ADVERTISEMENT
Karnataka High Court
United Spirits Limited vs Deputy Commissioner Of Income Tax on 21 February, 2026
Author: M.Nagaprasanna
Bench: M.Nagaprasanna
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 21ST DAY OF FEBRUARY, 2026
BEFORE
THE HON'BLE MR. JUSTICE M. NAGAPRASANNA
WRIT PETITION No.18439 OF 2024 (T - IT)
C/W
WRIT PETITION No.18474 OF 2024 (T - IT)
IN WRIT PETITION No.18439 OF 2024
BETWEEN:
UNITED SPIRITS LIMITED
A COMPANY REGISTERED UNDER
THE COMPANIES ACT 1956 AND
HAVING ITS OFFICE AT UB TOWERS
NO.24, VITTAL MALLYA ROAD
BENGALURU - 560 001
REPRSENTED HEREIN BY ITS
GENERAL MANAGER
MR.JAYATHEERTHA KULKARNI
... PETITIONER
(BY SRI MR.PERCY PARDIWALLA, SR.ADVOCATE FOR
SMT.TANMAYEE RAJKUMAR, ADVOCATE)
AND:
1. DEPUTY COMMISSIONER OF INCOME TAX
2
TRANSFER PRICING 2(2)(2)
HAVING HIS OFFICE AT
80 FEET ROAD, BMTC BUILDING
KORAMANGALA
BENGALURU - 560 095.
2. JOINT COMMISSIONER OF INCOME-TAX
SPECIAL RANGE-7,
HAVING HIS OFFICE AT
80 FEET ROAD, BMTC BUIDLING
KORAMANGALA
BENGALURU - 560 095.
3. DEPUTY COMMISSIONER OF INCOME-TAX
CENTRAL CIRCLE 2(1),
HAVING HIS OFFICE AT
C R BUILDING ANNEXE
NO.1, QUEEN'S ROAD
BENGALURU - 560 001.
4. PRINCIPAL COMMISSIONER OF
INCOME TAX (CENTRAL)
HAVING OFFICE
C R BUILIDNG, ANNEXE
NO.1, QUEEN'S ROAD
BENGALURU - 560 001.
... RESPONDENTS
(BY SRI Y.V.RAVI RAJ, ADVOCATE)
THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF THE
CONSTITUTION OF INDIA PRAYING TO A) DECLARING THAT THE
IMPUGNED PROCEEDINGS ARE BARRED BY LIMITATION; B)
QUASHING THE COMMUNICATION DATED 18/06/2024 (ANNEXURE-
K) BEARING NO. ITBA/COM/F/2024-25/1065690239(1) ISSUED BY
THE R3 TO THE PETITIONER FOR THE ASSESSMENT YEAR 2014-15
AS BEING BARRED BY LIMITATION AND THUS WITHOUT
JURISDICTION; C) DIRECTING THE RESPONDENTS TO FORTHWITH
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REFUND THE TAXES PAID OVER AND ABOVE THE RETURNED
INCOME FOR ASSESSMENT 2014-15 TOGETHER WITH APPLICABLE
INTEREST.
IN WRIT PETITION No.18474 OF 2024
BETWEEN:
UNITED SPIRITS LIMITED
A COMPANY REGISTERED UNDER
THE COMPANIES ACT, 1956 AND
HAVING ITS OFFICE AT UB TOWERS
NO.24, VITTAL MALLYA ROAD,
BENGALURU - 560 001
REPRESENTED HEREIN BY ITS
GENERAL MANAGER
MR. JAYATHEERTHA KULKARNI.
... PETITIONER
(BY SRI MR.PERCY PARDIWALLA, SR.ADVOCATE FOR
SMT.TANMAYEE RAJKUMAR, ADVOCATE)
AND:
1. DEPUTY COMMISSIONER OF INCOME TAX
TRANSFER PRICING 2(2)(2)
HAVING HIS OFFICE AT
80 FEET ROAD, BMTC BUILDING
KORAMANGALA
BENGALURU - 560 095.
2. DEPUTY COMMISSIONER OF INCOME TAX
CIRCLE 7(1)(1)
HAVING HIS OFFICE AT
80 FEET ROAD, BMTC BUILDING
KORAMANGALA
BENGALURU - 560 095.
4
3. DEPUTY COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE 2(1)
HAVING HIS OFFICE AT
C R BUILDING, ANNEXE
NO.1, QUEEN'S ROAD
BENGALURU - 560 001.
4. PRINCIPAL COMMISSIONER OF INCOME TAX
(CENTRAL)
HAVING OFFICE
QUEEN'S ROAD
BENGALURU - 560 001.
... RESPONDENTS
(BY SRI Y.V.RAVI RAJ, ADVOCATE)
THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF THE
CONSTITUTION OF INDIA PRAYING TO A) DECLARING THAT THE
IMPUGNED PROCEEDINGS ARE BARRED LIMITATION; B)
QUASHING THE COMMUNICATION DATED 18/06/2024 (ANNEXURE-
T) BEARING NO. ITBA/COM/F/17/2024-25/1065690239(1) ISSUED
BY THE R3 TO THE PETITIONER FOR THE AY 2013-14 AS BEING
BARRED BY LIMITATION AND THUS WITHOUT JURISDICTION; C)
DIRECTING THE RESPONDENTS TO FORTHWITH REFUND THE
TAXES PAID OVER AND ABOVE THE RETURNED INCOME FOR
ASSESSMENT 2013-14 TOGETHER WITH APPLICABLE INTEREST.
THESE WRIT PETITIONS HAVING BEEN HEARD AND
RESERVED FOR ORDERS, COMING ON FOR PRONOUNCEMENT THIS
DAY, THE COURT MADE THE FOLLOWING:-
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CORAM: THE HON'BLE MR JUSTICE M.NAGAPRASANNA
CAV ORDER
The parties to the lis in both these cases are common. Relief
sought also is identical, but facts are different. Therefore, the facts
obtaining in each of the petitions would be narrated separately.
2. Heard Sri Percy Pardiwalla, learned senior counsel
appearing for the petitioner and Sri Y. V. Ravi Raj, learned counsel
appearing for the respondents.
3. Facts in brief, germane, are as follows: -
WRIT PETITION NO.18474 of 2024:
3.1. The petitioner is a public limited company engaged in the
business of manufacture and sale of alcoholic beverages. The issue
in the lis revolves around the return of income filed by the company
for the assessment year 2013-14 declaring a total income of
₹4,93,71,22,200/-. Since the petitioner enters into international
transactions, the 2nd respondent/Deputy Commissioner of Income-
Tax, Central Circle on 30-09-2015 makes a reference to the Deputy
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Commissioner of Income-Tax, Transfer Pricing, under Section
92CA(1) of the Income Tax Act, 1961 (hereinafter referred to as
'the Act' for short) for determining arm's length price of the
transactions entered into by the petitioner. In furtherance of the
aforesaid communication, an order is passed under Section 92CA(3)
of the Act determining an aggregate transfer pricing adjustment of
₹7,38,89,39,877/-. After determining the aggregate transfer pricing
adjustment, a draft assessment order is passed under Section
143(3) r/w Section 144C(1) of the Act declaring the total income at
₹15,60,38,20,756/-. The petitioner aggrieved by the said
determination files its objections before the Dispute Resolution
Panel and the Dispute Resolution Panel does not interfere with the
draft assessment order, issues certain directions under Section
144C(5), but nonetheless upheld the transfer pricing adjustment.
On closure of the dispute, final assessment order is passed under
Section 143(3) r/w Section 144C(13) of the Act determining total
income of the petitioner at ₹15,19,93,90,755/- Aggrieved by the
said determination the petitioner files an appeal before the Income
Tax Appellate Tribunal ('the Tribunal' for short). The Tribunal partly
allows petitioner's appeal, remits the matter back to the
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respondents Nos.1 and 2 on certain grounds. Pursuant to the said
remand, the petitioner communicates seeking the respondents to
pass an order giving effect to the order of the Tribunal. On 24-03-
2023 the 1st respondent issues a notice under Section 92CA(2) of
the Act calling upon the petitioner to furnish evidence/material
relied upon by the petitioner for computation of the arm's length
price and to decide other issues as mentioned in the order. The
petitioner then replies on 12-04-2023 which results in two notices
being issued on 20-10-2023 and 15-11-2023 again seeking the
petitioner to furnish certain details. This is replied to by the
petitioner on two dates, one on 27-10-2023 and the other on
05-01-2024. On the said reply, the 1st respondent issued a notice
under Section 92CA(2) of the Act, calling upon the petitioner again
to produce certain documents on or before 01-03-2024. The
petitioner on 28-02-2024 furnished the said details through reply
submissions. On 07-02-2024 the jurisdiction of the petitioner was
transferred from respondent No.2 to respondent No.3. On 31-03-
2024, the petitioner contended that the time provided under
Section 153(5) r/w Section 153(3) of the Act for giving effect to the
order of the Tribunal expired on 31-03-2024. The petitioner
8
communicates to the 3rd respondent seeking refund of the tax paid
over and above the return of income, by contending that the time
for passing an order to give effect to the order of the Tribunal
expired on 31-03-2024. Since the 3rd respondent failed to pass an
order giving effect to the said order, refund must ensue. The
representation comes to be rejected by the impugned order dated
18-06-2024 holding that issuance of refund in a remand proceeding
would be time barred only by 31-03-2025 and not by 31-03-2024
as was contended. The petitioner aggrieved by the said order is
before this Court in the subject petition, to set aside the order
impugned and for a direction to refund the tax paid over and above
the return of income for the assessment year 2013-14 with
applicable interest.
WRIT PETITION NO.18439 of 2024:
3.2. The position of the petitioner in this petition remains the
same as in the companion petition. The petitioner here files a return
of income for the assessment year 2014-15 declaring its income as
₹3,87,70,39,200/-. The petitioner then noticing certain defects
filed a revised return of income declaring total income of
9
₹4,64,40,44,920/- for the assessment year 2014-15. Again, since
the petitioner had entered into international transactions for the
assessment year 2014-15 the order comes to be passed under
Section 92CA(1) of the Act determining the transfer pricing
adjustment for the said assessment year in terms of an order dated
26-10-2017. This leads to passing of a draft assessment order on
26-12-2017 by incorporating the transfer pricing adjustment and
disallowing the income declared in the return and determining a
total income at ₹18,26,72,09,820/-. The balance tax payable
including interest was determined at ₹6,43,88,41,680/-. The
petitioner goes before the Dispute Resolution Panel, which upheld
the transfer pricing adjustment and the order of Transfer Pricing
Officer. After the dispute resolution failed, an order is passed by
the Joint Commissioner of Income-Tax/2nd respondent, determining
the total income at ₹16,09,01,40,058/-. The petitioner approaches
the Tribunal by filing an appeal and the Tribunal along with the
companion appeal disposes the subject appeal also, allowing it in
part and remitting the matter back after which, for the first-time a
notice was issued on 20-02-2024 and the contention with regard to
10
limitation and its expiry remains the same as obtaining in the
companion petition.
4. The learned senior counsel Sri. Percy Pardiwalla appearing
for the petitioners would contend that Section 153 of the Act
provides the period within which the Assessing Officer has to frame
an assessment. Under Section 153(3) an order of fresh assessment
or an order under Section 92CA of the Act made in pursuance of an
order under Section 254, must be made before the expiry of 9
months from the end of the financial year in which the order under
Section 254 of the Act is received by the Commissioner. He would
emphasize on the fact that Section 153(4) is a non-obstante clause
and provides that when a reference is made under Section 92CA(1)
of the Act, during the course of proceedings for assessment or re-
assessment, the period can be extended by 12 months by the said
assessment year. The order of the Tribunal is received by the
designated authority in the financial year 2022-23. Therefore, the
learned senior counsel submits that the limitation expired on 31-03-
2024, as a result of which the respondents are precluded from
giving effect to the order of the Tribunal. The impugned order
11
observes that the period would expire on 31-03-2025 without any
basis and therefore, refund is sought from the hands of the
respondents over and above the tax paid after filing of the return of
income in Writ Petition No.18474 of 2024 for the assessment year
2013-14. The learned senior counsel submits that the entire issue
revolves round on limitation for passing an order as obtaining under
Section 153 of the Act.
5. Per contra, the learned counsel Sri Y. V. Ravi Raj
representing the revenue would vehemently refute the submissions
in contending that under Section 153(5) of the Act when an order
under Section 254 requires verification on any issue by submission
of a document, the time that is specified would become 12 months
from the end of the financial year in which the Tribunal's order is
received. It is the case of the revenue that normal time limit for
acquiring fresh assessment would not become applicable in the case
at hand. Since reference is made under Section 92CA, time limit for
completing fresh assessment is extended by additional 12 months
beyond the normal time limit. Therefore, expiry of the time limit
would be 31-03-2025 and not 31-03-2024 as is contended by the
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petitioners. He would further contend that the case at hand is a
case of de novo assessment under Section 92CA, as the order of
the Tribunal has set aside the Transfer Pricing Assessment in its
entirety. The reference under Section 92CA continues, since the
case sprang out of the said reference and the limitation is governed
under Section 153(4) and not Section 153(5) of the Act.
6. I have given my anxious consideration to the submissions
made by the respective leaned counsel and have perused the
material on record. In furtherance whereof, the issues that call for
consideration are:-
(i) Whether the reference under Section 92CA(1) to the
Transfer Pricing Officer by the Assessing Officer or the
matter remitted back to the Transfer Pricing Officer by
the Tribunal would decide limitation under Section
92CA(3) of the Act?
(ii) In the facts of the case whether the limitation period is
governed under Section 153(3), 153(4) or 153(5) of the
Act?
13
ISSUES 1 AND 2:
7. Since the issues are intertwined, they are taken up
together and considered. To consider these issues, it is germane to
notice Section 92CA of the Act. It reads as follows:
"Section 92CA - Reference to Transfer Pricing Officer. -
(1) Where any person, being the assessee, has entered
into an international transaction or specified domestic
transaction in any previous year, and the Assessing
Officer considers it necessary or expedient so to do, he
may, with the previous approval of the Principal
Commissioner or Commissioner, refer the computation of
the arm's length price in relation to the said international
transaction or specified domestic transaction under
section 92C to the Transfer Pricing Officer.
