ORDER

Jagadish, Accountant Member. – This appeal by the assessee is directed against the assessment order dated 25.08.2025 passed by the Assessment Unit, Income Tax Department, under section 143(3) read with sections 254 and 144B of the Income-tax Act, 1961 (‘the Act’), pursuant to the directions dated 28.07.2025 of the Dispute Resolution Panel-1, Mumbai (‘the DRP’), under section 144C(5) of the Act, for the assessment year 2017-18.

2. The assessee has raised the following grounds of appeal:

“1. That the assessment Order dated 25.08.2025 is barred by limitation and hence illegal and bad in law as:

2. That, the Ld. AO erred in passing the draft assessment order dated 27.02.2025 without first issuing a show-cause notice in accordance with section 144B in respect of the variations proposed to be made by him. This is a jurisdictional pre-condition, non- compliance whereof has made the draft assessment order and consequently the final assessment order to be illegal and bad in law.

3. That, the Ld. AO erred in determining the total income in the assessment order at Rs.93,56,94,283 which has been taken as Rs.94,85,78,065 in the Income Tax Computation Sheet forming part of the assessment Order, instead of Rs.73,08,11,710.

4. That, the Ld. TPO/AO/DRP erred in determining the arm’s length price in respect of expenditure by way of Intra Group Services (comprising of Global Information Services of Rs.5,70,46,722, Management Service Fee of Rs.13,33,27,604 and Multinational Client Co-ordination Services of Rs.44,51,774) to be Nil.

5. That, the Ld. TPO/AO/DRP failed to appreciate the findings/directions given bythe ITAT by their appellate order dated 09.12.2022. Consequently, the conclusions reached by each one of them on various aspects are contrary to this binding order.

6. That, the Ld. TPO/AO/DRP have failed to appreciate the relevant factual details, documentary evidences and submissions filed before them in the correct perspective and have instead referred to and relied upon circumstances which are either irrelevant or factually incorrect rendering their order to be perverse and, hence, illegal and bad in law.

7. That, the Ld. TPO/AO/DRP erred in making the following factual assertions in their order which are contrary to the facts on record.

8. That, the Ld. AO/DRP ought to have held that no disallowance could have been made under section 14A of the Act (including suo moto disallowance made by the assessee in the return of income) in the absence of an exempt income. In this regard, they have overlooked the specific directions given by the Tribunal in its appellate Order dated 09.12.2022.

9. That, the Ld. AO has erred in including adhoc amount of Rs.1,28,83,783 as income under the head Income from Business or Profession while computing total income in the Income Tax Computation Sheet forming part of the assessment Order.

10. That, the Ld. AO has erred in applying the basic tax rate of 25% on the total income, instead of the correct rate of 30% which was applicable to the Appellant for the year under consideration.

11. That, the Ld. AO has erred in computing surcharge and cess on the incorrectly calculated tax at 25%, rather than on the tax to be computed correctly at the applicable rate of 30% for the year under consideration.

12. That, the Ld. AO has erred in levying interest of Rs.62,48,572 under section 234B of the Act.

13. That, the Ld. AO has erred in not granting relief under section 91 of the Act of the foreign tax credit amounting to Rs.5,10,655 as claimed in the return of income.

14. That, the Ld. AO has erred in not granting credit for Tax Deducted at Source (TDS) to the extent of Rs.7,771.

15. That, the Ld. AO has erred in not granting credit for regular assessment tax payments totalling to Rs.10,23,13,261, which represent refunds from various years that were adjusted against the outstanding demand for assessment year 2017-18.

16. That, the Ld. AO has erred in initiating penalty proceedings u/s 270A of the Act.”

3. Briefly stated, the assessee is engaged in the business of advertising and provides advertising, marketing communication and media planning services under the trade name ‘MullenLowe’. It forms part of the MullenLowe Group, which is a constituent of the Interpublic Group. The assessee filed its original return of income on 30.11.2017 declaring total income of Rs.72,37,88,650 under the normal provisions and book profit of Rs.81,96,86,357 under section 115JB of the Act. A revised return was filed on 23.03.2018 declaring total income of Rs.73,97,88,880, with the book profit remaining the same.

