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िनधा�रती की ओर से /Assessee by Shri A Gopalakrishnan Aiyer, C.A राज� की ओर से /Revenue by Shri Ashok B. Koli, CIT-DR सुनवाई की तारीख/Date of hearing 14.03.2023 उद्घोषणा की तारीख/Date of 06.06.2023 pronouncement Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee is directed against the order of ld. Principal Commissioner of Income-tax-Valsad [for short to as “Ld. PCIT”] passed under section 263 of Income Tax Act, 1961 (hereinafter referred to as ‘the Act’ for the sake of brevity) dated 30.03.2022 for assessment year (AY) 2018-19 in revising the assessment order passed by the Assessing Officer under section 143(3) r.w.s 144C(3) of the Act dated 25.10.2021. The assessee has raised the following grounds of appeal: - (A.Y 18-19) Hubergroup India Pvt. Ltd. “1. The order u/s 263 passed by the Learned PCIT is contrary to the facts of the case and law and prejudicial to the assessee.
2. On the facts and in the circumstances of the case the learned PCIT has erred in invoking jurisdiction u/s 263 of the Income Tax Act, 1961 by holding that the order of the Learned Assessing Officer u/s 143(3) read with section 144B of the Income-tax dated 25.10.2021 is erroneous and prejudicial to the interest of revenue. The notice dated 17.03.2022 u/s 263 of the Act has been issued without complying with the provision of the Act and deserves to be quashed in toto.
3. On appreciation of the facts and circumstances of the case and interpretation of law the learned PCIT has erred in setting aside the order of the Learned Assessing Officer u/s 143(3) r.w.s. 144B dated 25.10.2021 and in directing the Learned Assessing Officer to frame the assessment order afresh. The order of the Learned PCIT u/s 263 of the Act is contrary to facts of the case and law and deserves to be deleted in toto.
4. On appreciation of facts and circumstances of the case the Learned PCIT has erred in dealing with issues that were not forming part of the notice dated 17.03.2022 issued u/s 263 of the Act. The order of the Learned PCIT u/s 263 of the Act is contrary to facts of the case and law and deserves to be deleted in toto.
5. The appellant craves leave to add, amend modify or alter the above grounds of appeal at any stage of appellate proceedings.
6. The appellant humbly prays that the appeal be allowed in toto.”
2. Brief facts of the case are that assessee-firm is a Multinational Company, engaged in the business of manufacturing and sale of various printing ink, resins and varnishes, pigments/flush colours, wire enamels, intermediate and auxiliary products. The assessee has several industrial undertakings located at different places in Vapi Silvassa and Daman Etc. The assessee filed its return of (A.Y 18-19) Hubergroup India Pvt. Ltd. income for assessment year 2018-19 declaring income of Rs.261.68 crores on 28.11.2018. The assessee subsequently revised its return of income by filing revised return on 29.12.2018 declaring income of Rs.263.11 crores. Initially return was processed by Central Processing Centre, Bangalore under section 143(1) in accepting return of income, vide intimation dated 11.04.2019. However, revised ROI was selected for scrutiny. The Assessing Officer completed assessment under section 143(3) r.w.s. 144C(3) of the Act vide order dated 25.10.2021. The Assessing Officer, during assessment proceedings noted that in Form 3CEB (Transfer Pricing Report) the reported various international transaction with its Associates Enterprises (AEs) of Rs.1155.50 crores. The assessee also reported Specified Domestic Transaction (SDT) with its AEs for an amount of Rs.47.78 crores. The Assessing Officer after obtaining necessary approval from Ld. Principal Commissioner of Income Tax (PCIT) made reference under section 92CA(1) of the Act to the Transfer Pricing Officer (TPO for short) for determination of Arm’s Length Price (ALP for short) in respect of International Transactions only. The report of TPO was (A.Y 18-19) Hubergroup India Pvt. Ltd. received on 31.03.2021 in suggesting certain upward adjustment of Rs.12.58 crores in respect of International Transactions. Accordingly, such upward adjustment was added in the assessment order. However, with regard to deduction claim under section 80IA of the Act on the profit of Boiler divisions on account of power generation, the Assessing Officer noted that assessee claimed such deduction of Rs.23.65 crores in respect of profit on sale of steam by Boiler undertaking to other divisions of assessees manufacturing units. The Assessing Officer was of the view that in earlier years i.e. in AY 2015-16, 206-17, & 2017-18, the deduction under section 80IA was disallowed on the basis of report of TPO on the view that boiler division cannot exist independently without manufacturing division, the Boiler division was not created for generating power but to supply steam to the manufacturing units and the asset acquired for so called unit of Boiler divisions are primarily meant for production of ink. The assessing officer proposed disallowance of deduction under section 80IA in the draft assessment order in his show cause notice. In response to show cause notice on the proposed additions in the draft (A.Y 18-19) Hubergroup India Pvt. Ltd. assessment order, the assessee filed its reply dated 24.09.2021. In the reply the assessee stated that observation of TPO in earlier year were self-contradictory. The assessee stated that observation of assessing officer that boiler unit is not separate and independent unit but part of manufacturing unit is incorrect. The reply of assessee was not accepted and held that similar disallowances were made in assessment years 2015-16, 2016-17 and 2017-18 on account of sale of steam by Boiler undertaking to other division of assessees manufacturing units. The assessee disputed the disallowances in all assessment years before Ld. CIT(A) and appeals are pending. The Assessing Officer made disallowance of entire claim of Rs.23.65 crores under section 80IA of the Act in the assessment order dated 25.10.2021 passed under section 143(3) rws 144C(3).
