SHRI KUSHAL BALMUKUND AGRAWAL,AHMEDABAD vs. THE PR. CIT-3, AHMEDABAD

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ITA 1086/AHD/2019Status: DisposedITAT Ahmedabad22 March 2021AY 2014-155 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the provision related to expenditure in respect of which payment was made to persons referred to in Section 40A(2)(b) was omitted by the Finance Act 2017. Following the Apex Court's decision, the Tribunal concluded that an omitted provision is deemed to have never been on the statute book, thus the PCIT's order could not be sustained.

What were the facts?

The assessee's case was selected for scrutiny due to large domestic transactions with related parties under Section 40A(2)(b). The Assessing Officer (AO) accepted the assessee's declared income. Subsequently, the Principal Commissioner of Income Tax (PCIT) invoked Section 263, holding the AO's order erroneous and prejudicial to revenue for not referring the matter to the TPO.

What were the issues?

Whether the PCIT was justified in invoking Section 263 for non-reference to TPO when the relevant provision (Section 40A(2)(b) related transactions under Section 92BA) was omitted from the Act.

Which sections of the Income-tax Act were involved?

Section 263,Section 40A(2)(b),Section 92BA,Section 143(3)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, ‘’ D’’ BENCH, AHMEDABAD

Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED

For Appellant: Shri Chetan Agarwal, A.R
Hearing: 01/02/2021Pronounced: 22/03/2021

आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:

1.

The captioned appeal has been filed at the instance of the Assessee against the order of the Principal Commissioner of Income Tax-3, Ahmedabad, dated 25/02/2019 arising in the matter of assessment order passed under s.263 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2014-2015.

2.

The assessee has raised the following grounds of appeal: 1. Learned PCIT has erred in law as well as on facts in passing order u/s.263 of the IT Act.

3. The only issue raised by the assessee is that the learned Pr. CIT under section 263 of the Act erred in holding that the assessment order framed by the AO under section 143(3) is erroneous insofar prejudicial to the interest of revenue.

4.

The facts in brief are that the assessee in the present case is an individual and engaged in the business of textile trading. The case of the assessee was selected under scrutiny under CASS on account of large specified domestic transactions i.e. payment made to the related parties as specified under section 40A(2)(b) of the Act for an amount of Rs. 30,67,06,860/- only. However, the AO framed the assessment under section 143(3) of the Act accepting the income declared by the assessee in his return of income vide order dated 26th July 2016.

5.

Subsequently, the Pr. CIT was of the view that the case of the assessee was selected under scrutiny under TP risk parameters and therefore it was obligatory on the part of the AO to refer the matter to the TPO for determining the ALP in pursuance to the direction of the CBDT in instruction no. 03/2016 dated 10-03-2016 and instruction no. 15/2015 dated 16-10-2015. But the AO has not done so and framed the assessment order without making any reference to the TPO which is in violation of the CBDT directions. Accordingly the learned Pr. CIT set aside the assessment order framed by the AO as erroneous insofar prejudicial to the interest of revenue.

6.

Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.

7.

The learned AR before us submitted that the transaction involving the expenditure in respect of which the payment has been made to the persons referred under section 40A(2)(b) of the Act has been omitted from the Act by the Finance Act 2017. Therefore, such provision does not exist in relation to the payment made by the assessee to the persons referred under section 40A(2)(b) of the Act. Accordingly the question of making any reference to the TPO does not arise.

8.

On the other hand, the learned DR contended that the case of the assessee pertains to the assessment A.Y. 2014-15 and payment made to the specified persons was very much appearing under the specified domestic transactions prescribed under section 92BA of the Act. As such, the provisions during the relevant time was very much applicable to the transaction as discussed by the learned Pr. CIT in his order. Accordingly, the learned DR vehemently supported the order of learned Pr. CIT.

9.

The learned AR in his rejoinder submitted that the clause with reference to the expenditure in respect of which payment has been made to the persons referred to section 40A(2)(b) of the Act has been omitted which implies that such provision was not there since its inception.

10.

We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly the provisions relating to the expenditure in respect of which payment was made to the persons referred to section 40A(2)(b) of the Act was omitted by the Finance Act 2017 which was effective from 1st April 2017 and the impugned order was framed by the learned Pr. CIT dated on 25th February 2019.

10.1 Accordingly, it was vehemently argued by the learned AR before us that the impact of omission of this provision would be construed that such provision was never there on the statute book. The learned AR further argued that it is a settled principle of law that where a provision of statute is omitted, it should be deemed that such provision was never been part of the statute at any point of time. In this regard we find the Judgment of the Hon'ble Apex Court in the case of General Finance Company Vs. ACIT reported in (2002) 124 Taxman 432 (SC) where the Hon'ble Apex court after referring to the Judgment of the Hon'ble constitutional bench of the Supreme Court rendered in the case of Kolhapur Cane Sugar Works Limited Vs. UOI (2000) (2) SCC 536 held as under:

"8. Though we find the submissions of the learned counsel to be forceful, we are constrained to follow the two decisions of the Constitution Benches of this Court in Rayala Corpn. (P) Ltd.'s case (supra) and Kolhapur Canesugar Works Ltd.'s case (supra). This view has held that field for over three decades and reiterated even as late as two years ago. Non-compliance with section 269SS attracted prosecution as well as penalty. Omission of the provision regarding prosecution will not affect the levy of penalty. The advantage arising out of application of the ratio of the two decisions resulting in prosecution in cases of non-compliance with section 269SS is only transactional affecting a few cases arising prior to 1.4.1989. Such cases may be few and far between. Hence, we find this is not an appropriate case for reference to the larger Bench.

9. Net result of this discussion is that the view taken by the High Court is not consistent with what has been stated by this Court in the two decisions aforesaid and the principle underlying section was saving the right to initiate proceedings for liabilities incurred during the currency of the Act will not apply to omission of a provision in an Act but only to repeal, omission being different from repeal as held in the aforesaid decisions. In the Act, section 276DD stood omitted from the Act but not repealed and, hence, a prosecution could not have been launched or continued by invoking section 6 after its omission." 10.2 Respectfully following the above decision of the Apex Court we hold that since the provision itself stood omitted at the time when the order was passed by the Ld. Pr. CIT, which is undisputed fact, the impugned order cannot be sustained. Accordingly, the question of holding the assessment order as erroneous insofar prejudicial to the interest of Revenue does not arise on account of non-reference to the TPO with respect to the provisions for the specified domestic transactions prescribed under section 92BA of the Act which stood omitted. Hence it is hereby quashed. The impugned order is thus quashed and the grounds raised in the appeal are allowed.

11.

In the result, the appeal of the assessee is allowed.

Order pronounced in the Court on 22/03/2021 at Ahmedabad.

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