4. This is the second round of proceedings. In the first round, the Transfer Pricing Officer (‘the TPO’) determined the arm’s length price of payments for Global Information Services (‘GIS’), Management Service Fee (‘MSF’) and Multinational Client Co-ordination Services (‘MNC services’) at nil and proposed an adjustment aggregating to Rs.19,48,26,100. The assessment also included an addition of Rs.10,79,303 on account of the difference between the income reflected in Form No.26AS and the books of account. The assessee’s claim for withdrawal of the disallowance of Rs.1,00,56,473 suo motu made under section 14A in its return was not accepted. The matter reached the Tribunal in Lintas India (P.) Ltd. v. ACIT (Mumbai – Trib.)/ITA No.595/Mum/2022, which was disposed of by the common order dated 09.12.2022 along with ITA No.398/Mum/2019 for assessment year 2014-15.

5. By the aforesaid order, the Tribunal restored the transfer pricing issues to the AO/TPO with the directions given for assessment year 2014-15. The issues concerning the reconciliation of income and the claim under section 14A were also restored for examination. The assessee has stated that it has preferred an appeal before the Hon’ble High Court against the order dated 09.12.2022. The present appeal arises from the proceedings undertaken to give effect to that order. No order of the Hon’ble High Court staying or modifying the relevant remand directions has been placed before us. Consequently, the present proceedings have to be examined within those directions, subject to the decision of the Hon’ble High Court.

6. The Tribunal’s order was received in the office of the Principal Commissioner on 30.03.2023. The AO made a reference to the TPO under section 92CA(1) on 02.05.2023. The TPO passed an order under section 92CA(3) on 22.01.2025, again determining the arm’s length price of the three categories of services at nil and proposing an adjustment of Rs.19,48,26,100. The AO passed the draft assessment order dated 27.02.2025 proposing total income of Rs.93,56,94,283. The assessee filed objections before the DRP, which issued directions on 28.07.2025 sustaining the adjustment. Thereafter, the AO passed the impugned assessment order on 25.08.2025. The assessee is in appeal against that order.

7. We first take up ground No.1 relating to limitation. The learned Authorised Representative (‘the learned AR’) submitted that the period prescribed under section 153(3) expired on 31.03.2024, being twelve months from the end of the financial year in which the Tribunal’s order was received by the Principal Commissioner. According to him, the Tribunal had directly restored the transfer pricing issue to the TPO, and the subsequent reference by the AO was unnecessary. Therefore, the additional period of twelve months under section 153(4) was not available. He referred to paragraph 23 of the earlier order and relied on New Delhi Television Ltd. v. Dispute Resolution Panel [2024] 162  465 ITR 687 (Delhi), and United Spirits Ltd. v. DCIT  (Karnataka). He also submitted that section 254(3), read with rule 35 of the Income-tax (Appellate Tribunal) Rules, 1963, requires communication of the Tribunal’s order to the assessee and the Commissioner, and does not require separate service upon the TPO. Therefore, non-service upon the TPO could not alter the limitation. In the alternative, it was submitted that even if section 153(4) applied, the final assessment ought to have been completed by 31.03.2025.

8. The learned Departmental Representative (‘the learned DR’) relied on the orders of the AO and the DRP. The Revenue’s case is that the Tribunal restored the matter to the AO/TPO for fresh determination of the arm’s length price, and the reference dated 02.05.2023 was made in the course of those proceedings. Reliance was placed on paragraph 3.5 of CBDT Instruction No.3 of 2016 dated 10.03.2016, which requires a case involving a transfer pricing adjustment set aside by an appellate authority to be referred to the TPO. It was submitted that section 153(4) extended the applicable period by twelve months and that the draft assessment order dated 27.02.2025 was within the extended period.

9. We have considered the rival submissions and perused the material on record. The date of receipt of the earlier order by the Principal Commissioner is 30.03.2023, as recorded by the DRP in paragraph 9.3 of its directions and also stated by the assessee in its written submissions. The inconsistent date appearing in ground No.1(a), as reproduced above, does not alter this factual position. The ordinary period under section 153(3), read with its proviso, would accordingly end on 31.03.2024. The question is whether the reference made by the AO during the restored assessment proceedings attracts section 153(4). That provision expressly extends the period available under section 153(3) where a reference under section 92CA(1) is made during the course of assessment or reassessment proceedings.

10. For this purpose, the operative direction for the assessment year before us is material. Paragraph 37 of the Tribunal’s order dated 09.12.2022 reads as under:

“037. On careful consideration of the rival contentions and the orders of the lower authorities, we also set-aside this ground is to the file of the learned assessing officer/transfer pricing officer with similar direction as given in appeal of the assessee for assessment year 2014-15. Accordingly, these grounds are allowed with the same directions.”

11. The direction for assessment year 2017-18 is thus addressed to the AO/TPO. It has to be read with the directions for assessment year 2014-15, including the concluding direction in paragraph 23 requiring the TPO/AO to examine the material for determination of the arm’s length price. In our view, the restored proceedings required the AO to take up the matter and refer the transfer pricing component to the TPO for the prescribed exercise. The TPO was not independently served with the appellate order, and the matter was placed before him by the AO through the reference dated 02.05.2023. That reference was made before the expiry of the ordinary period ending on 31.03.2024. In these circumstances, it was a reference in the course of the restored assessment proceedings and attracted section 153(4).

12. We have considered the decisions relied upon by the learned AR. In New Delhi Television Ltd. (supra), the Hon’ble Delhi High Court examined the terms of the particular remand and held that the Tribunal had directly remitted the transfer pricing issue to the TPO. The TPO had already acted on that remand and passed an order before the AO made another reference. The Hon’ble High Court held the later reference to be superfluous and rejected the contention that the Tribunal’s remand itself could be treated as a deemed reference under section 153(4). Paragraph 79 of the judgment, also reproduced in the DRP record, reads as under:

“79. We are therefore of the firm opinion that in light of the directions as were formulated by the ITAT and stood embodied in its order of 14 July 2017, no fresh reference as the AO chose to make was warranted. Once the ITAT had chosen to remit the matter directly to the TPO, the said authority was legally obliged to proceed in accordance therewith and did not need to derive any authority from a reference being independently made by the AO.”

13. The Hon’ble High Court further explained in paragraph 81:

“81. It is pertinent to note that sub-section (4) of Section 153 is concerned with a reference referable to Section 92CA(1). That provision, as noticed hereinabove, is confined to a reference to the TPO that may be made by the AO. 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 AO 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 92CA that the concerned authority may be liable to make in terms of directions issued by the ITAT. Consequently, it would be the principle of generalia specialibus non derogant which would stand attracted and be determinative of the question that stands posited.”

14. In United Spirits Ltd. (supra), the Hon’ble Karnataka High Court followed the distinction between a matter remitted by the Tribunal to the TPO and a reference by the AO under section 92CA(1), and did not accept the further extension claimed by the Revenue in the circumstances before it. We respectfully recognise that a remand cannot, merely by being described as a reference, automatically secure an additional period. Our conclusion in the present case rests upon the operative joint direction to the AO/TPO and the actual reference made by the AO on 02.05.2023 to implement that direction. We do not construe every remand as a deemed reference under section 153(4), nor do we treat a reference made after an earlier completed remand exercise as conferring a fresh period. On our reading of the operative direction in this case, the AO was required to refer the issue to the TPO during the restored proceedings, and the reference so made attracts section 153(4). The cited decisions are therefore distinguishable to that extent.

