appellant submits that it has made the payment of rating support fees to its AE and the same is at arm’s length and accordingly, the learned AO shall be directed to delete the adjustment made.
Ground No.5 – Disallowance of Mark to Market loss
a. The learned AO erred in disallowing Rs.5,25,65,533 being provision for Mark to Market Loss on trading in derivative instruments by treating it as notional loss.
The Appellant submits that it has claimed provision for mark to market loss arising 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 u/s 14A of the Act is excessive and unreasonable.
Ground No.8 – Short credit of TDS
a. Based on the facts and circumstances of the case and in law, the AO erred in allowing TDS credit of Rs.47,62,88,676 as against TDS claim of Rs.54,67,28,068 as per revised tax return filed by the Appellant, resulting into short TDS credit of Rs.7,04,39,392.
b. Consequentially, the AO also erred in charging interest u/s 234B and u/s 234C of the Art.
The AO erred in initiating the penalty proceedings u/s 271(l)(c) of the I.T. Act. The Appellant prays that the adjustment in relation to the corporate tax and transfer pricing matters made by the learned AO/ TPO and upheld by the Hon’ble DRP be deleted.
The Appellants pray that the AO be directed suitably in the matter.
The Appellants crave leave to add to, alter, amend, vary, omit or substitute the aforesaid grounds of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal as they may be advised.”
3. Assessee has filed following additional grounds :-
“1. The Appellant submits that the Transfer Pricing Order dated 01/11/2016 passed u/s 92CA(3A) of the Act is barred by limitation as per section 153 r.w.s. 92CA(3A) of the Act. Hence, the same deserves to be quashed.
2. The Appellant submits that section 92BA (i) of the Income Tax Act, 1961 (Act) has been omitted by Finance Act 2017. w.e.f 01.04.2017 without a saving clause, thereby implying that such law never existed in the statute book. Hence, the transaction of payments made by the Appellant to persons referred to in section 40A (2) (b) is not a “specified domestic transaction” under section 92BA of the Act and, hence, the transfer pricing adjustment made in this behalf is liable to be quashed.
3. The Assistant Commissioner of Income Tax, Circle 3(1)(2), Mumbai (AO) and DRP ought to have allowed the deduction of Education Cess while computing business income of the Appellant.”
4. Furthermore the assessee has filed another additional ground which is related to jurisdictional challenge regarding time limit to pass the order. The ground raised is that the order passed under section 92CA(3) of the I.T. Act is barred by limitation as per section 153 of the Act.
5. It has been pleaded that this additional ground needs to be admitted as it goes to the root of the matter and it is a legal issue. 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.