(2) Where a reference is made under sub-section (1), the
Transfer Pricing Officer shall serve a notice on the
assessee requiring him to produce or cause to be
produced on a date to be specified therein, any evidence
on which the assessee may rely in support of the
computation made by him of the arm's length price in
relation to the international transaction or specified
domestic transaction referred to in sub-section (1).
(2A) Where any other international transaction other than an
international transaction referred under sub-section (1), comes
to the notice of the Transfer Pricing Officer during the course of
the proceedings before him, the provisions of this Chapter shall
apply as if such other international transaction is an
international transaction referred to him under sub-section (1).
(2B) Where in respect of an international transaction, the
assessee has not furnished the report under section 92E and
such transaction comes to the notice of the Transfer Pricing
Officer during the course of the proceeding before him, the
14
provisions of this Chapter shall apply as if such transaction is an
international transaction referred to him under sub-section (1).
(2C) Nothing contained in sub-section (2B) shall empower the
Assessing Officer either to assess or reassess under section 147
or pass an order enhancing the assessment or reducing a refund
already made or otherwise increasing the liability of the
assessee under section 154, for any assessment year,
proceedings for which have been completed before the 1st day
of July, 2012.
(3) On the date specified in the notice under sub-section
(2), or as soon thereafter as may be, after hearing such
evidence as the assessee may produce, including any
information or documents referred to in sub-section (3)
of section 92D and after considering such evidence as the
Transfer Pricing Officer may require on any specified
points and after taking into account all relevant materials
which he has gathered, the Transfer Pricing Officer shall,
by order in writing, determine the arm's length price in
relation to the international transaction or specified
domestic transaction in accordance with sub-section (3)
of section 92C and send a copy of his order to the
Assessing Officer and to the assessee.
(3A) Where a reference was made under sub-section (1) before
the 1st day of June, 2007 but the order under sub-section (3)
has not been made by the Transfer Pricing Officer before the
said date, or a reference under sub-section (1) is made on or
after the 1st day of June, 2007, an order under sub-section (3)
may be made at any time before sixty days prior to the date on
which the period of limitation referred to in section 153, or as
the case may be, in section 153B for making the order of
assessment or reassessment or recomputation or fresh
assessment, as the case may be, expires:
Provided that in the circumstances referred to in clause (ii) or
clause (x) of Explanation 1 to section 153, if the period of
limitation available to the Transfer Pricing Officer for making an
order is less than sixty days, such remaining period shall be
extended to sixty days and the aforesaid period of limitation
shall be deemed to have been extended accordingly.
15
(4) On receipt of the order under sub-section (3), the Assessing
Officer shall proceed to compute the total income of the
assessee under sub-section (4) of section 92C in conformity with
the arm's length price as so determined by the Transfer Pricing
Officer.
(5) With a view to rectifying any mistake apparent from the
record, the Transfer Pricing Officer may amend any order passed
by him under sub-section (3), and the provisions of section 154
shall, so far as may be, apply accordingly.
(6) Where any amendment is made by the Transfer Pricing
Officer under sub-section (5), he shall send a copy of his order
to the Assessing Officer who shall thereafter proceed to amend
the order of assessment in conformity with such order of the
Transfer Pricing Officer.
(7) The Transfer Pricing Officer may, for the purposes of
determining the arm's length price under this section, exercise
all or any of the powers specified in clauses (a) to (d) of sub-
section (1) of section 131 or sub-section (6) of section 133 or
section 133A.
........ ....... ......."
(Emphasis supplied)
Where a person being an assessee enters into an international
transaction in any previous year and the Assessing Officer considers
it necessary or expedient to do so, he may refer the matter for
computation of arm's length price under Section 92C to the
Transfer Pricing Officer. The procedure stipulated is mandated
under sub-sections (2) and (3) of Section 92CA. Section 153 of the
Act reads as follows:
16
"Section 153 - Time limit for completion of assessment,
reassessment and recomputation:
(1) No order of assessment shall be made under section 143 or
section 144 at any time after the expiry of twenty-one months
from the end of the assessment year in which the income was
first assessable:
........ ....... .......
(3) Notwithstanding anything contained in sub-sections (1),
(1A)and (2), an order of fresh assessment or fresh order under
section 92CA, as the case may be, in pursuance of an order
under section 254 or section 263 or section 264, setting aside or
cancelling an assessment, or an order under section 92CA, as
the case may be, may be made at any time before the expiry of
nine months from the end of the financial year in which the order
under section 254 is received by the Principal Chief Commissioner
or Chief Commissioner or Principal Commissioner or
Commissioner or, as the case may be, the order under section
263 or section 264 is passed by the Principal Chief Commissioner
or Chief Commissioner or Principal Commissioner or
Commissioner, as the case may be :
Provided that where the order under section 254 is received by
the Principal Chief Commissioner or Chief Commissioner or
Principal Commissioner or Commissioner or, as the case may be,
the order under section 263 or section 264 is passed by the
Principal Chief Commissioner or Chief Commissioner or Principal
Commissioner or Commissioner, as the case may be, on or after
the 1st day of April, 2019, the provisions of this sub-section shall
have effect, as if for the words "nine months", the words "twelve
months" had been substituted.
(4) Notwithstanding anything contained in sub-sections (1),
(1A), (2), (3) and (3A), where a reference under sub-section (1)
of section 92CA is made during the course of the proceeding for
the assessment or reassessment, the period available for
completion of assessment or reassessment, as the case may be,
under the said sub-sections (1), (1A), (2), (3) and (3A), shall be
extended by twelve months.
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(5) Where effect to an order under section 250 or section 254 or
section 260 or section 262 or section 263 or section 264 is to be
given by the Assessing Officer or the Transfer Pricing Officer, as
the case may be, wholly or partly, otherwise than by making a
fresh assessment or reassessment or fresh order under
section 92CA, as the case may be, such effect shall be given
within a period of three months from the end of the month in
which order under section 250 or section 254 or section 260 or
section 262 is received by the Principal Chief Commissioner or
Chief Commissioner or Principal Commissioner or Commissioner,
as the case may be, the order under section 263 or section 264 is
passed by the Principal Chief Commissioner or Chief
Commissioner or Principal Commissioner or Commissioner, as the
case may be :
Provided that where it is not possible for the Assessing Officer
or the Transfer Pricing Officer, as the case may be, to give effect
to such order within the aforesaid period, for reasons beyond his
control, the Principal Commissioner or Commissioner on receipt
of such request in writing from the Assessing Officer or the
Transfer Pricing Officer, as the case may be, if satisfied, may
allow an additional period of six months to give effect to the
order:
Provided further that where an order under section 250 or
section 254 or section 260 or section 262 or section 263 or
section 264 requires verification of any issue by way of
submission of any document by the assessee or any other person
or where an opportunity of being heard is to be provided to the
assessee, the order giving effect to the said order under section
250 or section 254 or section 260 or section 262 or section 263
or section 264 shall be made within the time specified in sub-
section (3).
........ ....... ......."
(Emphasis supplied)
Section 153 prescribes time limit for completion of assessment and
reassessment and recomputation.
18
8. The issue now would be, whether the limitation operating
under Section 153(3), 153(4) or 153(5) would become applicable.
Section 153(3) speaks about setting aside or cancelling an order of
assessment passed under Section 92CA. Section 153(3) further
provides the timeline for passing a fresh order under Section 92CA
or fresh assessment, as the case would be. Therefore, Section
153(3) does not solely apply to setting aside or cancelling an order
of assessment only, it applies even to cancelling an order under
Section 92CA. In both these cases at different assessment years
scrutiny of assessment was taken for the assessment years 2013-
14 and 2014-15. What orders are passed would not be relevant, but
the order of the Tribunal assumes significance. The final
assessment order comes to be passed on 12-10-2017 and 10-10-
2018 respectively in both these cases. They reach the Tribunal as
all the authorities held in favour of the revenue. The Tribunal
passed orders under Section 254 of the Act by allowing appeals
partly and remitting the matter back to respondents 1 and 2. It
becomes necessary to notice on what grounds the Tribunal allowed
the appeals. The Tribunal allows appeals, partly dismissing certain
19
grounds and allowing certain grounds. The order concerned in
W.P.No.18474 of 2024 reads as follows:
"9.5 We have heard rival submissions and perused the
material on record. The TPO made an addition of
Rs.68,60,16,563 for the reason that the payments made to
W&M for stock purchase has been diverted for onward
remittance to Ultra Dynamix and other third parties. The TPO
relied on the internal report of the taxpayer submitted to him
and held that the international transaction with W&M is same
as indicated in the internal report. The TPO therefore
determined the ALP of this transaction to be NIL by such other
method prescribed by the CBDT and the entire amount of Rs.
68,60,16,563 was determined as the adjustment under
section 92CA. Before the DRP, assessee assailed the
impugned findings of the TPO on various factual reasons as
incorporated at page 23 and 24 of the DRP directions. The
assessee also argued that proper opportunity of hearing was
not provided to the assessee in this regard. The DRP however
relied on the TPOs impugned findings and confirmed the
above adjustment.
9.5.1 On a perusal of the material on record, we find
that the assessee was not allowed sufficient
opportunity of hearing in connection with the impugned
addition. The submissions of the assessee before the
DRP has also not been considered and addressed on
merits. We thus set aside the impugned TP adjustment
of Rs. 68,60,16,563 and restore the issue to the file of
the AO/TPO for proper consideration of facts and to
decide as per law after allowing sufficient opportunity
of hearing to the assessee.
9.6 In the result, grounds 3.1 to 3.3 are allowed for
statistical purposes.
Disallowance under section 14A of the Act (Ground 4)
(Corporate Tax Issues)
10. Brief facts in relation to the issue are as follows:
20
During the relevant assessment year 2013-2014, the
assessee had earned dividend income from the following
sources:-
10.1 During the course of assessment proceedings, the AO
proposed to apply the provisions of section 14A read with
rule 8D. The AO had proposed to make the subject
disallowance of Rs.90,89,00,000.
10.2 Aggrieved, the assessee filed objection before the DRP.
The DRP upheld the proposed disallowance, however, with
specific directions to exclude overseas investments, the
income from which was offered to tax in India (para 2.12
page 45 of the paper book).
10.3 Based on the DRP's direction, the AO excluded the
investments in overseas subsidiaries and recomputed the
disallowance at Rs.48,04,00,000 in the final assessment
order.
10.4 Aggrieved by the final assessment order, the assessee
has raised this issue before the ITAT. The learned AR
submitted that the issue stands covered in favour of the
assessee by the order of the Tribunal in assessee's own case
for assessment year 2012-2013 (supra), wherein the
Tribunal has given the following directions:-
• Disallowance u/s 14A of the Act is not attracted
when the own funds are in excess of the value of
the investments.
• Disallowance u/s 14A of the Act cannot exceed
the exempt income earned by the assessee.
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• Disallowance u/s 14A of the Act cannot be made
on investments where no dividend income has
been earned.
10.5 The learned Departmental Representative supported the
findings of the A.O. and the DRP.
10.6 We have heard rival submissions and perused the
material on record. In the final assessment order, following
the DRP directions, the AO made the disallowance under
section 14A as per rule 8D at Rs. 48,04,00,000. The Tribunal
in assessee's own case for the AY 2012-13 in IT(TP)A No.
489/Bang/2017 order dated 29.5.2020 considered the
arguments made on similar disallowance and remanded the
issue to the AO with various directions. The arguments of the
learned AR are similar to the arguments considered by the
Tribunal in the above order. The findings of the ITAT for the
earlier year are as under:-
"36. We heard the parties on this issue and perused the
record. The Ld A.R made various contentions and hence
this issue requires to be restored to the file of the AO for
examining it afresh in the light of various contentions of
Ld A.R, which are summarized below:-
(a) It is the contention of Ld A.R that the own funds
available with it is in excess of the investments. The
jurisdictional Hon'ble Karnataka High Court in the case
of CIT vs. Microlabs Limited (2016)(383 ITR 490) has
dealt with an identical issue. The High Court extracted
following decision rendered by the Tribunal:-
........
Accordingly, we direct the AO to examine the claim of
the assessee and if it is found that the own funds
available with the assessee is in excess of the value of
investments, then no disallowance u/r 8D(2)(ii) out of
interest expenditure is called for.
(b) In the alternative, the assessee has also submitted
that the loan funds were taken for specific purposes and
utilised the same for those purposes. Accordingly, it was
contended that, when the assessee would be able to
show the nexus between the interest expenditure and its
utilization for specific purposes, no interest disallowance
22
is called for. In this regard, it is stated that it has paid
interest on security deposits, cash credits/overdrafts,
working capital demand loan, bill discounting facilities.
When the disallowance is worked out under rule
8D(2)(ii), this contention of the assessee would loose its
significance.
(c) The Ld A.R submitted that, for the purpose of
computing average value of investments, the AO should
consider only those investments which have actually
yielded exempt dividend income. We notice that this
argument of the assessee finds support from the
decision rendered by the Special bench in the case of
Vireet Investments P Ltd (165 ITD 27)(Delhi-SB).
Accordingly, we direct the AO to exclude investments,
which did not yield exempt income, while computing
average value of investments.
(d) The Ld A.R also contended that the disallowance
should not exceed the amount of exempt income. In this
regard, he placed his reliance on the decision rendered
by jurisdictional High Court in the case of Pragathi
Krishna Gramin Bank vs. JCIT (2018)(95 taxmann.com
41). We direct the AO to take into consideration above
said binding decision while examining this issue.
Accordingly, we restore this issue to the file of the AO
for examining it afresh in the light of discussions made
supra."
10.6.1 Following the above order of the ITAT in
assessee's own case for assessment year 2012-2013,
we set aside the disallowance under section 14A of the
I.T.Act and restore the issue to the file of the AO. The
AO shall follow the above directions of the ITAT and
recompute the disallowance u/s 14A of the I.T.Act. It
is ordered accordingly.
10.7 In the result, ground 4.1 to 4.12 are allowed for
statistical purposes.
Disallowance of interest u/s 36(1)(iii) of the I.T.Act
(Ground 5) (Corporate Tax Issue)
11. Brief facts in relation to the above ground are as follows:
23
The assessee had advanced loans to certain related
parties / subsidiaries, wherein the rate of interest varied
from 0 to 16 per cent. During the course of assessment
proceedings, the AO has sought information with respect of
loans and advances made towards related parties. In the
draft assessment order passed by the AO, disallowance was
made to the extent of Rs.1,38,05,93,276 by applying SBI's
Prima Lending Rate on the amount of outstanding loans as
on 31st March, 2013.