15. The date from which the limitation period is computed continues to be the date of receipt by the statutory authority specified in section 153(3), namely 30.03.2023 in the present case. Once section 153(4) applies, twelve months are added to the period otherwise available under section 153(3). The extended period accordingly ended on 31.03.2025. The TPO’s order dated 22.01.2025 and the draft assessment order dated 27.02.2025 were passed within that period. Ground No.1(a) is dismissed.

16. The alternative contention in ground No.1(b) is that the timelines in section 144C are subsumed within the overall limitation under section 153 and that the final order dated 25.08.2025 is therefore beyond time even on the footing that section 153(4) applies. In considering this contention, the amendments made by section 8 of the Finance Act, 2026 have to be taken into account. Sub-section (4A) of section 144C clarifies the period for completion under sub-section (4) where a draft has been forwarded within the time allowed under section 153. Since the assessee in the present case filed objections and obtained directions from the DRP, the corresponding provision directly applicable is sub-section (13A), also inserted by the Finance Act, 2026. Both these provisions are deemed to have been inserted with effect from 01.04.2009. Sub-section (13A) reads as under:

“(13A) Notwithstanding anything contained in any judgment, order or decree of any court, or section 153, for the removal of doubts, it is hereby clarified for the purposes of sub-section (13) that where a draft of the proposed order of assessment under sub- section (1) is forwarded within the time period allowed under section 153, time period available for the Assessing Officer under sub-section (13) to pass the assessment order upon receipt of the direction issued under sub-section (5), shall be governed and shall always be deemed to have been governed by the provisions of sub-sections (12) and (13).”

17. The amended provision preserves the requirement that the draft assessment order be forwarded within the time allowed under section 153. Once that requirement is fulfilled, the further period for the DRP proceedings and the consequential assessment is governed by section 144C(12) and (13). In the present case, the draft order was passed on 27.02.2025, within the period ending on 31.03.2025. The DRP issued directions on 28.07.2025, and the final assessment order was passed on 25.08.2025. Even reckoning receipt of the directions in July 2025, the final order is within the period ending on 31.08.2025 under section 144C(13). The retrospective amendment therefore answers the contention that the final assessment also had to be completed by 31.03.2025. It does not itself extend or revive the period for issuing the draft order; that order is within time for the reasons already recorded under section 153(3) read with section 153(4). Ground No.1(b) is accordingly dismissed.

18. Ground No.2 concerns the alleged failure to issue a show-cause notice under section 144B before the draft assessment order. The learned AR submitted that a notice setting out the prejudicial variations was a mandatory requirement under section 144B(1)(xii)(b), and that the draft order could not substitute that notice. According to him, the transfer pricing adjustment was incorporated without the requisite notice from the AO.

19. The learned DR relied on the assessment record and the DRP directions. The record contains a show-cause notice dated 17.02.2025, a video conference opportunity on 20.02.2025 and the assessee’s reply dated 21.02.2025. The DRP also considered the assessee’s objections after hearing its representative.

20. We have examined this objection with reference to the actual record. The notice dated 17.02.2025 reproduced in the assessment order deals with the unreconciled income and the claim under section 14A. The transfer pricing adjustment had separately been the subject of proceedings before the TPO. Accordingly, the mere existence of that notice cannot, without examining its contents, be treated as a complete answer to the assessee’s objection concerning the transfer pricing variation. At the same time, for the reasons recorded hereafter, the determination of the arm’s length price is being set aside for a limited fresh examination. The AO shall, while giving effect to our directions, communicate the proposed prejudicial variation, if any, in accordance with the applicable requirements of section 144B and allow an effective opportunity to respond before forwarding the draft assessment order. We do not rest this direction on a proposition that a hearing before the DRP dispenses with a mandatory procedure before the AO. In view of the fresh exercise directed on the transfer pricing issue, no separate relief of annulment of the entire assessment is called for on this ground. Ground No.2 is disposed of in these terms.