3. Subsequently, the assessment order was revised by ld. PCIT by invoking jurisdiction under section 263 of the Act vide order dated 30.03.2022. The ld. PCIT before revising assessment order, issued show cause notice dated 17.03.2022 under section 263 of the Act. The contents of show cause notice is recorded in para-4 of the order of ld. (A.Y 18-19) Hubergroup India Pvt. Ltd. PCIT. In the show cause notice, ld. PCIT recorded that assessee reported a Specified Domestic Transaction (SDT) of Rs.47.78 crores in its audit report for assessment year 2018- 19. The assessing officer referred the International Transaction to TPO for Benchmarking and no reference for specified domestic transaction was made. The Assessing Officer was required to consider to send reference of a specified domestic transaction for TPO. The assessment order is not only prejudicial to the interest of Revenue and needs to be revised. The assessee was required to furnish reply on or before 24.03.2022. The assessee filed its reply through ITBA portal on 24.03.2022.
The assessee filed its reply through ITBA portal on 24.03.2022. The contents of reply is not recorded by Ld. CIT(A) in his order. The assessee has filed copy of its reply dated 23.03.2022. In the reply the assessee stated that the assessee has installed boilers for the generation of steam for captive consumption in its manufacturing units in Vapi, Daman and Silvassa. During the year under consideration the assessee claimed deduction under section 80IA to the tune of Rs.23,65,52,615/-, out of steam generated from all (A.Y 18-19) Hubergroup India Pvt. Ltd. the units together. The assessee entered domestic transaction to the tune of Rs.47,78,05,314/- as reported in For-3CEB, filed with return of income. It was also submitted that the assessing officer after taking details from assessee has discussed the issue and disallowed the deduction of claim under section 80IA of Rs.23,65,52,615/- in the assessment order. Thus, the assessing officer duly considered all the SDT and disallowed the deduction of 80IA. Therefore, the order of assessing office in not referring the domestic transaction to TPO is neither erroneous nor detrimental to the interest of revenue.
The Ld. CIT(A) recorded that he has gone through the reply submitted by assessee and international transaction and specified domestic transaction reported in Form No.3CEB. The assessee besides international transaction, reported specified domestic transaction of Rs.47.78 crores. And as per Central Board of Direct Taxes (CBDT for short) Instruction No.3/2016 dated 10.03.2016, the Assessing Officer was duty bound to refer the matter international as well as specified domestic transaction to TPO. The CBDT instruction is binding on the assessing officer and he was bound to refer (A.Y 18-19) Hubergroup India Pvt. Ltd. such issue to TPO. The Assessing Officer has not referred the specified domestic transaction to any scrutiny or examination by TPO, the assessment order passed by him is erroneous in nature. The CBDT’s instruction is binding to Assessing Officer and plethora judgment is available on such position. The specified domestic transaction has a direct bearing that computation of income as specified domestic transaction has not been subject-matter of scrutiny. The Assessing Officer has disallowed the deduction under section 80IA of the Act without verifying it, which has a direct bearing of computation of income of assessee. Therefore, to that extent the order is prejudicial in the interest of revenue. The Ld. PCIT also noted that Assessing Officer has not made any remarks towards expenses, which was incurred for earning exempt income under section 14A.
The ld. PCIT further noted that assessing officer has not examined the profit and loss account, sale of Mutual Fund Investment unit, shown in profit and loss account, cash flow statement and the balance-sheet do not match. The Assessing Officer has not shown such fact also. The Ld. PCIT by referring the decision of certain case law held that (A.Y 18-19) Hubergroup India Pvt. Ltd. assessment order passed was without making inquiry on the issue which ought to have been made and the assessment order completed on 25.10.2021 required to be set aside. The Assessing Officer was directed to frame assessment de novo after making proper inquiries on the aforesaid issue after giving reasonable opportunity to assessee. Aggrieved by the order of Ld. PCIT the assessee has filed present appeal before the Tribunal.
We have heard the submission of Ld. Authorized Representative (Ld.AR) for the assessee and Ld. Commissioner of Income-tax Departmental Representative (Ld. CIT-DR) for the Revenue and perused the order of lower authorities carefully. The Ld. AR for the assessee submits that during the assessment, the Assessing Officer has gone through the Transfer Pricing Report furnished by the assessee, reporting the International Transaction of assessee with its AE. The assessee also reported specific domestic transaction (SDT for short) of Rs.47.78 crores. The Assessing Officer made reference for computation of ALP about the International Transaction with various AEs under section 92CA(3) vide order dated 31.07.2021. The TPO suggested the (A.Y 18-19) Hubergroup India Pvt. Ltd. upward adjustments of Rs.12.58 crores with regard to various International Transactions with its AEs. So far as reference of SDT to TPO, the Assessing Officer took a conscious decision after going through the report in Form 3CEB. The Assessing Officer instead of referring SDT to TPO, for its benchmarking, took his decision on the basis of decision in earlier years in assessment years 2015-16, 2016- 17 & 2017-18 and concluded that no profit were derived from independent undertaking eligible for deduction under section 80IA of the Act and there was no transfer of goods or referring in section 80IA(8) of the Act. The main line of business of assessee is to manufacture Ink and when steam was produced for manufacturing Ink steam was not a new product. Thus no undertaking is established and on the basis of such ALP was computed as nil. The Assessing Officer disallowed the entire deduction under section 80IA of the Act arising out of transfer steam of boiler division to manufacturer division and such decision was arrived by Assessing Officer on the basis of all material and consideration thereto, therefore the assessment order is not erroneous and in so far as prejudicial to the interest of (A.Y 18-19) Hubergroup India Pvt. Ltd. Revenue. The Ld. AR for the assessee further submits that when two views are possible, on issue and the Assessing Officer adopted one of the possible views, exercising of revisional power on such view under section 263 of the Act is not justified. The Assessing Officer consciously took the decision that there was no SDT and he took a possible view and no reference was made.
The Ld. AR for the assessee further submits that reference of TPO is made with the approval of Ld. PCIT. The Ld. PCIT agreed with the proposal of Assessing Officer to make the reference with regard to TPO only with regard to International Transaction and not in respect of SDT. The Ld. PCIT later on tried to review his own approval and granted for reference only on International Transaction. Thus, Ld. PCIT is clearly taking a different view on the same subject-matter. To support such submission, Ld.AR for the assessee relied upon decisions of Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83/109 Taxman 66 (SC) and in the case of CIT vs. Max India Ltd. (2007) 295 ITR 282/(2008) 166 Taxman 188 (SC).
(A.Y 18-19) Hubergroup India Pvt. Ltd.
On the other issue towards expense which was incurred for earning exempt income. The Ld. AR for the assessee submits that Assessing Officer considered entire profit and loss account and detailed furnished by assessee and the Assessing Officer after considering such details disallowed certain amount as recorded in para-7.1 and para-7.5 of the assessment order and took a reasonable and possible view on such issue. The Ld.PCIT has not raised such issue in his show cause notice nor any opportunity was granted to assessee to explain the correct fact with regard to such issue. The revisional proceedings are initiated by Ld. PCIT and completed under faceless proceedings so there was no occasion to give opportunity of any other issue besides the issue which was the subject-matter of show cause notice. To support of such submission, Ld. AR for the assessee relied upon the decision of Hon'ble Apex Court in the case of CIT vs. Amitabh Bachchan (2016) 69 taxmann.com 170 (SC), wherein the Hon'ble Apex Court held “full opportunity to controvert the same and to explain the circumstances surrounding such facts, as maybe considered relevant by an (A.Y 18-19) Hubergroup India Pvt. Ltd. assessee, must be afforded to an assessee by the C.I.T prior to the finalization of the decision”.