11.1 Aggrieved by the draft assessment order, the assessee
filed objection before the DRP. The DRP retained the
disallowance proposed by the AO, but directed to exclude
notional interest income imputed by the TPO with respect to
the advances made to AE's outside India but upheld the
disallowance under section 36(1)(iii) on a protective basis.
11.2 In the final assessment order, the AO has computed the
disallowance u/s 36(1)(iii) at an amount of Rs.140,46,63,276
being higher than the proposed disallowance in the draft
assessment order, out of which Rs.26,77,06,867 was on
protective basis.
11.3 Aggrieved by the final assessment order, the assessee
raised this issue before the ITAT. At the outset, the learned
AR submitted that in assessee's own case for assessment
year 2012-2013, the Bangalore Bench of the Tribunal
following the decision of the Hon'ble Apex Court in Reliance
Industries reported in (2019) 102 taxmann.com 52 (SC)
have held that no disallowance shall be made u/s 36(1)(iii)
of the Act when own funds are in excess of the loans
extended (para 42 page 28 of the order). The learned AR
reiterated the submissions that the loans have been
extended out of commercial expediency and out of own
interest free funds.
11.4 The learned Departmental Representative relied on the
findings of the AO and the DRP.
11.5 We have heard rival submissions and perused the
material on record. The AO made a disallowance of
Rs.138,05,93,276 under section 36(1)(iii) for the reason that
24
the interest bearing funds have been given as interest free
loans to various related parties including AEs. The DRP
upheld the disallowance made by the AO with a direction that
the disallowance of interest by the AO to the extent of TP
adjustment in relation to this interest free loan should be
only on protective basis. Following the directions, the AO in
the final assessment order, made an addition of
Rs.140,46,63,276 and a protective addition of Rs.
26,77,06,867 under section 36(1)(iii) of the I.T.Act.
11.5.1 The Tribunal in appellant's own case for the AY 2012-
13 in IT(TP)A No. 489/B/2017 order dated 29.5.2020
considered similar issue and held as follows:-
"42. We heard Ld D.R and perused the record. From the
arguments of the ld A.R, we notice that the own funds
available with the assessee is in excess of the
aggregate amount of interest free advances and hence
the decision rendered by Hon'ble Supreme Court in the
case of Reliance Industries Ltd (supra) shall apply to
the facts of the present case, in which event, no
interest disallowance is called for. We notice that this
contention of the assessee has not been examined by
the AO in the light of decision of Hon'ble Supreme Court
referred above. Accordingly, we restore this issue to the
file of the AO to examine the factual aspects and for
deciding this issue following the decision rendered by
Hon'ble Supreme Court, referred above. If the
disallowance gets deleted on this ground, then other
contentions of the assessee would be rendered
academic in nature. However, if any part of
disallowance is liable to be made, then the AO should
consider other arguments of the assessee also in the
set aside proceedings."
11.5.2 Following the above order of the ITAT, we
set aside the substantive and the protective
addition made under section 36(1)(iii) and restore
the issue to the file of the AO to follow similar
directions as given above.
11.5.3 Hence grounds 5.1 to 5.14 is allowed for
statistical purposes.
25
Disallowance of payments for promotion and
advertisement expenses (Ground 6 and 7)
(Corporate Tax Issue)
12. Brief facts in relation to the above grounds are as
follows:
During the assessment year 2012-2013, the
assessee had made payments to the following parties
amounting to Rs.44,33,55,403 for promotion of its brand
logo and claimed it as revenue expenditure on
advertisement and promotion.
12.1 The AO in draft assessment order held that the
payments made on the account of brand promotion results in
enduring benefit to the assessee and accordingly treated the
said payments as a capital expenditure.
12.2 Aggrieved by draft assessment order, the assessee filed
objection before the DRP. The DRP agreed with the view of
the AO that the subject expenditure gives enduring benefit to
the assessee and upheld the disallowance proposed by the
AO. Further, the DRP also held that no capital asset has been
created in the books by the assessee, and unless asset is
recognized and no depreciation is claimed, no depreciation
can be allowed.
12.3 The final assessment order was passed by the AO in
accordance with the directions of the DRP.
12.4 Aggrieved, the assessee has raised this issue before the
ITAT. The learned AR submitted that the issue is covered in
favour of the assessee by the decision of the Tribunal in
assessee's own case for A.Y. 2012-2013 wherein the Tribunal
has held that payment of these expenses on sponsorship are
revenue expenditure. The said issue has been discussed by
the Tribunal in para 43 to para 49 on page 28 to page 38 of
26
its order. (The findings of the Tribunal are recorded in para
45 to para 49 on page 30 to 38 of the order). In view of the
foregoing, the AR submits that the brand promotional
expenses be allowed as business expenditure u/s 37(1) of
the Act.
12.5 The learned Departmental Representative supported the
finding of the AO and the DRP.
12.6 We have heard rival submissions and perused the
material on record. The AO disallowed the sales promotion
and advertisement expenses totally amounting to Rs.
44,33,55,403 [36,91,12,995 + 7,42,42,408] for the reason
that these expenses are brand promotion expenditures of
USL logo, it promotes the brand the assessee, gives enduring
benefit and hence capital in nature. The DRP confirmed the
action of the AO.
12.6.1 Similar issue has been considered by the Tribunal in
assessee's own case for the AY 2012-13 in IT(TP)A No.
489/B/2017 order dated 29.5.2020 wherein it was held as
under:-
"45. We have heard Ld D.R on this issue and perused
the record. We notice the issue relating to allowability
of expenditure incurred on sponsorship of sports event
was considered by the Mumbai bench of ITAT in the
case of Samudra Developers Pvt Ltd (ITA
5974/Mum/2013 dated 26- 04-2017) and it was held
that the same is allowable as revenue expenditure.
For the sake of convenience, we extract below the
operative portion of the order passed by Mumbai
bench of Tribunal on an identical issue:-
"3. Second ground of appeal pertains to deleting the
disallowance on account of sponsorship fees and
management fees. In the earlier part of our order, we
have mentioned the facts about the various
disallowances made by the AO including the
capitalisation of sponsorship. Treating it as an
intangible asset, he allowed depreciation on it @25%.
3.1. The FAA after considering the elaborate
submissions of the assessee,held that it had entered
into an agreement with the sports company namely
India-Win in the month of March, 2010, that the
27
assessee-group became cosponsor of Mumbai Indian
IPL cricket team as an associate partner, that as per
the agreement the ground logo of the assessee group
was displayed permanently in the cricket stadium is
also on the playing gear of the players,that in the terms
of the agreement and amount of Rs.4.50 crores was
paid towards sponsorship fees during the year under
consideration, that the sponsorship fees for different
years had been apportioned and allocated to 3 entities
of the assessee group which were using the brand logo
in the ratio of their respective turnovers during the
year, that out of the expenditure of Rs. 2.50 crores and
amount of Rs. 21.61 lakhs was allocated to the
assessee, that the expenditure incurred on IPL
sponsorship did not provide it any benefit of enduring
nature, that the expenditure had been incurred year
after year by the assessee group with a view to get
visibility, that it was in nature of some kind of
advertisement expenditure, that same should be
allowed as revenue expenditure. Referring to the case
of Delhi Cloth and General Mills Co.Ltd.(115 ITR 659) of
the honorable Delhi High Court, the FAA allowed the
appeal filed by the assessee.
3.1.a. With regard to management fee, the FAA
observed that there was no doubt about the
genuineness of expenditure, that the expenditure was
incurred for availing infrastructure facilities
administrative support, like manpower recruitment, HR
services, uses of computer, telephone, photo copiers,
infrastructure set up etc. in order to carryout business
operations smoothly, that the parent company had
allocated a certain amount to the account of the
assessee in the ratio of its turnover. He finally held that
expenditure had to be allowed as revenue expenditure.
3.2. Before us, the DR supported the order of the AO
and the AR relied upon the order of the FAA. We find
that the assessee group had entered into an agreement
with India Win, that it was a co- sponsor of Mumbai
Indian IPL team, that it had incurred similar
expenditure in the subsequent two years, that out of
the total expenditure the assessee had claimed a very
small proportion under the head sponsorship expenses.
Such an expenditure is for advertising the brand name
of the Group. Being a recurring expenditure, it had to
be allowed as revenue expenditure. We find that in the
case of Delhi Cloth and General Mills Co.Ltd.(supra)the
Hon'ble Court had held that expenditure incurred for
organizing sports events are allowable items of revenue
expenditure as such events publicise the names of the
sponsor. The AO was not justified in capitalising the
28
expenses. The entire expenditure was rightly allowed
by the FAA as revenue expenditure. After going through
the details of expenditure incurred by assessee under
the head managerial expenses, we are of the opinion
that it had not got any enduring benefit from the
expenditure incurred nor did the expenditure create any
capital asset. Therefore, we do not want to interfere
with the order of the FAA. Considering the above, we
decide second ground of appeal against the AO."
46. The Delhi bench of Tribunal has also examined an
identical claim in the case of M/s Pepsico India
Holdings Pvt Ltd (supra) and the same was allowed as
revenue expenditure with the following observations:-
"Re: Disallowance of INR 3,85,15,497/- being
sponsorship fees paid to ICC
87. In Grounds No. 7 to 7.3 in I.T.A. No.
1044/DEL/2014 for AY 2009-10, the assessee has
challenged the disallowance of INR 3,85,15,497/- being
sponsorship fees paid by the assessee to ICC. Our
attention was drawn to paras 4 to 4.3 of the final
assessment order wherein the said issue has been
discussed by the AO. It has been submitted that during
the relevant previous year the assessee entered into an
agreement dated 20.08.2008 with ICC Development
(International) Limited (ICC) for obtaining sponsorship
rights in respect of various ICC cricketing events
around the world. The assessee paid an amount of Rs.
3,85,15,497/- for sponsoring cricketing events held
during 2008 to ICC. The said amount was proposed to
be disallowed by the AO in the Draft Assessment Order,
for the following reasons: -
(i) Similar expense has been disallowed in the earlier
years as part of the Transfer Pricing Adjustment on
account of AMP expenses.
(ii) Assessee has been bearing substantial portion of
the fees paid to ICC for acquiring sponsorship rights
even though benefit of the same is derived by the other
entities of the world.
88. Aggrieved by the addition proposed by the AO, the
assessee had filed objections before the DRP. The DRP
vide directions dated 20.12.2013 upheld the action of
the AO, on the ground, that the expenditure was
benefitting all the entities across the globe and hence,
it could not be said to have been incurred wholly and
exclusively for the business of the assessee.
29
89. The learned counsel for the assessee submitted that
the said disallowance was unwarranted since the said
expense was incurred in view of the fact that major
viewership of cricket is in the Indian subcontinent. He
also referred to various newspapers reports which
demonstrated the popularity of the sport in India to
support the aforesaid contentions. It was also
submitted that the assessee company has consistently
promoted its range of products using cricket as an
advertising platform. It was also to our notice that
payment of sponsorship fees to ICC was remitted by
the assessee after deduction of tax at source as
instructed by the Income Tax Department. Further, the
assessee had obtained the approval of the Ministry of
Youth Affairs and Sports for sponsoring the events
covered under the agreement. Copy of the order under
section 195 of the Act and the approval received from
the Ministry of Youth Affairs and Sports has been
enclosed at pages 247 to 249 and 224 of the paperbook
respectively. He further submitted that the expenditure
was wholly and exclusively for the business of the
assessee company and had not been disputed by the
revenue. Any incidental benefit that may arise to any
other person or entity cannot be a bar for allowance of
expenditure under section 37 of the Act, as per the
settled position of law. Reference in this regard was
made to the decisions of the Hon'ble Supreme Court of
India in CIT vs. Chandulal Keshavlal & Co. [1960] 38
ITR 601 (SC), Sasson J. David and Co. P. Ltd vs. CIT
118 ITR 261(SC) and SA Builders Ltd. vs. CIT 288 ITR
1(SC). He further submitted that the Revenue cannot
step into the shoes of an assessee to determine the
commercial expediency of an expenditure incurred by
it.
90. On the other hand, the learned DR relied upon the
order of the AO and the DRP in support of his
contentions.
91. After considering the rival submissions and on
perusal of the impugned orders, we find that, here the
disallowance of Rs.3,85,15,497/- has been made on
account of sponsorship fee by the assessee to the ICC
on the ground that similar expenditure was disallowed
in the earlier years as part of Transfer Pricing
Adjustment on account of AMP expenses; and secondly,
assessee has been bearing substantial portion of the
fees to the ICC for acquiring the sponsorship rights
even though benefit of the same is derived by either
entity of the world. The contention raised by the
learned counsel that since major viewer of cricket is an
30
Indian subcontinent looking to its mass popularity in
India, the assessee company has been consistently
promoting its range of products using cricket as an
advertisement platform. The said payment has been
made after obtaining the approval of Ministry of Health
Affairs and Sports and after deducting TDS u/s.195.
Once the expenditure has been incurred wholly and
exclusively for the purpose of business which fact has
not been disputed by the Department, then even if
some incidental benefit which may arise to any other
entity cannot be a bar for allowance of expenditure u/s.
37. Under the principle of commercial expediency such
an expenditure has to be seen from the angle, whether
the decision taken by the assessee for paying
sponsorship fees was for the purpose of business or
not. Here in this case, the commercial expediency has
not been doubted but rather it has been held by the AO
that in all the years transfer pricing adjustments has
been made on this score and benefit is arising to the
other AEs also. What is relevant for an expense to be
allowable as revenue expense is that, whether it has
been incurred during the course of business and is for
the purpose of business. Benefit factor to other related
parties is relevant under transfer pricing provision and
not while allowability of business expense u/s 37(1). It
is well known fact that companies use sports event as a
platform to advertise their range of products as it has a
very high viewership. Any such incurring of expenditure
is ostensibly for promotion of business only and hence,
no disallowance is called for.
Accordingly, Grounds No.7 to 7.3 in ITA
No.1044/Del/2014 pertaining to A.Y. 2009-10 are
allowed."
