ITAT Hyderabad Quashes TP Assessment Orders in Vivimed Labs Limited vs ACIT: Limitation Under Section 153 Takes Centre Stage

Overview of the Dispute

The Hyderabad Bench of the Income Tax Appellate Tribunal delivered a significant ruling in Vivimed Labs Limited Vs ACIT, granting relief to the assessee across all three appeals covering Assessment Years 2014-15, 2015-16, and 2018-19. The central issue cutting across all three appeals was whether the consequential assessment orders dated 06.12.2024, passed by the Assessing Officer pursuant to earlier ITAT remand directions, were valid in law or had been rendered infructuous by the expiry of the limitation period prescribed under Section 153 of the Income Tax Act, 1961.

The transfer pricing disputes in question revolved around three principal international transactions — interest on advances extended to Associated Enterprises (AEs), corporate guarantee commission, and interest on outstanding receivables from AEs. The assessee mounted a robust challenge not merely on the merits of these adjustments but, more critically, on the foundational question of whether the Assessing Officer retained jurisdiction to pass consequential orders at all, given the prescribed statutory timelines.

Background: Earlier ITAT Remand Orders

Remand for AYs 2014-15 and 2015-16 — Order Dated 12.04.2022

The Tribunal, in its earlier round of proceedings in ITA Nos. 186 to 189/Hyd./2021 dated 12.04.2022, had addressed two substantive transfer pricing issues common to AYs 2014-15 and 2015-16:

Issue 1 — Advances to AEs:

The Revenue had made Arm's Length Price adjustments on the premise that funds transferred by the assessee to its overseas AEs constituted interest-free working capital advances. The assessee, on the other hand, maintained that these were equity investments ultimately converted into shares. The Tribunal, noting that neither the TPO nor the DRP had examined the share allotment evidence placed by the assessee, restored the matter with the following direction:

"...if it is found that these transactions were in fact investments in equity shares of the subsidiaries, then no T.P. adjustment shall be made. However, if it is found that the funds transferred by the assessee to its subsidiaries during the year were working capital advances, which were later decided to be treated as investments, then the T.P. adjustment already made by the AO shall be revived and the assessment shall be completed accordingly."

Issue 2 — Corporate Guarantee Commission:

On the question of ALP quantification for corporate guarantee commission, the Tribunal conclusively determined the applicable rate, observing:

"...we deem it appropriate in these peculiar facts and circumstances that a lumpsum commission rate of 0.5% qua the extent of amount of assessee's corporate guarantee(s) actually utilized only in all these four assessment years; would be just and proper."

The Tribunal also affirmed, following PCIT Vs. Redington (India) Limited (2020) 122 com 126 (Madras), that corporate guarantees constitute international transactions within the meaning of Section 92B of the Income Tax Act, 1961, especially in light of the Explanation inserted by the Finance Act, 2012, effective from 01.04.2002.

Remand for AY 2018-19 — Order Dated 30.01.2023

For AY 2018-19, the Tribunal passed a separate order in ITA No. 428/Hyd./2022 on 30.01.2023, addressing two distinct TP issues:

Corporate Guarantee Commission:

Following the Tribunal's own ruling in the assessee's case for the preceding four assessment years, the rate of 0.5% on the amount actually utilized was confirmed: