Loading judgment…
Facts
The assessee company filed its return of income for AY 2012-13. The AO made a reference to the TPO for determining the Arm's Length Price (ALP) for international transactions. The Pr. CIT initiated proceedings under Section 263, finding the AO's assessment order erroneous. The Pr. CIT directed a fresh assessment.
Held
The Tribunal held that the Pr. CIT's order under Section 263, which formed the basis for the subsequent assessment order, had been quashed by the Tribunal in a previous proceeding. Therefore, the impugned assessment order could not survive on its own.
Key Issues
Whether the assessment order passed consequential to an order under Section 263 of the Act, which was subsequently quashed, is sustainable.
Sections Cited
143(3), 263, 144B, 115JB, 92CA, 144C, 37(1), 92D, 271AA
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad “B” Bench, Hyderabad
सुिवाई समाप्त होिे की ततति/ Date of : 09.06.2025 Conclusion of Hearing घोर्णध की तधरीख/Date of Pronouncement : 10.06.2025 O R D E R प्रनत रवीश सूद, जे.एम./PER RAVISH SOOD, J.M.
The present appeal filed by the assessee company is directed against the order of assessment passed by the A.O. under Section.
143(3) r.w.s 263 r.w.s 144B of the Income Tax Act, 1961 (in short “the Act”), dated 26.07.2022 for the A.Y 2012-13.
Succinctly stated, the assessee company had filed its return of income for A.Y. 2012-13 on 26.09.2012, declaring an income of Rs.4,05,55,380/- under normal provisions of the Act and Rs.1,47,09,173/- under the provisions of Section 115JB of the Act. Subsequently, the case of the assessee was selected for complete scrutiny under CASS.
During the course of assessment proceedings, the A.O. made a reference to the Deputy Commissioner of Income Tax (TPO-1), Hyderabad, (for short “TPO”) u/s 92CA(1) of the Act for determining the Arm’s Length Price (ALP) in respect of the international transactions reported by the assessee company for the subject year. The TPO vide his order u/s 92CA(3) of the Act, dt.29.11.2016 suggested an adjustment of Rs.7,24,66,985/- in respect of the aforesaid international transactions. The A.O. vide his draft assessment order passed u/s 144C of the Act, dt.18.03.2016 proposed the aforesaid transfer pricing adjustment of Rs.7.25 crores (approx.) as was suggested by the TPO. Aggrieved, the assessee filed objections regarding the draft order of assessment before the Dispute Resolution Panel - 1, Bangalore (for short “DRP”). The DRP, vide its order u/s 144C(5) of the Act, dt.25.10.2016 after considering the objections rejected the adjustment of Rs.7.25 crores (supra) suggested by the TPO and directed the A.O. to make an addition of Rs.10,21,789/- towards shortfall of ALP adjustment by charging 5% mark up on the reimbursement of expenses transactions. Accordingly, the A.O. vide his assessment order passed u/s 143(3) r.w.s. 144C(13), dated 29.11.2016 framed the assessment.
The Pr. Commissioner of Income Tax, Hyderabad – 1 (for short “Pr. CIT”) after the culmination of the assessment called for the records of the assessment. The Pr. CIT on a perusal of the record, found the order of assessment passed by the A.O. u/s 143(3) r.w.s. 144C(13) of the Act, dated 29.11.2016, to be erroneous and prejudicial to the interest of the Revenue within the meaning of Section 263 of the Act on the following issues (as extracted from the set-aside assessment order): “i. It was observed by Pr.CIT that an amount of Rs. 3,02,45,860/- was debited towards impairment loss on assets. It is seen from the depreciation schedule as well as notes to Accounts (point 25) that the impairment loss on reusable components was arrived at, after testing the carrying value of recorded cost. This was due to shift in the business focus and the change in industry trend. The reusable components developed earlier became almost obsolete. The Management decided to write off the same. The impairment loss pertains to intangible asset shown in the depreciation schedule has to be treated as Capital Loss and required to be disallowed u/s 37(1) of the Act. ii. Further, it is also seen from the P&L A/c that Prior period income of Rs. 1,50,15,155/- credited to P&L a/c was reduced while computing the tax liability. The prior period income realized during the F.Y. 2011-12 relevant to the assessment year under consideration, is taxable and need not be reduced from the computation. iii. It is also seen from the computation statement that notional gain on foreign exchange of Rs.2,04,70,547/- was reduced while computing the tax liability. The assessee company maintained its books of account under mercantile system of accounting and unrealized foreign exchange gain and loss computed on the last day of financial year is to be considered for taxation purpose. This gets confirmed from point no. 2.7 (foreign currency transactions and translation) of the notes to Accounts. Therefore, the unrealized/notional foreign exchange gain is taxable under mercantile system of accounting and the said amount of Rs.2,04,70,547/- was required to be brought to tax. iv. Apart from the above, it is seen from Annual Report for the F.Y. 2011- 12 (Pg.no.87) that the taxpayer had given 'Corporate Guarantee' of Rs.64.74Cr. to its AE, M/s Cambridge Technology Enterprises Mauritius Ltd. However, it is observed that the said transaction was neither reported in Form No. 3CEB nor under 'related party transactions' under the head 'Notes to Accounts. The TPO also had not observed the issue while passing the Transfer Pricing Order. On application of rate of 2% as Corporate Guarantee fee, as applied in other cases, the short adjustment on this account worked out to Rs 1,29,48,000/-, Further, non-disclosure of the transaction as required u/s 92D attracts penalty proceedings u/s 271AA.”