21. Ground Nos.4 to 7 relate to the adjustment of Rs.19,48,26,100 towards intra-group services. The learned AR submitted that the authorities had not followed the findings and directions in the first round. In respect of GIS of Rs.5,70,46,722, he referred to the agreement at pages 173 to 179 of paper book Volume I, the disclosure in Form No.3CEB, the cost allocation working at pages 1279 and 1280 of Volume III and the certificate of the Finance Director at page 1366. The services covered enterprise infrastructure, applications, messaging, service desk support, hosting and related information technology support. The chart and Exhibit A were relied upon to correlate the categories of services with the supporting correspondence and their use in the assessee’s business. It was submitted that the AE recovered the allocated cost without a mark-up and that the transaction had been benchmarked under the other method.

22. As regards MSF of Rs.13,33,27,604 and MNC services of Rs.44,51,774, the learned AR referred to the agreements dated 01.04.2008 at pages 180 to 196 of Volume I, the allocation workings at pages 1298 and 1299 of Volume III and the certificates at pages 1300 to 1305. He submitted that the services included financial and administrative support, human resource support, business development, strategic planning, assistance in advertising concepts and co-ordination of multinational client accounts. Exhibit B to the chart identified the supporting material. An illustration of a global advertisement and its adaptation for the Indian market was also relied upon. The transactions were benchmarked under the Transactional Net Margin Method (‘TNMM’), treating the overseas AE as the tested party. According to the assessee, the mark-up of 5% was within or below the relevant range of margins of comparable service providers identified in the Asia-Pacific, North American and European regions.

23. The learned AR further submitted that the TPO had not carried out a price comparison under rule 10AB and had instead repeated the need, evidence and benefit objections which had already been considered in the earlier order. He relied on the decisions in the assessee’s own case for earlier years and on FCB Ulka Advertising (P.) Ltd. v. Asstt. CIT, Circle 3(1)(2), Mumbai   (Mumbai)IT(TP)A No.2194/Mum/2017 dated 25.06.2019; Megger India (P.) Ltd. v. DCIT   (Mumbai – Trib.); CIT v. Johnson & Johnson Ltd(Calcutta)/ITAT No.35 of 2020 dated 18.02.2022. It was urged that the entire adjustment be deleted.

24. The learned DR relied on the TPO’s order and the DRP directions. The Revenue’s objections, as recorded therein, are that the agreements, correspondence and allocation keys do not establish the actual cost attributable to the services rendered to the assessee; the underlying cost base was not available for verification; and the certificates do not independently establish that base. The DRP also rejected the foreign AE as the tested party and held that the assessee had not sufficiently established the nature, extent and receipt of the services. It sustained the determination of the arm’s length price at nil.

25. We have considered the rival submissions and the material referred to by the parties. The starting point in this second round must be the findings and directions in the Tribunal’s order dated 09.12.2022. Paragraph 19, dealing with the documentation, reads as under:

“019. However, in the case of the assessee. We find that the documentation of the assessee clearly shows the description of the categories of services provided, the resultant benefit arising there from, the rational for provision of such services, the reasonable description of the benefits or expected benefits of the services, the reasonableness of adoption of the allocation keys and reasons justifying that such allocation keys produce outcomes that reasonably reflect the benefit received. There are written contracts for the provision of services with respective obligations and rights of both the parties, describing the nature of services therein, manner of computing the remuneration was also documented. The description of the documentation provided by the assessee which has been described by the learned authorized representative clearly shows that assessee has maintained a reasonably sound documentation of intra group services. The learned transfer pricing officer and learned dispute resolution panel has heavily relied on their findings in the earlier years which have already been negated by the ITAT. We are not in agreement with the lower authorities by following the decisions taken by them in earlier years in determination of arm’s-length price of intra group services at Rs. nil.”

