| 2018-TII-INSTANT-ALL-534 | 22 February 2018 |
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TII BRIEF India-Kenya DTAA revised; tax rates reduced... CASE LAWS TEVAPHARM INDIA PVT LTD Vs ACIT: DELHI ITAT (Dated: February 16, 2018) Income tax - Sections 143(3), 144C(13), 253(1)(d), 254, 271(1)(c) & 274 Keywords - draft assessment - directions of DRP - final assessment order - penalty procedings - remand matter Consequent to filing of assessee's return, the case was selected for scrutiny and the matter was referred to the TPO for determination of ALP of the international transaction entered into by the assessee with its AE. In the transfer pricing assessment, the TPO suggested certain adjustments which was incorporated by AO and draft assessment order was passed, thereby making an upward adjustment of Rs. 56.07 crores which was mainly on account of international transaction pertaining to contract manufacturing segment, provision of business support services and reimbursement of expenses. Against the said draft assessment order, the assessee filed its objection before the DRP, who issued certain directions to be made on account of adjustments, and in pursuance of such direction, final assessment order was passed u/s 143(3) r.w.s. 144C(13) at an income of Rs. 89.98 crores. Against the said final assessment order, assessee in terms of section 253(1)(d) filed an appeal before the Tribunal, who then remanded back the entire transfer pricing adjustments to the file of AO. In pursuance of such setting aside of the entire transfer pricing issue, the AO again referred the matter to the TPO, who enhanced the TP adjustment by Rs. 11,85,24,905/-. Thereafter, based on the TPO’s recommendation of the proposed adjustment, the AO added the said amount and passed final assessment order u/s 254/143(3)/144C. He also issued demand notice for payment of Rs. 11,68,29,560/- and also initiated penalty proceedings u/s 271(1)(c) r.w.s 274. On appeal, the ITAT held that, Whether an appeal before the Tribunal against the assessment order would lie, if it has been passed in pursuance of direction given by DRP in terms of section 144C, and no appeal can be filed before the FAA in such case - YES: ITAT Whether when an appeal has been disposed of by the Tribunal by remanding back the matter before AO to pass fresh assessment, then the only remedy open for appeal is before the FAA in terms of section 246 & 246A in case assessee is aggrieved by such fresh assessment - YES: ITAT + it is seen that in the present case, the appeal has not been filed against the final assessment order which has been passed in pursuance of the directions given by the DRP in terms of section 144C(13). It is to be noted that Section 253(1)(d) provides that the order passed by AO in pursuance of directions of DRP can be filed before the Tribunal. Similarly in section 246A(1)(a), exception has been carved out for the filing of appeal before CIT(A) against an order passed in pursuance of the direction of DRP. From the conjoint reading of both the sections, it is quite ostensive that the appeal before the Tribunal against the assessment order would lie, if it has been passed in pursuance of direction given by the DRP in terms of section 144C and no appeal can be filed before the first appellate authority in such a case. In the original round of proceedings, the appeal before the Tribunal has come through DRP route and that is the reason how this Tribunal has decided the appeal and thereafter has remanded the matter back to the file of the AO/TPO. Once an appeal has been disposed of by the Tribunal by remanding back the matter before the AO to pass fresh assessment order in accordance with the law, then it relegates back to the stage of assessment proceedings as if it is a fresh assessment which has to be done by the A.O. Even if the matter is remanded with specific direction or purpose of verification or re-computation etc., then also the AO has to give effect to such direction and pass a fresh assessment order thereby determining the income of the assessee and work out the tax demand accordingly. If the assessee is aggrieved by such an assessment order giving effect to the appellate order, then in that case, the only remedy open for appeal is before the FAA in terms of section 246 and 246A; Whether when the final assessment order has been passed in contravention of any statutory provision, the only course open for the assessee to seek for remedy is, firstly, to file appeal before appropriate forum/authority - YES: ITAT Whether when an assessment order has been passed post remanding back by the Tribunal, then appeal will lie to the appropriate authority/ forum and the Tribunal does not have any jurisdiction to entertain