47. We notice that the co-ordinate benches are
consistently holding the view that the expenditure
incurred on sponsoring of sports events are intended
to promote business only and hence the same is
allowable as expenditure. The allowability of brand
promotion expenses was examined by Hon'ble Delhi
High Court in the case of Modi Revelon P Ltd (supra)
and the relevant discussions made by the High Court
are extracted below:-
"22. As far as the second aspect, i.e. expenditure for
promotion of the brand is concerned, there is no doubt
that the dealer's functions extend to advertising the
products of the assessee, manufactured by the sister
concern. On this aspect, Section 37 of the Income-tax
31
Act would be relevant. The said provision reads as
follows:
"SECTION 37 GENERAL:
(1) Any expenditure (not being expenditure of the
nature described in sections 30 to 36 and not being
in the nature of capital expenditure or personal
expenses of the assessee), laid out or expended
wholly and exclusively for the purposes of the
business or profession shall be allowed in computing
the income chargeable under the head "Profits and
gains of business or profession".
Explanation : For the removal of doubts, it is hereby
declared that any expenditure incurred by an
assessee for any purpose which is an offence or
which is prohibited by law shall not be deemed to
have been incurred for the purpose of business or
profession and no deduction or allowance shall be
made in respect of such expenditure.
(2B) Notwithstanding anything contained in
subsection (1), no allowance shall be made in
respect of expenditure incurred by an assessee on
advertisement in any souvenir, brochure, tract,
pamphlet or the like published by a political party.
The applicable test as to what constitutes expenses
"laid out or expended wholly and exclusively for the
purposes of the business or profession" was
explained in Gordon Woodroffe Leather
Manufacturing Co. v. CIT [1962] Supp. (2) SCR 211.
The correct approach, said the Court, which has to
be taken in all such cases is to see whether:
"was the sum of money expended on the ground of
commercial expediency and in order indirectly to
facilitate the carrying on of the business"
Again, in Sassoon J. David & Co. (P.) Ltd. v. CIT
[1979] 118 ITR 261/ 1 Taxman 485 (SC) the
Supreme Court outlined the correct test of
commercial expediency as the guiding principle to
decide whether the expenditure was to facilitate
profits, as follows:
(iii) that the sum of money was expended on the
ground of commercial expediency and in order
indirectly to facilitate the carrying on of the business
of the assessee"
32
In Smith Kline & French (India) Ltd. v. CIT [1992]
193 ITR 582/[1991] 59 Taxman 357 (Kar.), it was
held that in normal commercial sense and in
common parlance sales promotion and publicity are
activities aimed at gaining goodwill in the market.
They need not be confined to media propaganda but
can involve indirect approaches. The judgment of a
Division Bench of this Court in CIT v. Adidas India
Marketing (P.) Ltd. [2010] 195 Taxman 256 (Delhi)
has recognized that brand promotion exercises
undertaken through media campaigns, schemes,
programmes etc are essential for propagation of the
brand. The necessity (or lack of it) is not something
which income tax authorities can go into; as long as
it is voluntarily undertaken by the business
enterprise for profit earning, it would be entitled to
claim relief under section 37(1).
23. In the present case, the AO was conscious of the
fact that brand promotion expenses are a necessary
ingredient in marketing strategies. Therefore, he
allowed about 50 per cent of those expenses.
However, the reasoning for disallowance of the rest,
i.e. that the assessee could claim only a proportion
of such expenses, since advertising expenses were
to be borne by the sister concern dealer, and that
the proportion was in respect of its territory, was not
upheld. This Court does not see any fallacy in the
Tribunal's approach or reasoning, on this aspect.
One is not unmindful of the concerns of a business
which engages in sale of consumer items, and faces
continuous competition. Brand promotion enhances
the visibility of given products or services, and are
often perceived as conferring a competitive
advantage on those who adopt those strategies or
schemes. Expenditure towards that end is based on
pure commercial expediency, which the revenue in
this case, ought to have recognised, and allowed.
The revenue's arguments on this point too are
insubstantial."
48. The observations made by the Hon'ble
jurisdictional Karnataka High Court in the case of CIT
vs. ITC Hotels (2014)(47 taxmann.com 215) on the
concept of "enduring benefit" is relevant here and the
same is extracted below:-
"6. The first substantial question of law relates to a
sum of Rs.10 lakhs, which were paid by the
assessee as a license fee for the use of central court
yard, having marble, (for short "Court Yard") in
Lallgarh Palace (for short 'Palace'). It appears that
33
there was a Memorandum of Understanding (for
short 'MOU') between the Assessee and Maharaja
Ganga Sinhji Charitable Trust (for short the "trust").
The assessee, as per the MOU, had acquired a right
to use the court yard for their business of hotel,
being run in the palace, more efficiently and
profitably. The question is whether the expenditure
of Rs.10 lakh resulted in any addition to the fixed
capital of the assessee. According to the Revenue,
the assessee had acquired right to use the court
yard apart from the palace, and thus, had acquired
an advantage of enduring benefit of a trade. In other
words, the expenditure incurred by the assessee for
the use of court yard is in the capital field and it
cannot be said to have been incurred to facilitate
trading operation of the assessee.
7. Learned Counsel appearing for both the sides
placed reliance upon the judgment of the Supreme
Court in the case of Empire Jute Co. Ltd. v. CIT
[1980] 124 ITR 1/3 Taxman 69, in support of their
contentions. Mr. Aravind, learned counsel for the
Revenue tried to distinguish the ratio laid down by
the Supreme Court in this case on the basis of
factual matrix involved therein. As against this,
learned counsel appearing for the
respondent/assessee placed reliance upon the
principle laid down by the Supreme Court in the said
judgment.
8. We have perused the judgment. We find
ourselves in agreement with the learned counsel
appearing for the respondent/assessee. It would be
relevant to reproduce the relevant observation made
by the Supreme Court, in the said judgment, which,
in our opinion, support the case of the
respondent/assessee to contend that the
expenditure of Rs. 10 lakhs would be on revenue
account. The relevant observation in the case of
Empire Jute Co. Ltd. (supra) reads thus:
'The decided cases have, from time to time, evolved
various tests for distinguishing between capital and
revenue expenditure but no test is paramount or
conclusive. There is no all embracing formula which
can provide a ready solution to the problem; no
touchstone has been devised. Every case has to be
decided on its own facts, keeping in mind the broad
picture of the whole operation in respect of which
the expenditure has been incurred. But a few tests
formulated by the Courts may be referred to as they
34
might help to arrive at a correct decision of the
controversy between the parties.
One celebrated test is that laid down by Lord Cave
L.C. in Atherton Vs. British Insulated & Helsby
Cables Ltd, (1925) 10 Tax Cases 155 (HL), where
the learned Law Lord stated :
"...when an expenditure is made, not only once and
for all, but with a view to bringing into existence an
asset or an advantage for the enduring benefit of a
trade, I think that there is very good reason (in the
absence of special circumstances leading to an
opposite condition) for treating such an expenditure
as properly attributable not to revenue but to
capital".
This test, as the parenthetical clause shows, must
yield where there are special circumstances leading
to a contrary conclusion and, as pointed out by Lord
Radcliffe in CIT v. Nchanga Consolidated Copper
Mines Ltd. [1965] 58 ITR 241 (PC) : TC16R.991, it
would be misleading to suppose that in all cases,
securing a benefit for the business would be, prima
facie, capital expenditure "so long as the benefit is
not so transitory as to have no endurance at all.
There may be cases where expenditure, even if
incurred for obtaining advantage of enduring benefit,
may, none the less, be on revenue account and the
test of enduring benefit may break down. It is not
every advantage of enduring nature acquired by an
assessee that brings the case within the principle
laid down in this test. What is material to consider is
the nature of the advantage in a commercial sense
and it is only where the advantage is in the capital
field that the expenditure would be disallowable on
an application of this test. If the advantage consists
merely in facilitating the assessee's trading
operations or enabling the management and conduct
of the assessee's business to be carried on more
efficiently or more profitably while leaving the fixed
capital untouched, the expenditure would be on
revenue account, even though the advantage may
endure for an indefinite future. The test of enduring
benefit is, therefore, not a certain or conclusive test
and it cannot be applied blindly and mechanically
without regard to the particular facts and
circumstances of a given case'.
9. It is clear that if the advantage consists merely in
facilitating the assessee's trading operations or
enabling the management and conduct of the
35
assessee's business to be carried on more efficiently
or more profitably while leaving the fixed capital
untouched, the expenditure would be on revenue
account, even though the advantage may endure for
an indefinite future. In the present case, except the
right to use the court yard, no other rights were
created in favour of assessee. In other words, the
amount paid to the Trust was for the use of the
court yard under the MOU for an indefinite future,
and therefore, it would be on revenue account. In
other words merely because the advantage may
endure for an indefinite future would not mean that
the expenditure would be on capital account and not
revenue. The advance of Rs. 10,00,000/-, in the
present case, consists merely in facilitating the
assessee's business operations, enabling the
management to conduct their Hotel business more
efficiently and profitably. We are, therefore, satisfied
that the view taken by the Tribunal in answering this
question in favour of Assessee and against the
Revenue is correct and deserve no interference by
this Court."
49. Respectfully following the above cited decisions,
we set aside the order passed by AO on this issue and
direct him to allow the impugned sponsorship
expenses as revenue expenditure."
12.6.2 Following the above order the ITAT in
assessee's own case for assessment year 2012-2013
(supra), we allow deduction of sales promotion and
advertisement expenses of Rs. 44,33,55,403. As the
entire expenses are allowed as revenue expenditure,
the question of depreciation does not arise.
12.7 Hence grounds 6.1 to 6.7 and grounds 7.1 to 7.7
are allowed.
Disallowance of payments based on Project Spirit
Report (ground 8) (Corporate Tax Issue)
13. Brief facts of the issue raised in the above ground are as
follows:
During the financial year 2014-2015, the Board of
Directors of the assessee had mandated an inquiry in relation
to matters connected with audit qualifications made in the
36
assessee's financial statements for the financial year 2013-
2014. The inquiry identified references to certain additional
parties / additional matter which also potentially dealt with
transactions of similar nature in which the documents
identified raised concerns as to the propriety of the
underlying transactions / matters. It is stated that based on
the above, the assessee wanted to identify whether the
additional parties / matter involved any impropriety, or the
transactions were improper. The report namely Project Spirit
Report dated 29th June, 2016 was submitted with the AO
during the course of assessment proceedings. On analysis of
the report, the AO identified the transactions relating to the
year under consideration and classified them into capital and
revenue transactions. The AO disallowed an amount of
Rs.48,14,00,000 u/s 37 of the Act treating them as revenue
transactions. Further, an amount of Rs.6,35,10,000 has been
treated as interest income on alleged interest free loans /
advances provided to the subsidiary at an adhoc rate of
14.5%.
13.1 Aggrieved by the draft assessment order, the assessee
filed objection before the DRP. The DRP had confirmed the
disallowance proposed by the AO. The final order was passed
in accordance with the DRP's directions thereby making an
addition of Rs.54,49,10,000.
13.2 Aggrieved, the assessee has raised this issue before the
ITAT. The learned AR's submissions are summarized below:-
• At the outset, it is submitted that assessee has
not debited the profit and loss account /
claimed deduction in relation to expenses
amounting to Rs.21.58 crore disallowed
pursuant to the Project Spirit Report. The above
fact was highlighted to the lower authorities in
the submissions furnished by the assessee
(page 128 to 130 of the paper book). Given
that the expenses were not claimed by the
assessee, the disallowance of the expenses is
unwarranted and bad in law.
• With respect to the remaining transactions, the
assessee submitted that the disallowance based
on the Project Spirit Report has been made
37
without providing the reasons for making such
disallowance and on an arbitrary basis without
adjudicating on the objections filed by the
assessee. In this connection, it was submitted
that various Courts have repeatedly held that
there must be something more than bare
suspicion to support an addition or disallowance
in an assessment. No disallowance can be
made which are based on mere conjectures and
surmises. In this context, it was submitted that
the assessee being a victim of such fraud would
in fact be eligible to claim such sums a
deductible bonafide business loss as highlighted
in the following judicial pronouncements:-
(i) Baridas Daga v. CIT (34 ITR 10 (SC)
(ii) Sassoon J David & Co. P. Ltd. v. CIT (1975)
98 ITR 50 (Bom.)
(iii) CIT v. Parmanand Makhan Lal (1983) 15
Taxman 12 (Patna)
(iv) Kothari & Sons v. CIT (1966) 61 ITR 23
(Madras)
(v) Ramchandar Shivnarayan v. CIT (1978) 111
ITR 263 (SC)
(vi) Khaitan & Co. v. CIT (1979) 1 Taxman 280
(Calcutta)
(vii) Churakulam Tea Estates (P) Ltd. v. CIT
(1995) 81 Taxman 214 (Kerala)
(viii) CIT v. India United Mills Ltd. (1978) 112
ITR 129 (Bombay).
• The CBDT vide its undernoted circular (Circular
No.35-D (Xivii20) (F.No.10/48/65-It(A-1)],
dated 24.11.1965 has accepted the above
ruling of the Hon'ble Apex Court in the case of
Badridas Daga (supra) and has held that any
loss sustained due to embezzlement of
employees would be available as a business
loss u/s 28.
38
• According, it was submitted that the
disallowance is against the principles
enunciated by the Hon'ble Apex Court and the
Circular issued by the CBDT and the same
needs to be deleted.
13.3 The learned Departmental Representative supported the
finding of the AO and the DRP.
13.4 We have heard rival submissions and perused the
material on record. The AO made an addition of
Rs.54,49,10,000 for the reason that the funds of the
assessee has been diverted for various non business
purposes. The AO relied on the 'Project Spirit Report'
prepared by M/s Ernst and Young (E&Y) vide letter
dated 14.10.2016 for the purpose of arriving at the
impugned finding that the funds of the assessee have
been diverted in many ways and hence the revenue
expenditure claimed as deduction amounting to
Rs.48,14,00,000 is to be disallowed. The AO further
held that the diversion of funds to various entities
would not be returned back to the assessee. The AO
therefore charged an interest of Rs. 6,35,10,000
calculated at 14.5% on Rs. 43.8 crores. The DRP
confirmed the AO's additions. Referring to the DRP
objections, the learned AR argued that out of
disallowance of Rs. 48.14 crores, a sum of Rs. 15.23
crores pertain to other entities and hence the same
cannot be disallowed in assessee's case. Similarly, it
was argued that the entirety of Rs. 43.8 crores on
which interest income of Rs.6,35,10,000 is imputed did
not pertain to the assessee and hence the impugned
addition of Rs. 6,35,10,000 is bad in law. These
arguments have not been considered properly by both
AO and DRP. The assessee's claims in the DRP
objections [Page 128 to 134 of the appeal memo]
regarding deduction under section 28 on account of
fraud committed on the company has also not been
considered by the AO/DRP. It appears that the AO has
made the addition only on the basis of 'Project Spirit
Report' without properly examining the claim of the
assessee that certain transactions and the addition
39
made thereto does not relate to the assessee.