26. The scope of the exercise that nevertheless remained to be undertaken was stated in paragraph 23, which reads as under:

“023. As the services of the assessee has not been benchmarked by examining the documents produced by the assessee for this year, we are not inclined and impressed with the argument of the learned authorized representative that the addition deserves to be deleted. According to us, the transactions deserves to be tested for its arm’s- length price for this year. Therefore, we set-aside the issue of determination of the arm’s-length price of the international transaction of intragroup services back to the file of the learned transfer pricing officer who has to examine the same from the perspective stated by us earlier. Hence, we set aside ground number 4 – 10 of the appeal of the assessee back to the file of the learned transfer pricing officer to determine the arm’s – length price of the intragroup services based on the documents already produced by the assessee. The learned TPO/AO is directed to examine the same for determination of the arm’s-length price. Accordingly, ground number 4 – 10 of the appeal of the assessee is allowed with above direction.”

27. These directions were adopted for assessment year 2017-18 by paragraph 37, reproduced earlier. The two findings must be read together. The Tribunal did not approve a wholesale rejection of the service documentation or the repetition of the earlier nil valuation merely on that basis. Equally, it did not hold that the contractual payments necessarily represented the arm’s length price for the year. On the contrary, it expressly declined outright deletion and directed an examination of the documents for benchmarking. The pending appeal before the Hon’ble High Court does not permit either the departmental authorities or this Bench, in the present appeal, to proceed as though those directions had ceased to operate.

28. The approach in the second round has not adequately given effect to that distinction. The TPO and the DRP have again substantially rested the nil valuation on the absence of demonstrated need, requisition, receipt and tangible benefit. The correspondence and the service-wise chart identify, amongst other matters, support for messaging and user accounts, applications and systems, business planning, advertising adaptation and multinational client co-ordination. Such material could not be rejected generally by repeating that no specific service had been identified, without dealing with the identified material and the earlier findings. Whether particular costs are attributable to the assessee and whether the resulting charge is at arm’s length remain matters for examination; they require a reasoned analysis of the costs, allocation and pricing, within the earlier directions.

29. In Johnson & Johnson Ltd. (supra), the Hon’ble jurisdictional High Court explained the requirement of determining the arm’s length price by a prescribed method. The relevant sub-paragraph 4(d), reproduced in the DRP record, reads as under:

30. The use of the expression ‘other method’ does not dispense with a pricing exercise. Rule 10AB requires consideration of the price charged or paid, or which would have been charged or paid, for the same or a similar uncontrolled transaction in comparable circumstances. A general conclusion that an independent enterprise would pay nothing, founded on the very objections which the earlier order required to be considered differently, is not by itself the prescribed analysis. At the same time, recovery at cost does not, without examining the cost pool and its allocation, conclusively establish the arm’s length price of GIS. The cost allocation working and the supporting certificate must therefore be considered for what they establish, and any specific deficiency must be identified and put to the assessee.

31. For MSF and MNC services, the foreign location of the AE cannot by itself be a sufficient reason to reject it as the tested party. The selection depends upon the functions, assets and risks relating to the transaction, the relative complexity of the parties and the availability of reliable financial and comparable data. The decisions in Virtusa Consulting Services Pvt. Ltd. and Almatis Alumina Pvt. Ltd. relied upon by the learned AR require consideration of that factual exercise. Conversely, the mere fact that the AE charged a mark- up of 5% does not, by itself, establish that it is the least complex entity or that the selected comparables and geographical sets are appropriate. The assessee’s TNMM analysis has to be examined on those considerations. Likewise, a certificate cannot be rejected merely because the professional issuing it was remunerated by the assessee or the AE. Its basis, scope, underlying records and reconciliation with the amount allocated are the relevant matters.

