TII Instant Update - 2017-TII-INSTANT-ALL-481

CASE LAWS

2017-TII-61-HC-MAD-TP

CIT Vs SANMINA SCI INDIA PVT LTD: MADRAS HIGH COURT (Dated: August 8, 2017)

Income Tax - TP - Sections 10A, 92CA(1), 143(3), 144C(1) & (13).

Keywords - ALP - DRP - Final assessment - Set off of losses - Variations sources.

Whether if AO makes fresh addition or variation in the final assessment order, evidently different from the Draft order, it tends to violate the scheme mandated u/s 144C - YES: HC

Whether any freedom given to the AO to pass an order different from the Draft Order would amount to passing multiple orders in a single proceeding - YES: HC

Whether any variation in the priority of set off of losses claimed by the assessee in the final assessment order passed on direction of the DRP amounts to excess of AO's jurisdiction u/s 144C(13) - YES: HC

The Transfer Pricing Officer (TPO) passed an order determining the Arms Length Price (ALP) of International Transactions. On basis of this order the AO made TP adjustment. Also, the computation of relief u/s 10A was adjusted, to exclude insurance and telecommunication expenses only from the export turnover. On appeal, the Dispute Resolution Panel (DRP) issued directions on both the pertinent issues. While executing the order, the AO made a fresh disallowance, being the aggregation of income/loss from variations sources under the same head of income prior to granting relief u/s 10A. The AO relied upon a CBDT Circular, to hold that since the aggregation resulted in a loss of an amount of Rs.16,15,76,717/-, there was no profit. Thus the relief u/s 10A, of an amount of Rs.2.98 crores was not liable to be allowed. The returned loss of an amount of Rs.19,14,03,268/- was thus reduced to the extent of deduction u/s 10A. On further appeal, The Tribunal accepted the contention of the assessee, and set aside the adjustment effected by the AO w.r.t. treatment of brought forward losses prior to allowance of deduction u/s 10A. The department was directed to grant deduction first prior to effecting adjustment of brought forward losses.

On appeal, the High Court held that,

+ the scheme of sec.144C would be violated if the AO takes it upon himself to include in the final order of assessment such additions/disallowance/variations that do not form part of the order of draft assessment. We do not agree with the submission of the Counsel for the Revenue to the effect that since the provisions of s.10A have been dealt with in the order of assessment, albeit in another context, the AO is at liberty to consider any and all aspects relating to sec.10A including the issue of priority in the set off of losses at the stage of final assessment. The proposition sought to be put forth is too wide to be accepted and would distort the scheme of sec.144C;

+ acceptance of the proposition advanced by the Revenue would tantamount to giving leave to the AO to pass more than one order of assessment in the course of a single proceeding, which is not envisaged in the scheme of the Act. Subsequent assessments either rectifying, revising or reopening the original assessment are permitted by exercising specified powers under different statutory provisions. The order of draft assessment u/s 144C(1) is for all intents and purposes an order of original assessment though in draft form. In this light of the matter, the order of the Tribunal to this effect is right in law and calls for no interference;

+ while the scheme of assessment set out in s.144B and s.144C appear to be similar upto a point, there is a material and substantive difference therein that is brought about by the presence of s.144C(13). Both provisions remain similar upto the stage of disposal of objections by IAC/DRP. Sub-section (13) of s.144C is specific and mandates that the AO shall issue the order of final assessment in conformity with the directions of the DRP without provision of any further opportunity of being heard to the Assessee, within one month from the end of the month, in which the directions are received. The express language of sub-section (13) thereof would admit of no other interpretation. The variation in the order of final assessment dated 22.2.2014 relating to the priority of set off of losses is purely misconceived and an excess of jurisdiction by the AO in terms of s.144C(13).

Revenue's appeal dismissed