Considering the material on record and for the aforesaid
reasoning, we set aside the impugned addition and
restore this issue to the file of the AO for proper
examination of all the facts relating to the said issue.
The assessee shall provide all documentary evidence
relating to its claim and the AO also shall make a proper
enquiry in this regard. All contentions are left open to
be considered by the AO in accordance with the law.
13.4.1 Hence grounds 8.1 to 8.8 are allowed for
statistical purposes.
Interest u/s 234B of the I.T.Act (ground 9)
14. The above ground is only consequential and the same is
dismissed.
Interest u/s 234C of the I.T.Act (ground 10)
15. The limited submission of the assessee is that interest u/s
234C of the I.T.Act should be calculated on the return income
and not on the assessed income of the assessee. In this
context, the learned AR relied on the Bangalore Bench order
of the Tribunal in the case of SAP India Private Limited
reported in (2014) 41 taxmann.com 7 (Bangalore - Trib.).
15.1 We have heard rival submissions and perused the
material on record. The Bangalore Bench of the Tribunal
in the case of SAP India Private Limited (supra) had
held that interest u/s 234C of the I.T.Act shall apply on
the returned income and not on the assessed income.
Following the co- ordinate Bench order of the Tribunal,
we direct the A.O. to calculated interest u/s 234C of the
I.T.Act accordingly.
15.2 In the result, ground 10 is allowed for statistical
purposes.
Short credit of TDS / TCS (Ground 11)
40
16. The assessee had claimed TDS / TCS credit of
Rs.24,19,36,874 in the return of income filed. The A.O.,
however, restricted the credit to Rs.24,02,13,419. Thereby
not granting credit for TDS of a sum of Rs.17,23,384.
16.1 We have heard rival submissions and perused the
material on record. We direct the AO to verify the TDS
credit and grant the same as per law.
Allowability of education cess paid as a tax deductible
expenditure (Additional Ground 12)
17. The above ground relates to the claim of deduction of
education cess including secondary and higher educational
cess as deduction while computing the total income.
18. We have heard rival submissions and perused the material
on record. The Kolkata Bench of Tribunal in the case of
Kanoria Chemicals & Industries Ltd Vs. Addl. CIT (ITA
No.2184/Kol/2018dated 26.10.2021) has held that the
education cess is an additional surcharge levied on income tax
and hence it partakes the character of income tax. Accordingly
it held that the education cess is not allowable as deduction.
The Tribunal also noted the decision rendered by Hon'ble
Bombay High Court in the case of Sesagoa Ltd. 117
Taxmann.com 96 and by Hon'ble Rajasthan High Court in the
case of Chambal Fertilisers & Chemicals Ltd. Vs. JCIT (ITA
No.52/2018 dated 31.7.2018), wherein it was held that the
education cess is allowable as deduction. However, the
Tribunal observed that the decision rendered by Hon'ble
Supreme Court in the case of CIT Vs. K. Srinivasan (1972) 83
ITR 346 was not brought to the notice of the above said
Hon'ble High Courts. Accordingly, the Tribunal has expressed
the view that the decision rendered by Hon'ble Supreme Court
in the case of K. Srinivasan (supra) shall prevail on this issue
and accordingly held that the education cess is not allowable
as deduction.
18.1 Following the above said decision of Kolkata bench
of Tribunal in the case of Kanoria Chemicals &
Industries Ltd (supra), we hold that payment of
education cess including secondary and higher
41
education cess is not allowable as deduction.
Accordingly, we reject this ground of the assessee.
19. In the result, the appeal filed by the assessee is
partly allowed."
(Emphasis added)
The Tribunal partly allowed the interest imputed on interest
advanced for statistical purposes and on other grounds as found in
the order itself. The issue is not with regard to merit of the
grounds in the appeal. What happened in the aftermath of the
order forms the contention in the case at hand.
9. The issue would be, whether there has been a reference
under Section 92CA(1) to the Transfer Pricing Officer or the matter
being remitted to the Transfer Pricing Officer by the Tribunal to
decide the issue under Section 92CA(3). There is a world of
difference between the matter being remitted by the Tribunal to the
Transfer Pricing Officer under Section 92CA and reference by the
Assessing Officer to the Transfer Pricing Officer under the same
provision of Section 92CA. The subtle difference is considered by
the Division Bench of the High Court of Delhi in the case of NEW
42
DELHI TELEVISION LIMITED v. DISPUTE RESOLUTION
PANEL1, wherein it is held as follows:
".... .... ....
63. As is manifest from a reading of Section 92-CA(1)
of the Act, upon the assessing officer noticing an
international transaction or a specified domestic transaction
having been undertaken by an assessee, the said authority is
statutorily obliged to make a reference to the Transfer
Pricing Officer for the purposes of computation of the arm's
length price (ALP). On receipt of that reference, the Transfer
Pricing Officer is obliged to place the assessee on notice and
proceed to determine the arm's length price in respect of the
international transactions in question. The Transfer Pricing
Officer while undertaking that evaluation also stands enabled
by virtue of Section 92-CA(2-B) to take into consideration
any international transaction which though not disclosed in
the report under Section 92-E by the assessee may come to
its notice.
64. Ultimately, and on conclusion of the
adjudicatory process, the Transfer Pricing Officer in
terms of sub-section (3) would proceed to pass an
order determining the arm's length price in relation to
the international transaction. The order under Section
92-CA(3) which the Transfer Pricing Officer frames is
undoubtedly binding on the assessing officer and who
in terms of sub-section (4) thereof is required to
compute the total income of the assessee in
conformity with the arm's length price as determined
by the Transfer Pricing Officer.
65. Section 92-CA(1) of the Act speaks of a
reference being made to the Transfer Pricing Officer by
the assessing officer concerned alone. However, and
by virtue of the status and position which stands
conferred upon the Income Tax Appellate Tribunal, we
find no justification to doubt its authority to make
1
2024 SCC OnLine Del 3806
43
such a reference while considering an appeal that may
come to be laid before it. This, since in terms of
Section 253 of the Act, an assessee is entitled to
question a direction framed by the Dispute Resolution
Panel and which may have come to be translated into
an actual order of assessment. Consequently, once
such an appeal were to be laid before the Income Tax
Appellate Tribunal, it would stand empowered to not
only examine the correctness of the directions framed
by the Dispute Resolution Panel with respect to
international transactions but also to such other and
additional aspects and which may not necessarily be
confined to only international transactions as decided
by the assessing officer. We thus find ourselves
unconvinced to hold that the Income Tax Appellate
Tribunal under the statutory scheme of the Act should
not be recognised to have the power to remit the
matter directly to the desk of the Transfer Pricing
Officer.
66. Our conclusion in this respect stands fortified
from a reading of Section 153(3) which speaks of an
order of the Income Tax Appellate Tribunal requiring a
"fresh assessment" or a "fresh order under Section
92-CA". It is pertinent to note that the word "order" in
the context of Section 92-CA is undoubtedly a
reference to the adjudication undertaken by the
Transfer Pricing Officer. This in the light of Section 92-
CA(3) using the phrase "... the Transfer Pricing Officer,
shall, by order in writing, determine...." Similarly,
Section 92-CA(4) uses the expression "On receipt of
the order under sub-section (3)". The extent of the
authority of the assessing officer is thereafter
explained by that provision to be "... to compute the
total income of the assessee...." It is thus manifest
that the order which is envisaged under Section 92-CA
is the one made by the Transfer Pricing Officer. We
thus find on a conjoint reading of Sections 92-CA(3)
and 153(3) that it would be well within the authority
of the Income Tax Appellate Tribunal to remit a matter
directly to the Transfer Pricing Officer. There would
appear to be no justification for the Income Tax
Appellate Tribunal being compelled or required to first
44
remit the matter to the assessing officer and for a
consequential reference being framed if issues
pertaining to an international transaction itself
constituted the subject-matter of an appeal.
... ... ...
70. Section 153(3) of the Act in unambiguous terms
sets out the time-frame within which a fresh assessment is
liable to be completed once a matter is remanded by the
Income Tax Appellate Tribunal in terms of a judgment
rendered and referable to Section 254 of the Act. The order
of the Income Tax Appellate Tribunal contemplated under
Section 153(3) of the Act is one which may have set aside or
cancelled an assessment. As is manifest from a reading of
the operative directions that were framed by the Income Tax
Appellate Tribunal, it had while remanding certain items for
reconsideration to the assessing officer, remitted the issues
pertaining to arm's length price directly to the Transfer
Pricing Officer. It becomes pertinent to note that the
aforesaid reference to the Transfer Pricing Officer and for it
undertaking a fresh adjudication was based on the consent of
the parties. Even the aspect of corporate guarantee and
whether it would be an international transaction was an issue
which was remanded directly to the Transfer Pricing Officer
subject to the rider that the same would be taken up for
consideration after the Special Bench had rendered its
decision.
... ... ...
72. We, additionally, find that the prescription of
nine months would also be applicable to a fresh order
which is liable to be made in accordance with Section
92-CA of the Act. This since Section 153 of the Act
speaks not merely of assessments but also orders that
are liable to be framed under Section 92-CA. The order
which is spoken of in Section 92-CA of the Act, as
explained above, is the one which the Transfer Pricing
Officer may come to make in accordance with sub-
section (3) thereof. It is thus manifest that the
assessment exercise was liable to be concluded within
a period of nine months when computed from 14-7-
2017.
45
... ... ...
80. It becomes pertinent to observe that the
Section 92-CA(1) reference rests solely upon the
assessing officer being of the opinion that a reference
is required to be made to the Transfer Pricing Officer
for computation of arm's length price. That power
stands conferred upon the assessing officer and is
available to be exercised in the course of assessment.
However, and as is plainly evident from Section 153(3)
of the Act, the statute does not deprive the Income
Tax Appellate Tribunal of the authority and jurisdiction
to require a fresh order under Section 92-CA being
made. As we had observed hereinabove, Section
153(3) of the Act speaks of assessments as well as
orders under Section 92-CA that may be required to be
made pursuant to an order passed by an Income Tax
Appellate Tribunal in exercise of its appellate
jurisdiction comprised in Section 254 of the Act. In our
considered opinion, the reference which the assessing
officer proceeded to frame on 27-12-2018 was thus
clearly superfluous and in any case cannot be
sustained on the basis of Section 153(4) of the Act.
81. It is pertinent to note that sub-section (4) of
Section 153 is concerned with a reference referable to
Section 92-CA(1). That provision, as noticed
hereinabove, is confined to a reference to the Transfer
Pricing Officer that may be made by the assessing
officer. The limited application of Section 153(4) is
also evidenced from that provision using the
expression "made during the course of the proceeding
for the assessment or reassessment". Sub-section (4)
is thus clearly confined to a reference that the
assessing officer may choose to make in the course of
assessment. Sub-section (3) of Section 153 of the Act,
on the other hand, deals specifically with assessments
and orders under Section 92-CA that the authority
concerned may be liable to make in terms of the
directions issued by the Income Tax Appellate
Tribunal. Consequently, it would be the principle of
generaliaspecialibus non derogant which would stand
46
attracted and be determinative of the question that
stands posited."
(Emphasis supplied)
The High Court of Delhi considers the entire spectrum of the
provisions and holds that the matter remitting back to the Transfer
Pricing Officer by the Tribunal is not same as the reference by the
Assessing Officer to the Transfer Pricing Officer. The limitation
would kick in.
10. The issue further would be, the date on which the
limitation would expire whether it is 31-03-2024 as contended by
the petitioner, or 31-03-2025 as contended by the revenue. This
again need not detain this Court for long or delve deep into the
matter. A coordinate Bench of this Court considers an identical
issue in the case of WIPRO LIMITED v. JOINT COMMISSIONER
OF INCOME TAX2 wherein it is held as follows:
"8. Both the counsel for the Assessee and the Sr.
Panel Counsel for the Revenue have filed their Written
Submissions and have pressed into service a catena of
decisions, relevant of which have been adverted to; having
heard the learned counsel for the parties and having perused
2
2021 SCC OnLine Kar 15898
47
the Petition Papers, this Court is inclined to grant indulgence
in the matter as under and for the following reasons:
I. Some legal principles & morals which are to
animate levy of tax and refund of un-taxable:
(i) A great Indian poet Kalidasa (500 CE) in his
epic poem "Raghuvamsham" (1-18) states: "The King Dilip
collects from his subjects only 1/6th of their income as tax for
the welfare of State, indeed like the sun taking earthly water
drops, only to indemnify her with multiples of rain-drops..."
Chanakya in his acclaimed work "Arthashastr" advises the
Rulers: "Collect taxes from the citizens as honeybees collect
nectar from the flowers, gently and without inflicting pain...";
(ii) A renowned jurist of yester-decades late Mr.
Nani Palkhivala, in the concluding paragraph of Preface to
the Eighth Edition of "The Law and Practice of Income Tax"
said "Every Government has a right to levy taxes. But no
Government has the right, in the process of extracting tax,
to cause misery and harassment to the taxpayer and the
gnawing feeling that he is made the victim of palpable
injustice."; the function of the Assessing Officer is to
administer the statute with solicitude for the Public
Exchequer with an inbuilt idea of fairness to tax payers; this
view finds expression in the decision of the Apex Court in
ACIT vs. Rajesh Jhaveri Stock Brokers P. Ltd. (2007) 291
ITR 500 (SC).
(iii) Walton J. had observed in Vestey v. Inland
Revenue Commissioners [1979] Ch 177 (197 - 198) "I
conceive it to be in the national interest, in the interest not
only of all individual tax payers - which includes most of the
nation - but also in the interests of the Revenue authorities
themselves, that the tax system should be fair... One should
be taxed by law, and not be untaxed by concession ... A tax
system which enshrines obvious injustices is brought into
disrepute with all tax-payers accordingly, whereas one in
which injustices, when discovered, are put right (and with
retrospective effect when necessary) will command respect
and support...".