Accordingly, the Pr. CIT vide his order passed u/s 263 of the Act, dt.20.03.2019, observed that the A.O. has framed the assessment u/s 143(3) r.w.s. 144C(13), dated 29.11.2016 without making enquiries or verification which should have been made within the meaning of “Explanation 2” of Sub-section (1) of Section 263 of the Act. In view of the above, the assessment order passed by the A.O. was set aside by the Pr. CIT with a direction to frame a fresh assessment order after examining all the issues and affording a reasonable opportunity of being heard to the assessee.
Thereafter, the A.O. vide his order u/s 143(3) r.w.s. 263 r.w.s. 144B of the Act, dated 26.07.2022 gave effect to the direction of the Pr. CIT and framed a fresh assessment determining the income of the assessee company at Rs.9,77,45,790/-.
The assessee company being aggrieved with the order passed by the A.O. u/s 143(3) r.w.s. 263 r.w.s 144B of the Act, dt.26.07.2022 has carried the matter in appeal before us.
Shri P. Murali Mohan Rao, C.A. the learned Authorized Representative (for short “ld.AR”) for the assessee company, at the threshold of hearing of the appeal, submitted that the order passed by the Pr. CIT u/s 263 of the Act, dt.20.03.2019 had been quashed by the Tribunal vide its order passed in M/s. Cambridge Technology Enterprises Limited Vs. DCIT, Circle-1(2), Hyderabad in dt.24.01.2025. The ld. AR to buttress his claim had placed on record a copy of the aforementioned order. Elaborating further on his contention, the ld.AR submitted that now when the order passed by Pr. CIT u/s 263 of the Act, dt.20.03.2019 in itself had been quashed, therefore, the impugned order of assessment giving consequential effect to the said order passed by the A.O. u/s 143(3) r.w.s. 263 r.w.s. 144B of the Act, dated 26.07.2022 cannot survive on a standalone basis and will have to meet the same fate and be quashed.
Per contra, Shri Narender Kumar Naik, CIT-DR (for short “Ld. DR”) on being confronted by the fact that the order passed by the Pr. CIT u/s 263 of the Act, dt.20.03.2019, which formed the very genesis of the impugned order that has been assailed before us had been quashed, did not controvert the said factual position.
We have thoughtfully considered the facts involved in the present case in the backdrop of the contentions advanced by the learned Authorized Representatives of both parties and the material available on record.
Admittedly, it is a matter of fact borne from the record that the order passed by the Pr. CIT u/s 263 of the Act, dt.20.03.2019 had been quashed by the Tribunal vide its order passed in the case of M/s. Cambridge Technology Enterprises Limited Vs. DCIT, in vide its order dated 24.01.2025. As the very basis for framing of the impugned assessment by the A.O. u/s 143(3) r.w.s. 263 r.w.s. 144B of the Act, dated 26.07.2022 in itself has been quashed and is no more in existence, therefore, the impugned order before us cannot survive on a standalone basis and is liable to be quashed.
We thus, in terms of our aforesaid deliberations, quash the order passed by the A.O. u/s 143(3) r.w.s. 263 r.w.s. 144B of the Act, dated 26.07.2022.
Resultantly, the appeal filed by the assessee company is allowed in terms of our aforesaid observations.
Order pronounced in the Open Court on 10th June, 2025.