32. We are, therefore, unable to sustain the determination of the arm’s length price at nil on the reasoning adopted. However, accepting the contractual amounts as the final arm’s length price without completing the benchmarking would also bypass the exercise expressly directed in the first round. Accordingly, we set aside the impugned determination on this issue and restore it to the AO/TPO for the limited purpose of determining the arm’s length price in accordance with sections 92C and 92CA and the applicable Rules, giving effect to paragraphs 19, 23 and 37 of the earlier order. The GIS cost pool and allocation shall be examined with the relevant working and certificate. The TNMM analysis for MSF and MNC services, including the tested party, comparable data, geographical comparability and mark-up, shall be examined by recording specific reasons for acceptance or rejection. Any adjustment shall emerge from the prescribed benchmarking exercise.

33. The AO/TPO shall consider the material already furnished, including the service-wise chart and the certificates referred to by the learned AR, and may seek particulars necessary to verify the pricing and allocation. The remand shall not be used to repeat a general rejection of the service documentation contrary to the earlier findings. The assessee shall be afforded a reasonable opportunity to explain any identified deficiency and any proposed adjustment. These directions are subject to the orders of the Hon’ble High Court in the assessee’s appeal against the order dated 09.12.2022. We have not expressed any view on the correctness of the earlier remand challenged before the Hon’ble High Court. Ground Nos.4 to 7 are allowed for statistical purposes in these terms.

34. Ground No.8 concerns section 14A. The learned AR submitted that the assessee had not earned any exempt income during the year and that the voluntary disallowance of Rs.1,00,56,473 ought also to be withdrawn. He referred to the profit and loss account, the schedule of other income, the exempt-income schedule in the return and the submissions made before the AO. He relied on paragraph 39 of the earlier order and submitted that the issue had been restored specifically to verify the absence of exempt income. He also relied on CIT v. Milton Laminates Ltd. (Gujarat), ACIT v. Essar Ports Ltd [ITA No.406/Mum/2024, dated 9-5-2024] and CIT v. Pruthvi Brokers & Shareholders Pvt. Ltd. (2012) 349 ITR 366 (Bombay), in support of the claim and the power of the appellate authorities to entertain it.

35. The learned DR relied on the orders of the AO and the DRP. The AO retained the voluntary disallowance on the footing that it formed part of the income offered in the return and referred to CIT v. Shelly Products 261 ITR 367 (SC). The DRP also relied on Goetze (India) Ltd. v. CIT 284 ITR 323 (SC), concerning a claim before the AO otherwise than through a revised return.

36. We have considered the submissions. The earlier order dealt expressly with the voluntary disallowance. For completeness, paragraph 39 is reproduced below:

“039. Ground number 17 is with respect to the disallowance u/s 14 A of the act amounting to Rs.10,056,473/-. No such addition was made by the learned assessing officer in the draft assessment order passed on 15/4/2021 and similarly, no addition was found in the final assessment order dated 3/2/2022. Ground of appeal suggest that the assessee has made the fresh claim during the assessment proceedings, that it has not earned any income during the year Under consideration on which the exemption is claimed. If that be the fact, there cannot be any disallowance in the hence of the assessee u/s 14 A of the act. Accordingly, we direct the learned assessing officer to consider the claim of the assessee and if there is any disallowance offered by the assessee, it needs to be tested that if assessee has not earned any exempt income. There should not have been any disallowances u/s 14 A of the act. Therefore, direction is given to the assessee to show the facts of not having any exempt income but having made the disallowance u/s 14 A of the act in the return of income, the learned AO may examine the same and decide the issue in accordance with the law. Accordingly ground number 17 of the appeal is allowed.”