an appeal which is not provided under the statute - YES: ITAT ++ it is seen that in the present case, the AO instead of passing draft assessment order u/s 144C, which he was though mandatorily required under the law, has passed a final assessment order. Whether such an order may survive or not, is an altogether a secondary issue, because, at the threshold what is required to be seen is that, the statutory remedy of appeal has to be before the appropriate authority. If an appeal mechanism has been provided under the statute for different kind of orders before different authorities, then such an authority alone has the jurisdiction to decide the appeal. Even if the final assessment order has been passed in contravention of any statutory provision or any judicial precedent, the only course open for the assessee to seek for remedy is, firstly, either to file appeal before the appropriate forum/authority in terms of the provisions of law, which lies before the CIT (A); or secondly, assessee has other constitutional remedy before the High Court under extra ordinary jurisdiction, of course with the discretion of Court. If an assessment order has been passed post remanding back by the Tribunal, then appeal will lie to the appropriate authority/ forum and the Tribunal does not have any jurisdiction to entertain an appeal which is not provided under the statute. Accordingly, the appeal filed by assessee is not maintainable before the Tribunal and hence treated as infructuous being not been filed before the appropriate authority under the law. Assessee's appeal dismissed RAIN INDUSTRIES LTD Vs DCIT: HYDERABAD ITAT (Dated: January 31, 2018) Income Tax - Sections 92B, 92CA & 133(6). Keywords - Debt equity ratio - Notional fee - Risk free loan - Shareholder corporate guarantee The Assessee-company, engaged in the manufacturing and selling of cement and calcined petroleum coke. The Assessee had filed its return for the relevant AY. On reference made by the AO, TPO noted that the Assessee had transactions in the nature of corporate guarantee issued to one of its wholly owned company namely, Rain CII Carbon LLC, USA Inc. wherein, the Assessee had guaranteed the loans availed by its AEs. However, no fees was charged for such guarantee. After analysing the interest coverage and debt equity ratio of both the Assessee and its AE, it was found that the Assessee was enjoying a better credit rating as compared to its AE by showing a lower debt equity ratio and higher interest coverage. Thus, the TPO believed that such guarantee converted a risky loan into a risk free loan to the bankers, which provided loans to the Assessee's AE in USA and therefore, the Assessee had carried huge costs in terms the risks and was required to be compensated in the form of fee for providing the bank guarantee. Further, after getting information from SBI, TPO noted that the said information clearly stated that the rates charged by the bank on bank gurantee were in the range of 0.175% pm upto 5 crores and 0.15% pm above 10 crores and accordingly, worked out the fee that would be chargeable on the amount of loan. Subsequently, TPO conclude that an amount of 2% p.a. on the opening balance or the maximum during the year at an appropriate conversional rate would be the ALP. Therefore, TPo computed the TP adjustment for the purpose of ALP of corporate guarantee and suggested an adjustment u/s 92CA. On appeal, the DRP directed the AO to compute the ALP of the gurantee @1.80%. Following the DRP's direction, the AO recomputed the guarantee. On appeal, the Tribunal held that, Whether the amendment made to section 92B can be applied retrospectively - NO: ITAT Whether any TP adjustment can be made on the shareholders corporate guarantee provided to the bank of the AE, for the purpose of its business operations - NO: ITAT + it is seen that the Counsel for the Assessee submitted that the issue in dispute is squarely covered by the decision of the coordinate bench of this Tribunal in Assessee's own case for AY 2009-10 & 2010-11 vide order dated 26/04/2017 in ITA No. 222/Hyd/14 and 309/Hyd/2015 and others and in the group cases of the Assessee. It was further submitted that in M.A. No. 32 & 33/Hyd/2017, the Tribunal has allowed the contention of the Assessee that amendment to sec 92B is applicable prospectively and accordingly deleted the corporate guarantee addition. Therefore, considering all the submissions, the coordinate bench in Assessee's own cases and its group cases, it is to be noted that the amendment to sec 92B are applicable prospectively from AY 2013-14. Therefore, the amended provision is not applicable to the present AY under consideration. Case Remanded |
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