48
(iv) A Welfare State like ours is constitutionally
expected to be fair & reasonable in dealing with the subjects
and it must avoid any harassment to the assessee public,
without causing any loss to the Exchequer (see Nokia
Corporation v. Director of Income-tax [2007] 292 ITR 22
(Delhi HC); the State as constitutionally ordained, needs to
conduct itself as a virtuous litigant and should meet honest
claims; this view finds resonance in the decision of the Apex
Court in State of U.P. v. Manohar [2005] 2 SCC 126; the
maxim actus curiae neminem gravabit, i.e., an act of court
shall prejudice none, is equally applicable to the quasi-
judicial functions of Tax Authorities, as well.
(v) Article 265 of the Constitution of India
mandates that no tax shall be levied or collected except by
authority of law; if a tax has been paid in excess of the tax
specified, the same has to be refunded; in Tata
Chemicals 363 ITR 658 (SC), the Apex Court reasoned out
why State should pay interest for holding tax payers' money;
a "tax refund" is a refund of taxes when the tax liability is
less than the tax paid; when the said amount is refunded, it
should carry interest as a matter of course, since it is a kind
of recompense for the 'unauthorized use or retention' of
money; refund due & payable to an assessee is a debt owed;
Parliament has enacted this principle in Section 244A of the
1961 Act; in Aluminium Corporation of India Ltd. v UOI 1978
(2) ELT 452 (SC) the Apex Court observed that a good
government involves not only diligent collection of taxes, but
also ready refunds of excess levies.
II. As to meaning of "assessment"; difference
between "assessment" & "assessment order"
(i) The DCIT has stated in the impugned order
"... As this is the case of fresh assessment/re-
assessment, an additional interest u/s. 244A(1A) will
not be applicable ... "; much has been argued on behalf
of the assessee that his is not a case of fresh
assessment/re-assessment, and therefore the
impugned order is liable to be voided, whereas the
Revenue has contended to the contrary; therefore, it
49
becomes necessary to discuss these concepts. While
juxtaposing contextual construction qua literal interpretation
of statutes, Justice Krishna Iyer in CIT vs. ARAVIND REDDY,
AIR 1980 SC 96 observed:
"The significance of a word of a plural semantic
shades may, in a given text depend on the pressure of the
context or other indicia. Absent such compelling mutation
of sense, the speech of the lay is also the language of the
law ...";
Keeping inter alia the above observation in mind, one
has to ascertain the meaning of the above terms.
(ii) The 1961 Act has a Dictionary Clause in
Sec.2; Section 2(9) merely states that the assessment
includes reassessment; this does not throw much light
on the debated questions; in Sir Rajendranath
Mukerjee v. CIT, (1934) 2 ITR 71 (PC), it has been
held under the erstwhile Income Tax Act, 1922 that
the word 'assessment' is not confined to the definite
act of making an order of assessment; in C.A. Abraham
v. ITO [1961] 41 ITR 425 (SC), in the context of
section 44 of 1922 Act (similar to section 189 of the
1961 Act), it has been held that the term 'assessment'
employed therein not only referred to computation of
income but included the procedure for declaration &
imposition of tax liability and the machinery for
enforcement thereof;
(iii) It is pertinent to refer to what the Hon'ble
Supreme Court observed in Auto & Metal Engineers v. Union
of India [1998] 229 ITR 399 (SC):
"7. In the Act the provisions regarding procedure for
assessment are contained in Chapter XIV (sections 139 to
158). Under the said provisions, the process of assessment
involves (i) filing of the return of income u/s. 139 or u/s.
142 in response to a notice issued u/s. 142(1); (ii) inquiry
by the Assessing Officer in accordance with the provisions of
sections 142 and 143; (iii) making of the order of
assessment by the Assessing Officer u/s. 143(3) or section
144; and (iv) issuing of the notice of demand u/s. 156 on
the basis of the order of assessment. The process of
50
assessment, thus, commences with the filing of the return
or where the return is not filed by the issuance by the
Assessing Officer of notice to file the return u/s. 142(1) and
it culminates with the issuance of the notice of demand u/s.
156. The making of the order of assessment is, therefore,
an integral part of the process of assessment..."
(iv) In CIT v. Purshottamdas T. Patel [1994]
209 ITR 52 (Guj), the Hon'ble High Court of Gujarat
has observed that section 153 requires that the
assessment should be completed within the prescribed
time limit and unless the total income is ascertained &
tax payable is determined, the process of assessment
cannot be said to be complete; it also held that an
'order of assessment' is an order in writing whereby
the total income of the assessee is assessed and the
tax payable by him is determined; thus, the passing of
an assessment order is only an integral part of the
process of assessment and therefore, the word
'assessment' cannot be confined to the act of making
an order of assessment; there is a certain legal
difference between the terms 'assessment' &
'assessment order'; it can be stated that the use of the
word 'assessment' would mean the whole process of
determination of income and the same should not be
restricted to a mere passing of an assessment order.
III. As to meaning of the term 'setting aside or
cancelling an assessment'
(i) Ordinarily, when an assessment is set aside or
cancelled, a fresh assessment follows; a perusal of the
following sections reveals that making of a fresh assessment
invariably precedes setting aside or cancelling an
assessment:
• Section 153(2A) prior to substitution by Finance
Act, 2016 with effect from 01.06.2016.
• Section 153(3) post substitution by Finance Act,
2016 with effect from 01.06.2016.
• Proviso (a) to Section 240;
51
• Explanation 1(iii) to section 245A(b)
• Section 251(1)(a) - words as omitted by
Finance Act, 2001 with effect from 01.06.2001.
It may be noted that Section 153 which is the subject
matter of interpretation herein, is entitled "Time limit
for completion of assessment, reassessment and
recomputation; therefore it is primarily concerned with
laying down time limits which have to be adhered to
by the assessing officers.
(ii) In the light of the above, a question arises
as to whether the terms 'setting aside' or 'cancelling'
an assessment employed in the subject provisions, do
mean setting aside or cancellation of the entire
assessment order or would it include even setting
aside or cancellation of only a part of the assessment
order [as with respect to particular issues, rest having
been left intact by the ITAT or the like]; the said
provisions cautiously employ the word 'assessment'
and not the term 'assessment order'; however, one
will have to see the setting in which these provisions
actually occur. A summary of the said provision is set
out hereunder:
Sub-Section Nature of Proceedings Time limit Time limit
Assessment under section [from the end [from the end
of the of the
assessment Financial Year
year in which
income was
first
assessable]
153(1) Regular Assessment To pass 21 months
assessment orders From AY 2018-
under section 19, time limit
143(1) and 144. has been
amended to 18
months
From AY 2019-
20, time limit
has been further
reduced to 12
months
153(2) Income escapement To assess/re- NA 12 months from
52
assessment assess/ the end of FY in
recompute under which notice
section 147 under section
148 was served.
From 1st April
2019, the above
time limit has
been reduced to
9 months.
153(3) To make fresh NA 9 months from
assessment the date of
pursuant to order referred order's
u/s 254/263/264 under this
setting aside or section (254,
cancelling 263,264 orders)
assessment Post
received by the 01.04.2019,
PCIT or CCIT or the If the order is
orders passed by received after
the PCIT or CCIT. 01.04.2019,
then in such
cases the time
limit has been
increased to 12
months
153(4) Notwithstanding The period as
sub-sec, (1), (2) & specified in sub-
(3), where a section (1)(2) &
reference has been (3) shall be
made to Transfer further extended
Pricing Officer by 12 months.
during the
proceeding for
assessment,
reassessment
made.
153(5) To give effect to the To give effect to an Effect to the
order of the higher order passed by order to be
authorities i.e. CIT higher authorities given within 3
(A), ITAT, HC and other than those months from the
SC orders orders which end of the
require fresh month in which
assessment or order is
reassessment and received.
such order requires
verification of any PCIT or CIT may
issue by way of allow an
submission of any additional period
document by the of six months.
assesse or an [subject to
opportunity is certain
required to be conditions]
provided to the
assessee. If the order
which has to be
given effect to
53
requires
verification of
any issue then
the time limit of
9 months is
applicable.
153(6) Exceptions to Assessment, In consequence 12 months
subject clause (1) and (2) reassessment of or to from the end of
to above. or recomputation give effect to the month in
provision made on any which order is
of assessee or any findings or received .
section person. directions
[153(3) contained in
and (5)] order's
otherwise than
in appeal.
Assessment of 12 months
partner from
order in the end of the
consequence of month in which
an assessment order in case of
made on the firm is passed
firm under section
147
153(7) To give effect to the AO to give effect to Effect to be
order, finding or such given before
Applicable for direction referred to orders within time 31.03.2017
the period in section 153(5) & specified u/s
prior to (6) 153(5) & (6) and
1.4.2016 such orders are
passed/
received by
income-tax
authorities
before
1-6-2016
153(8) Revival of order 1 month from
passed u/s. the end of
153A(2) or 153(1) month of revival
or within 21
months from the
date of
authorization-
for search has
been issued -
whichever is
earlier.
Further, Explanation 1 below section 153 provides that
in computing the period of limitation, time taken for
specified processes, as listed therein, should be
excluded.
54
Section 153 lays down the time limit to make
assessment, reassessment & recomputation under various
scenarios; section 153 is substituted by Finance Act, 2016;
the brief outline of this section is as under:
• Sub-section (1) deals with time-limit for making
assessment order under sections 143 or 144. With
the advancement of e-assessments, the time limits for
doing an assessment are progressively going to be
reduced.
• Sub-section (2) deals with time-limit for making
assessment order under section 147, Section 147
deals with re assessment orders.
• Sub-section(3) deals with time-limit for making order
of fresh assessment in pursuance of an order under
section 254 or section 264, by virtue of which the
original assessment is either set aside or cancelled.
• Sub-section (4) states that where a reference
under section 92CA(1) is made during the course
of the proceeding for the assessment or
reassessment, the period available for
completion of assessment or reassessment, as
the case may be, under the said sub-sections
(1),(2) and (3) shall be extended by twelve
months. This would apply only when the
reference is made in the course of proceeding for
assessment or reassessment and not otherwise.
• Sub-section (5) deals with time-limit to give effect to
an order under section 250 or section 254 or section
260 or section 262 or section 263 or section 264,
wholly or partly, otherwise than by making a fresh
assessment or reassessment.
• Sub-section (6) deals with time-limit for making
assessment, reassessment or recomputation in
consequence of or to give effect to any finding or
direction contained in an order under section 250,
Section 254, section 260, section 262, section 263, or
section 264 or in an order of any court in a proceeding
otherwise than by way of appeal or reference under
55
the Act. The said sub section is subject to subsection
(3) and (5).
• Sub-sections 7 and 9 deal with transition provisions as
section 153 is substituted.
• Sub -section 8 deals with time-limit in case of search
based assessments.
A second proviso is added to sub-section (5) of section 153
by the Finance Act, 2017. The said proviso states that where
an order under section 250 or section 254 or section 260 or
section 262 or section 263 or section 264 requires
verification of any issue by way of submission of any
document by the assessee or any other person or where an
opportunity of being heard is to be provided to the assessee,
the Order Giving Effect to the said order u/s.250 or sec.254
or sec.260 or sec.262 or sec.263 or sec.264 shall be made
within the time specified in sub-section (3). The dates
specified in the Table above shown as B would be relevant
for this purpose.
IV. As to Order Giving Effect (OGE):
(i) The following general principles have
relevance in considering the Orders Giving Effect in the
light of Parliamentary amendments to the 1961 Act:
• It is a fundamental principle that income tax is
payable on real income, vide Apex Court decision in
Poona Electric Co. Vs. CIT (1965) 57 ITR 521.
• This real income can be brought to tax through
assessment contemplated under the Act.
• The basic principle is that ordinarily assessments
cannot be done piecemeal.
• There are a few exceptions to the rule of "no
piecemeal assessment' as in the case where income
has escaped assessment where re-assessment
powers do avail, as discussed by Calcutta High
Court in Karan Chand Thapar vs. ACIT (2005) 276
ITR 105 para 13.
56
(ii) OGE is not a regular assessment as held in the
case of Sundaram Finance 417 ITR 679 Mad; passing an
Appeal Effect Order is an implied obligation of every
authority to comply with the directions of his superior in the
hierarchy; this is an inherent aspect of adherence to judicial
discipline; OGE to an order on appeal or on revision has
to be passed in order to compute the total income and
to determine the tax payable by or refundable to the
assessee for the assessment year concerned, in the
light of additions/disallowances affirmed or varied at
every such stage; it may be noted that such OGE could
either be adverse or beneficial as it may either result
in a tax payable by or refundable to the assessee, as
illustrated by the following:
Cross Appeals before Tribunal
u/s. 254
4 issues
Revenue Appeal in Assessee's appeal on
respect of 1 issue three issues clearly
held against held in favour of
assesseee assessee
OGE to be passed u/s. 153(5) within 3 months
from the end of the month in which the order of
Tribunal u/s. 254 is received by PCCIT or CCIT or
PCIT or CIT. Where the order is passed beyond
such time limit, additional interest u/s. 244A(1A)
would be applicable for the period beginning from
the date following the date of expiry of the time
allowed u/s. 153(5) to the date on which the refund
is granted.
57
(iii) It may be important to note that even before
such amendments were made, binding appellate orders
used to be given effect to by the Writ Courts on being moved
by the assesses grieving against denying or delaying of
refund of tax, The Parliament presumably having taken
cognizance of the difficulties faced by the prudent assesses
has through the amendment has obviated the principle of
judicial discipline in a hierarchical structure that, orders of
the higher ups in the hierarchy have to be unreservedly
followed by the lower authorities, as has been explained by
the Apex Court in UOI vs. KAMALAKSHI FINANCE
CORPORATION, 1991 (55) ELT 433; the Parliament by the
subject amendments has prescribed a time limit for making
refund of tax and has also provided for the payment of
interest on the delayed refunds.