37. The assessee itself has computed and disallowed a sum of Rs.1,00,56,473 under section 14A read with rule 8D while determining its total income in the return. Thus, the amount in question represents expenditure identified and quantified by the assessee itself as relatable to its investments. The claim now made is for withdrawal of that disallowance on the ground that no exempt income was earned during the year. The earlier order of the Tribunal has to be read in its entirety. While referring to the absence of exempt income, the Tribunal also expressly observed that the assessee, having made the disallowance under section 14A in its return, was required to place the relevant facts before the AO, who was to examine the same and decide the issue in accordance with law. The Tribunal did not itself delete the quantified amount of the voluntary disallowance; it restored the claim for examination according to law. In this context, we also take note of the Explanation inserted in section 14A by the Finance Act, 2022, with effect from 01.04.2022, which provides that the section shall apply and shall be deemed to have always applied even where income not forming part of the total income has not accrued or arisen or has not been received during the relevant previous year, provided expenditure has been incurred in relation to such income. The legislative clarification emphasises the relationship between the expenditure and the income of the exempt category. We refer to that clarification in considering the assessee’s own identification and quantification of such expenditure; we are not invoking it to impose a fresh disallowance by treating its retrospective application to assessment year 2017-18 as a concluded proposition. The voluntary computation is a relevant circumstance which cannot be disregarded while examining the subsequent claim for its withdrawal. Having regard to that computation and the direction in the earlier order to examine the claim in accordance with law, we do not find sufficient reason to disturb the amount already disallowed by the assessee. Accordingly, the suo motu disallowance of Rs.1,00,56,473 shall be retained. Any further disallowance proposed by the AO shall be restricted to the exempt income earned during the year, and no further disallowance shall be made where such income is nil. Ground No.8 is disposed of in these terms.

38. Ground Nos.3 and 9 concern the difference between the income determined in the assessment order and the amount adopted in the computation sheet. The learned AR submitted that the order determined total income at Rs.93,56,94,283, whereas the computation sheet adopted Rs.94,85,78,065 without any corresponding finding or reason. The additional amount was stated in ground No.9 to be Rs.1,28,83,783. The learned DR relied on the assessment order.

39. The computation sheet must give effect to the income determined in the assessment order and cannot independently introduce an addition unsupported by that order. The arithmetic difference between the two stated totals is Rs.1,28,83,782. The AO shall reconcile the figures with the actual computation sheet and remove the excess, if it has no basis in the assessment order. The total income shall then be recomputed in accordance with our findings on the substantive grounds. Ground Nos.3 and 9 are allowed for statistical purposes.

40. In ground Nos.10 and 11, the assessee contends that the computation incorrectly applies a basic tax rate of 25%, whereas the applicable rate is 30%, with a consequential error in surcharge and cess. The AO shall verify the applicable rate for the assessee for assessment year 2017-18 under the relevant Finance Act and apply the correct rate, together with the applicable surcharge and cess, to the income finally determined. The assessee shall be given an opportunity to explain the discrepancy. These grounds are allowed for statistical purposes.

41. Ground No.12 relates to interest of Rs.62,48,572 under section 234B. The learned AR submitted that the issue is consequential. The AO shall recompute the interest, if leviable, in accordance with law on the basis of the income, tax liability and credits determined while giving effect to this order. This ground is disposed of accordingly.

42. Ground Nos.13 to 15 relate respectively to relief under section 91 in respect of foreign taxes of Rs.5,10,655, short grant of TDS credit of Rs.7,771 and credit of Rs.10,23,13,261 representing refunds of other years stated to have been adjusted against the demand for the year under consideration. The learned AR requested that the claims be verified by the AO. The AO shall examine the foreign-tax documents, the conditions applicable to the claim under section 91, the TDS particulars and the records of adjustment of refunds. Credit or relief found due shall be granted after reconciliation, ensuring that no credit is omitted or duplicated. The assessee shall furnish the necessary particulars and be afforded a reasonable opportunity. These grounds are allowed for statistical purposes.

43. Ground No.16 challenges the initiation of penalty proceedings under section 270A. As no order imposing the penalty is under appeal before us, the ground is premature and is dismissed. Nothing stated in this order shall be treated as a finding on the merits of any separate penalty proceedings.