V. Difference between 'assessment', 'reassessment'
or 'recomputation' and 'fresh assessment'
(i) The words 'assessment, 'reassessment' or
'recomputation' have been used in the following sections of
the 1961 Act:
Section 147 (prior to substitution vide Finance Act,
2021 with effect from 01.04.2021) and section 147
(post substitution vide Finance Act, 2021 with effect
from 01.04.2021)
Explanation to section 147 (post substitution vide
Finance Act, 2021 with effect from 01.04.2021)
Section 148 (prior to substitution vide Finance Act,
2021 with effect from 01.04.2021) and section 148
(post substitution vide Finance Act, 2021 with effect
from 01.04.2021)
Section 150
Section 153(3)(ii) [prior to substitution vide Finance
Act, 2016 with effect from 01.06.2016]
Section 153(6)(i) [post substitution vide Finance Act,
2016 with effect from 01.06.2016]
58
From the above, it can be safely assumed that the
word 'reassessment' has been used in cases where
income has escaped assessment.
(ii) On the other hand, the phrase 'fresh assessment'
has been used in the following sections:
• Proviso (a) to Section 240;
• Section 251(1)(a) -words omitted by Finance Act,
2001 with effect from 01.06.2001.
• Explanation 1(iii) to section 245A(b).
• Section 153(2A) prior to substitution by Finance
Act, 2016 with effect from 01.06.2016.
• Section 153(3) post substitution by Finance Act,
2016 with effect from 01.06.2016.
The term 'fresh assessment' as employed in the above
sections is accompanied by the term 'setting aside or
cancelling an assessment'; it may further be noted
that section 153(6) is subject to the provisions of
sections 153(3) & 153(5); therefore, the 'assessment,
reassessment or recomputation' as referred to in
sections 153(6) would not include the 'fresh
assessment' as contemplated in sections 153(3) &
153(5); the following table is illustrative:
Words used
Section Section 153(5) Proviso (a) to Section 244(1A) - Section 153(6) -
153(3) - - fresh Section 240 - fresh assessment assessment or
fresh assessment or fresh or reassessment reassessment
assessment reassessment assessment or Or recomputation
reassessment
59
(iii) The word 'reassessment' is used next to the
term 'fresh assessment' in section 153(5), Proviso (a) to
section 240 & section 244A(1A); the definition of the term
'assessment' as contained in section 2(8) which merely
provides that assessment includes reassessment, shall not
ipso facto be applicable in all situations governed by various
provisions of the 1961 Act; if the fresh assessment included
a fresh reassessment, there was no need for the Parliament
to employ the two terms, simultaneously; Lord Hewart C.J.
in Spillers Limited Vs. Caradix Assessment Committee &
Pritchard, (1931) All E.R. 524 stated: "It ought to be the
rule... that words are used in an Act of Parliament correctly
and exactly and not loosely and not inexactly..."; section 2
i.e., the Dictionary Clause of the Act employs the usual
expression 'unless the context otherwise requires' and this
itself indicates that the words used in various provisions of
the Act may take their colour from their context and at
times, in variance with the statutory definitions; The maxim
expressio unius exclusio alterius with all its arguable
limitations also lends support to the above view to some
extent; Maxwell on "The Interpretation of Statutes" 12th
Edition, LexisNexis at page 293 explains this maxim as
under:
"By the rule usually known in the form of this Latin
maxim, mention of one or more things of a particular
class may be regarded as silently excluding all other
members of the class: expressum facit cessare tacitum.
Further, where a statute uses two words or expressions,
one of which generally includes the other, the more
general term is taken in a sense excluding the less
general one: otherwise there would have been little
point in using the latter as well as the former."
(iv) It is pertinent to note that section 153(3)
[post substitution vide Finance Act, 2016 w.e.f.
01.06.2016] does not use the word 'reassessment'
alongside 'fresh assessment'; however, the said word
has been used alongside 'fresh assessment' in section
153(5) [post substitution vide Finance Act, 2016;
accordingly, reassessment is not envisaged u/s
60
153(3); such reassessment can only come u/s 153(2)
or Section 153(6) which deals with assessment,
reassessment or recomputation to give effect to any
finding or direction contained in the order of superior
authority or court; thus if an order of assessment is
set aside in appeal with a direction that a fresh
reassessment be made, the same would be covered by
section 153(3); One may also note that section 2(40)
of the Income Tax Act, 1961, Act defines the term
"regular assessment" to mean assessment under sub
section 3 of section 143 or section 144; therefore
these terminologies have different import in different
sections. In the light of this discussion, it is clear
that the term "assessment" is used in section 153(1)
to mean the entire process of assessment; section
153(2) uses the words, 'assessment', 'reassessment'
or 'recomputation' but in respect of section 147 which
deals with income escaping assessment; section
153(3) uses the term "fresh assessment" in pursuance
of the orders passed setting aside or cancelling an
assessment; therefore, this term "fresh assessment",
though not defined, contemplates a new assessment
consequent to the higher authorities cancelling or
setting aside the assessment; Section 153(5), talks of
giving effect to an order passed by the higher
authorities, wholly or partly, otherwise than by
making a fresh assessment or reassessment. The
words "wholly or partly" obviously pertain to giving
effect to the order of the higher authorities which
would be done by the lower authority either in part or
in whole depending on the issues that are settled by
the higher authorities. However, such an exercise
cannot be done within the time limits specified in
Section 153(5), where there is a fresh assessment or
reassessment and in such cases the longer time limits
specified in Section 153(3) would apply; a harmonious
construction of these provisions would mean as under
:
a. That in order to give effect to the order of the
superior authorities, either wholly or partly in
terms of Section 153(5), it should not be a case
of reassessment or fresh assessment, which if
61
they are, would otherwise fall into Section
153(3);
b. That Section 153(3), when it uses the term
'fresh assessment', would mean that the entire
exercise of assessment is to be done afresh as it
is used along with the terminology "setting aside
or cancelling" which would mean the whole
order of assessment being set at naught and not
some issues comprised in the assessment order;
when the assessment order is set aside on some
issues only and confirmed on other, it is not a
case of 'setting aside or cancelling the
assessment'.
c. That Section 153(5) would apply where the
assessing officer has to give effect to the order
of the higher authorities in whole or in part
provided that no fresh assessment i u/s.153(3)
or a reassessment u/s. 153(2) relating to
income escaping assessment, is to be
undertaken.
d. Therefore, if the orders to be given effect to are
to be made by following the principles already
laid down by the higher forum, it would not be a
case pf fresh assessment in terms of Section
153(3) or a reassessment in terms of Section
153(2); it would simply mean that the orders of
the higher forum are to be applied & followed by
the assessing officer; . it may be borne in mind
that longer time limits are provided in Section
153(3) & second proviso to Section 153(5)
because it may entail doing the entire process
once over or where detailed evidences may be
required for accomplishing the task; however
where a shorter time limit is prescribed u/s.
153(5), the legislative mandate is to subserve
the objectives of ensuring timely compliance
with the orders of the superior authorities.
(v) One more aspect needs to be stated here:
instructions were issued by the CBTD long before
Sec.244A(1A) was loaded to the statute book making the
62
right to interest on delayed refund a substantive right; the
relevant portion of instruction 7 of F.No.279/MISC/M-
42/2011-ITJ dated 24.05.2011 reads as under:
"iv. Appeal effect should be particularly monitored by
the CIT in the cases in which the ITAT has decided certain
issues in favour of the assessee and set aside-remanded
back other issues to the Assessing Officer. The set-aside
issues must be decided on priority".
The said practice & procedure are reflected by the following
observations of the ITAT in the case of Sanat Products Ltd.
v. DCIT [2006] 5 SOT 510 [ITAT - Del.]:
"No particular procedure has been given in the Act or the
Rules to carry out the appeal effect. Wherever no particular
procedure has been given in the Act or the Rules, then
naturally the authorities have to adopt a procedure or
practice, which is practical, adheres to the well-settled legal
principle and does not cause prejudice to the assessee or
the Government. One of the basic principle in the
administration of justice in India, where hierarchy of courts
is existing, is that it is mandatory on the subordinate
Tribunal or authorities to carry out the directions given to
them by the superior authorities or Tribunals in exercise of
appellate powers. Failure to do so will result in chaos in the
administration of justice..... [vide Para 7]
Whenever an appellate authority passes an order,
there are three possibilities. Firstly, the appellate authority
may confirm the whole or part of the order passed by the
lower authority. Secondly, the whole or part of the order
may be quashed or additions may be deleted. Thirdly, the
whole or part of the issue raised may be set aside for fresh
examination with or without any specific directions.
Whenever some additions are confirmed or deleted, the
issues become final as far as the Assessing Officer is
concerned. Only course open to him is to carry out the
directions given by the Commissioner (Appeals). Of course,
if the assessing authority is not satisfied with the order of
the Commissioner (Appeals), he can prefer an appeal before
the Tribunal but, at the same time, the appeal effect has to
be given. There is a practice that appeal effect orders are
passed under section 250, read with section 143(3), and
issues which have become final are dealt in such order and
accordingly, fresh demand, if any, is raised. There is no bar
63
in the Act for raising the demand and, therefore, there is
nothing wrong in this practice being followed by the revenue
authorities. [Para 8]
However, difficulties would arise only where some of
the additions are confirmed and/or deleted and some issues
are set aside for fresh examination by the Assessing Officer,
as in the instant case. [Para 9]
Piecemeal assessment is not possible under section
143(3), however, while giving appeal effect in the present
kind of situation, the Assessing Officer was performing two
functions, namely, carrying out the directions of the
appellate authority in respect of the issues which had
become final and secondly, re-examining the issues which
had been set aside to him. Each of these functions seemed
to be independent and there is no bar in the Act to carry out
these functions separately. There was no infirmity in the
practice being followed by the revenue authority in passing
the separate appeal effect order by firstly giving appeal
effect order in respect of issues which had become final and
passing the second order in respect of those issues which
had to be examined afresh. Such kind of practice was more
practical and convenient to both the parties and there was
no legal bar against such a practice. [vide Para 10]"
VI. As to limitation period under the 1961 Act:
(i) The provisions of 1961 Act prescribe periods of
limitation for various acts & procedures of assessees
and assessing authorities; limitation is prescribed,
inter alia, for the issue of scrutiny notice u/s 143(2),
issue of notice u/s 147, for completing assessment
u/s 153, etc; limitation is provided for acts of assessee
as well ie., due date for filing of returns u/ss
139(1)/(4)/(5); in Parashuram Pottery Works Col Ltd.
v. ITO [1977] 106 ITR 1 at p.10, it is stated: "At the
same time, we have to bear in mind that the policy of
law is that there must be a point of finality in all legal
proceedings, that stale issues should not be
reactivated beyond a particular stage and that lapse of
time must induce repose in and set at rest judicial and
quasi-judicial controversies as it must in other spheres
of human activity"; arguably, limitation may have
64
arbitrariness in its fixation but has to be strictly
construed without equitable consideration vide R.
Rudraiah v. State of Karnataka (1998) 3 SCC 23;
similarly, in C. Ramaiah Reddy 339 ITR 210 Kar, a
Bench of this court has observed that if proceedings
are not initiated within the time prescribed, the
remedy is lost and the assessee would acquire an
indefatigable right; such a right accruing by the lapse
of time cannot be at the mercy of the officials, who do
not discharge their duties within the prescribed period
or a reasonable time; in the matter of limitation,
question of prejudice does not arise vide M.
Janardhana Rao Case 273 ITR 50 SC; if no action is
taken within the prescribed time limit, the authority in
a sense becomes functus officio and thus lacks
jurisdiction to take the action in the concerned matter.
(ii) The above principle would apply even to
passing of fresh assessment or OGEs where different
time limits are prescribed u/s. 153(3/(5)(6); in
Freight Systems (India) Pvt. Ltd [TS-143-HC-
2021(MAD)-TP], the Hon'ble Madras High Court
quashed the final assessment order dated 29.10.2010
for AY 2006-07 as being barred by limitation
u/s.153(2A) [presently section 153(3)]; similar view
is expressed by a Bench of this Court in Paul Noel
Rodrigues [2015] 57 taxmann.com 12 (Karnataka); an
assessee may challenge an adverse OGE as being
barred by time; while the similar principle applies to
favourable OGE as well, the Department cannot take
advantage of its own lapse both on the first principle
of doctrine against unjust enrichment and on the
statutory mandate that it has to grant the refund to an
assessee as a functional consequence of an appellate
order even without the assessee having to make any
claim [section 240]; the right to receive interest on
the delayed refund does not depend on the application
of the assessee, but follows as a natural corollary to
the right to receive refund vide NATIONAL
HORTICULTURE vs. UNION OF INDIA, 253 ITR 12; this
can be likened to centuries-old-principle that the
debtor should find the creditor and pay the debt.
65
VII. Payment of interest on delayed refunds
u/s. 244A(1A):
(i) This provision has been brought on the statute
book vide Finance Act, 2016 w.e.f. 01.06.2016; entitlement
of an assessee to the interest on delayed refund as
envisaged under this provision to some extent brings a sort
of parity in the converse situation where he is liable to pay
interest for delayed payment of taxes in terms of section
234B; it may be pertinent to note that it was inserted and
brought into effect from the same time as section 153 was
substituted by Finance Act, 2016; similarly, section 153(5)
was substituted by Finance Act, 2016 prescribing the time
limit to give effect to the orders passed under the sections
mentioned therein, wholly or partly, otherwise than by
making a fresh assessment or reassessment; prior to such
amendment, no time limit was prescribed for passing of
OGE; it may be noted that the requirement of paying interest
u/s 244A(1A) has been brought in for the cases covered u/s
153(5); this is for the following reasons:
Both the sections have been enacted vide Finance
Act, 2016 and both they have been brought into
effect from 01.06.2016.
Both sections 153(5) and 244A(1A) deal with
giving effect to orders u/s. 250 or section 254 or
section 260 or section 262 or section 264.
The said sections deal with giving effect to orders
passed under the sections mentioned therein,
either wholly or partly.
The said sections make exception to making of
fresh assessment or reassessment.
Section 244A(1A) provides for interest for the
period beginning from the date following the date
of expiry of the time allowed u/s. 153(5) to the
date on which the refund is granted.
66
(ii) The legislative intention in enacting section
244A(1A) can be discerned from the Memorandum explaining
the provisions of the Finance Bill, 2016, the relevant extract
of which reads as under:
"Payment of interest on refund.......
It is also proposed to provide that where a refund arises
out of appeal effect being delayed beyond the time
prescribed under sub-section (5) of section 153, the
assessee shall be entitled to receive, in addition to the
interest payable under sub-section (1) of section 244A,
an additional interest on such refund amount calculated
at the rate of three per cent per annum, for the period
beginning from the date following the date of expiry of
the time allowed under sub-section (5) of section 153 to
the date on which the refund is granted. It is clarified that
in cases where extension is granted by the Principal
Commissioner or Commissioner by invoking proviso to sub-
section (5) of section 153, the period of additional interest, if
any, shall begin from the expiry of such extended period."
Similar legislative intent is forthcoming from the Notes on
Clauses to the Finance Bill, 2016 and paragraph 60.4 of the
Circular No. 3 of 2017 dated 20.01.2017.
(iii) Interest u/s 244A(1A) would not accrue in cases
of fresh assessment or reassessment; use of words 'wholly
or partly' therein would again indicate that the bar of interest
accrual is confined only to that part of the assessment that
are occasioned by remittance/remand and would not extend
to other concluded issues that give rise to refund u/s 153(5);
employment of identical language in section 153(5) and
section 244(1A) too supports this analogy; it is clear that
section 244A(1A) would apply to cases covered u/s 153(5);
thus where, in respect of certain issues, order giving effect to
be passed u/s 153(5), otherwise than by making a fresh
assessment or reassessment is passed beyond the prescribed
time-limit, interest u/s 244A(1A) has to be granted in
respect of refund arising on such issues that are concluded
and that the pendency of consideration on remitted issues
does not interdict the statutory accrual of interest; an
67
argument to the contrary cannot be countenanced without
straining the text & context of the provision.
VIII. Application of the above principles to facts
of the case:
(i) In the instant case, the following "title facts" are
not in dispute;
a) Assessment Year is 2008-09
b) ITAT order is dated 04.01.2017
c) TPO's OGE is dated 31.10.2017
d) AO's OGE is dated 28.12.2017
e) Assessee filed Rectification u/s 154 against
OGEs of TPO and AO on 18.01.2018
f) TPO passed the Rectification Order on
26.03.2018
g) Assessee follows up his application dated
18.01.2008 u/s 154 before AO with:
i) Application u/s 154 dated 24.1.2018
ii) Application u/s 154 dated 3.4.2018
iii) Letter dated 17.5.2018
iv) Letter dated 22.3.2019
v) Impugned order 29.3.19
(ii) A careful analysis of the order of ITAT dated
4.1.2018 would reveal that the ITAT dealt with several issues
differently, some having been remitted for reconsideration
and the conclusions on other left intact; the same may be
summarised as follows:
On TP issue, following earlier order, issue was
remitted to the file of TPO to follow the directions
given for earlier AYs
68
Sl.Nos:
1. On 14A issue, issue was set aside to the record of
AO to re-examine the same in the light of orders of
ITAT in assessee's own case for earlier assessment
years.
2. Issue of set off of loss was allowed in favour of
assessee.
3. Issue of depreciation of software was allowed in
favour of assessee.
4. Issue of allocation of corporate expenses between
eligible and non eligible units was allowed in favour of
assessee.
5. Issue of computation of profits of overseas
development centre (ODC), was remitted to the record
of AO and assessee was directed to file relevant details
as required by AO so that AO can ascertain the market
value of goods and services transferred.
6. Issue of eligibility of interest income, rental income
and other income u/s. 10A was remitted to AO by
following earlier decision in assessee's own case. In
earlier decision, issue of scrap sales and issue of
interest were decided in favour of assessee and issue
of other income was remitted as no details were
available. While issue of interest is clearly in favour of
assessee and issue of other income is a case of set
aside for further verification, and it is not clear as
regards guidelines to AO on rental income.
7. Issue of taxability of interest received u/s. 244A
was remitted to the record of AO for limited purpose of
computation of interest.
8. Issue of deemed export turnover for purpose of
section 10A was held against the assessee.
69
9. Issue of exclusion of VAT/GST from export turnover
was held against the assessee.
10. Issue of exclusion of communication charges and
other reimbursement of expenses from export
turnover, it was held that the same shall be reduced
from the total turnover as well.
11. Issue of denial of section 10A relief in respect of
amount of export turnover not remitted into India
within six months was held in favour of the assessee.
12. Issue of denial of section 10A relief in respect of
undertaking established prior to 1993 was held in
favour of the assessee but to the extent of extended
capacity. The matter was remitted to AO to verify the
same if necessary.
13. Issue of allocation of corporate overhead to
section 80IB unit beyond what was already allocated
by the assessee was held in favour of the assessee.
14. Issue of denial of deduction u/s. 80IB in respect of
trading of monitory and printer was held in favour of
the assessee.
15. Issue of allocation of corporate overhead to
section 80IC unit beyond what was already allocated
by the assessee was held in favour of the assessee.
16. Issue of eligibility of other income for deduction
u/s. 80IC was held against the assessee.
17. Issue of allocation of corporate overhead to
section 80IAB beyond what was already allocated by
the assessee was held in favour of the assessee.
18. Issue of eligibility of other income for deduction
u/s. 80IB was held against the assessee.
19. Issue of foreign tax credit was held in favour of
the assessee.
70
(iii) In para 50 of the ITAT order, it is stated
that the appeal is partly allowed; it is not stated that
the appeal is allowed for "statistical purposes"; thus, it
is a case where the ITAT has held some issues
definitively, and on some other, it had remitted the
matter to the AO/TPO for a limited consideration
afresh; in respect of issues in Sl.Nos.1, 2 & 7 in the
above summary, there is virtually a direction
warranting OGE; it is quiet clear from the facts of the
case that the respondents have not undertaken any
fresh assessment or reassessment; the ITAT has not
directed assessment or reassessment at all, but it only
asked the TPO to follow its directions in the earlier
year; in respect of other issues definitive answers
having been given, it cannot be a case of setting aside
entire assessment; it is a case of setting aside an
assessment only on specific issues; as already
discussed above, in respect of issues where there is a
definitive holding, section 153(5) would apply and the
AO has to pass OGE within the time specified
thereunder read with II Proviso thereto; in respect of
issues which are set aside [ie., Sl.Nos. 1, 2 & 7],the AO
had to pass OGE following the principles already
settled; accordingly, it has to be held that the AO was
required to pass OGE within the time specified u/s.
153(5); in respect of issues which are set aside (i.e.,
Sl.Nos.1, 2 & 7 above), the AO ought to have passed
an assessment order u/s 153(5) following the
principles already laid down by the superior forum.
IX. As to Revenue's other contention being
unsustainable:
(i) Even according to the argued case of the
Revenue, regardless of its sustainability only that part
of the order giving effect to ITAT order which relates
to the Transfer Pricing Adjustment constitutes a fresh
assessment; as a corollary of that, the balance portion
of the order which otherwise warranted giving effect
to the ITAT order, does not amount to a fresh
assessment or reassessment; both the TPA and the
other substantial portion of giving effect were
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completed by one order giving effect to ITAT, dated
28.12.2017; if refund was granted immediately
thereafter, the claim for additional interest in terms of
section 244A(1A) would not have arisen, as rightly
argued by the assessee; the actual refund having been
made only on 04.05.2019, even when the assessment
in respect of one issue of TPA as early as 28.12.2017,
delay has been brooked in granting refund.
(ii) The above apart, case of the assessee becomes
stronger since his book profit is far greater than its profit as
per the normal provisions and that the refund arises only
because tax paid by the assessee was more than the tax
payable on the book profit; therefore, it can be safely stated
that no part of the refund payable arose because of the
reduction in the TPA; added to this, the demand attributable
to the TPA as finally made is miniscule ie., Rs.25 lakh or so,
as compared to the total refund including interest of over
Rs.1,380/- crore admittedly made over to the assessee; the
contention of the Revenue militates against the rule of
proportionality and the fairness standards which the Tax
Authorities are expected to adhere.
(iii) The vehement contention of the Revenue
essentially structured on the text of section 4 of the 1961 Act
that any order giving effect to the order of the ITAT will
result in re-determination of the assessee's total income and
therefore will constitute a fresh assessment, if accepted,
would inexorably lead to the result that the Revenue can
invariably retain the refund determined, without the liability
to pay the additional interest in terms of Sec.244A(1A) for
the delayed period; that would also lead to an absurd
conclusion that every OGE has to be considered as a fresh
assessment or reassessment and therefore would be outside
the purview of Sec.153(5) and consequently any delay in
granting actual refund would also be outside the ambit of
Sec.244A(1A); this would defeat the very object for which
this provision has been brought on the statute book.
In the above circumstances, this writ petition succeeds in part;
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i) A Writ of Certiorari issues quashing the impugned
order; petitioner-Assessee is permitted to submit the fresh
claim for additional interest at the rate of 3% per annum for
the period envisaged in section 153(5) r/w section 244A(1A),
within eight weeks.
ii) A Writ of Mandamus issues to the respondents to
compute the interest amount till date and pay it to the
petitioner- Assessee within eight weeks next following.
iii) If delay is brooked in complying the above
direction, the Revenue shall pay to the petitioner - Assessee
an extra interest, at the rate of 1.5 % per month and this
amount, after payment, may be recovered personally from
the erring officials of the Department.
Now, no costs."
(Emphasis supplied)
Since the coordinate Bench of this Court considers the entire
spectrum of the issue, delving deeper in the case at hand would not
be required. The coordinate Bench considers the aspect of delay as
obtaining under Section 153(3), 153(4) and 153(5) of the Act. The
judgment of the coordinate Bench was rendered interpreting the
unamended Section 153 of Act, which did not include calculation of
the limitation period for a fresh order under section 92CA as
provided under the amended Section 153(3) and Section 153(5) of
the Act. However, the observations of the coordinate Bench
interpreting Sections 153(3), 153(4) and 153(5) of the Act and the
73
interpretations of the terms 'assessment', 'reassessment' and 'fresh
assessment' as contained under Section 153 are squarely applicable
to the case at hand. If the facts obtaining in the case at hand are
considered qua the law as considered, by the coordinate Bench in
WIPRO and the High Court of Delhi in NEW DELHI TELEVISION
supra, what would unmistakably emerge is that, the limitation to
pass an order after remand from the Tribunal is 31-03-2024 and
not 31-03-2025. The order is received from the Tribunal by
respondents 1, 2 or 3, as the case would be, on 05-04-2022 and
22-11-2022 respectively. Therefore, if 12 months is computed from
the end of the financial year of 2022-23 which would be 12 months
from 31-03-2023 and limitation of which would expire on 31-03-
2024. There is no extension of one year as contended by the
revenue, merely because documents are sought by the revenue or
reply is filed by the petitioner to the documents so sought. In that
light the petitions deserve to succeed on the sole score of
limitation.
11. The judgment of the coordinate Bench in WIPRO was
challenged before the Division Bench of this Court in W.A.No.1322
74
of 2021. The Division Bench on 23-12-2021 passed the following
interim order:
"We have heard Sri.K.V.Aravind, learned counsel for the
Revenue and learned Senior Counsel Sri.S.Ganesh for the
respondent - assessee.
Prima facie, we are of the considered view that the
matter requires consideration. Hence, we deem it
appropriate to stay clause-iii of the order dated
25.8.2021 passed in W.P.No.20040/2019,
impugned herein, until further orders.
So far as clause-ii of the said order, learned Senior
Counsel Sri.S.Ganesh undertakes before this Court
that no proceedings shall be initiated by the
respondent - assessee pursuant to the said
directions issued in clause-ii, till the next date of
hearing.
The said submission is placed on record.
Accordingly, list the matter on 10.1.2022, as prayed.
Order on IA.I/2021
IA.I/2021 filed for condonation of delay stands disposed
of as not pressed."
(Emphasis supplied)
The Division Bench stays the operation of clause-iii of the order of
the coordinate Bench in WIPRO supra which deals with payment of
interest on the amount of refund. So far as clause-ii is considered
the Division Bench does not stay the operation of the said clause
and merely directs that no further proceedings should be initiated
against the assessee until the next date of hearing pursuant to the
directions issued under clause-ii. This interim order is still subsisting
75
as on date. Therefore the entire judgment has not been stayed by
the Division Bench. The entire consideration in the judgment is with
respect to the relief granted in clause-i and clause-ii of the
judgment and clause-iii is only an additional relief granted by the
coordinate Bench which is incidental to the relief granted under
clause-i and clause-ii, both of which have not been stayed by the
Division Bench.
12. What remains now is the right of the petitioner to receive
refund under Section 244A(1A) of the Act. This is also considered
by the coordinate Bench. The coordinate Bench was considering an
identical circumstance of the Tribunal allowing the appeal partly on
statistical purposes. Therefore, the very paragraphs quoted
hereinabove would become applicable to the claim of the present
petitioner in both these cases for refund of the amount paid over
and above the tax that is paid after filing of the return of income,
that too when the orders of the Tribunal have attained finality, since
the revenue has not chosen to question the said orders of the
Tribunal which had allowed appeals on certain grounds only for
statistical purpose and had remitted back to the hands of
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respondents 1, 2 or 3 to pass necessary orders afresh under
Section 153(3), 153(4) or 153(5) of the Act.
13. In the light of the limitation getting expired on
31-03-2024, any action beyond the said date is de hors jurisdiction,
as the question of limitation is always a question of jurisdiction. If a
claim is barred by limitation either by the act of the revenue or the
assessee, it would touch upon the jurisdiction of such claim.
Respondents 1 and 3 having passed no order pursuant to
remittance by the Tribunal on or before 31-03-2024, they are
precluded from passing any order now beyond the said date. In
that light, as observed hereinabove, the petitions deserve to
succeed, not only by obliteration of proceedings but a direction for
refund of the tax.
14. For the aforesaid reasons, the following:
ORDER
(i) Writ Petitions are allowed.
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SPONSORED
(ii) The communication dated 18-06-2024 issued by the 3rd
respondent for the assessment years 2013-14 and
2014-15 concerning in these petitions stand quashed.
(iii) The respondents shall initiate action for refund of tax
paid over and above the return of income filed for the
assessment years 2013-14 and 2014-15 concerning
Writ Petition No.18474 of 2024 and Writ Petition
No.18439 of 2024 respectively. The refund shall be
processed and paid within 12 weeks from the date of
receipt of the order along with applicable interest.
(iv) In the event of failure of the revenue to comply with
this order within the said period of 12 weeks, the
assessee would become entitled to interest at 12% per
annum from the date of the order till the date of
payment; otherwise, applicable interest would be from
the date the remittance was made till the date of
payment.
Sd/-
(M.NAGAPRASANNA)
JUDGE
Bkp
CT:MJ