The Ld. AR for the assessee further submits that Ld.PCIT has no power to invoke his revisional power under section 263 to the extent the period of limitation and directing the Assessing Officer to make reference to TPO under the provision of section 92CA of the Act. As per the scheme of the Act, the reference to TPO is to be made within time-limit available for completion of the assessment. The applicability of extended time-limit period is contingent upon a valid reference made during the course of assessment proceedings of total income of that year, as prescribed under section 92CA of the Act when limitation is prescribed for completing the assessment expired without a valid reference having made to TPO, the Assessing Officer to make conscious decision and thereafter is not empowered to make a reference to the TPO as per the provision of section 153(1) r.w.s first proviso thereto the assessment should have been completed within a period of eighteen months from the end of relevant assessment year. Further, section 153(4) prescribed that where a reference under sub-section (1) of section 92CA is made during the (A.Y 18-19) Hubergroup India Pvt. Ltd. course of assessment proceedings, the period available for completion of assessment under sub-clause (1), (2)(3) shall be extended by twelve months only. Therefore, to avail the extended period of completion the reference to TPO shall be made within a time of completion of assessment on or before 30.09.2020. The time limit available to the Assessing Officer for making reference of SDT to TPO under section 92CA for assessment year 2018-19 has already been expired on 30.09.2020. Thus, the revisional power under section 263 cannot be invoked to extend the period of such limitation. To support such submission, Ld. AR for the assessee relied upon the decision of Hon'ble Madras High Court in the case of Virtusa Consulting Services (P.) Ltd. vs. Dispute Resolution Panel (DRP) (2022) 139 taxmann.com 361 (Mad). The Ld. AR for the assessee while summing up of his submission, submitted that the Assessing Officer during the assessment has examined all the issues including the issue of SDT and consciously took a reasonable and legally permissible view, such view cannot be treated as erroneous and prejudicial to the interest of Revenue. The Ld. AR for the assessee submits that the order passed by Ld. PCIT is not justified.
(A.Y 18-19) Hubergroup India Pvt. Ltd.
In other alternative submissions, the ld AR for the assessee submits that PCIT has no power to direct the assessing officer for making a fresh reference to the TPO to include new transaction which was omitted to be examined by the assessing officer at the time of granting approval of original reference. The then PCIT at the time of granting approval examined the report under form-3CEB which include specified domestic transactions. So ld PCIT cannot review his own decision.
In other alternative submissions the ld AR for the ae further submits that assessing officer held there is no independent undertaking, no sale of steam and hence no profit is eligible for deduction under section 80IA, based on the above since there is no specified domestic transaction at all he has not referred case to PO for determination of ALP. In allowing the entire claim of deduction under section 80IA on account of transfer of stem by boiler division to manufacturing division was made after considering all the facts on record hence, the am order is not erroneous or prejudicial to the interest of revenue.
(A.Y 18-19) Hubergroup India Pvt. Ltd.
On the other hand, Ld. CIT-DR for the Revenue supported the order of Ld. PCIT and submits that Ld. PCIT in his order passed under section 263 has given a detailed analysis of Assessing Officer’s failure to examine the issue by not referring the SDT to TPO. The Ld. CIT-DR for the Revenue submits that aggregate value of SDT reported in Form No.3CEB were amounting to Rs.47.78 crores as per Circular No.3/2026 dated 10.03.2016 of CBDT, if the transaction reported is more than specified limit determined by CBDT. Admittedly, the SDT of Rs.47.78 crores was more than specified limit. Thus, the Assessing Officer was bound to make reference to TPO for computation of ALP. The Ld. CIT- DR for the revenue submits that from the contents of assessment order, and the submission of Ld. AR for the assessee is that Assessing Officer disallowed entire deduction under section 80IA of the Act. The Ld. CIT-DR for the Revenue submits that Assessing Officer was not supposed to take a decision on the technical issue and determined the ALP for International Transaction, which is beyond his jurisdictional power. Thus, the assessment order is erroneous and so far as prejudicial to the interest of revenue. The assessee reported (A.Y 18-19) Hubergroup India Pvt. Ltd. SDT of more than Rs.47.00 crore and the assessing office disallowed deduction to the limit of claim under section 80IA. Admittedly there is no discussion about other / remaining domestic transaction of more than Rs.24.00 Crore, which clearly established that the assessment order is prejudicial to the interest of revenue. The ld CIT-DR for the revenue prayed for upholding the order of ld PCIT. To support his submission, the ld CIT-DR for the revenue relied on the following decisions; Adani Agro (P) Limited (2013) 32 taxmann.com 356 (Guj), Malabar Industries Co Ltd. Vs CIT 243 ITR 83 SC/109 Taxman 66 SC, Add CIT Vs Mukur Corporation (1978) 111 ITR 312 (Guj), Deniel Marchant (P) Ltd Vs ITO (2018) 95 taxmann.com 366 (SC), CIT Vs Amitabh Bachchan (2016) 384 ITR 200 SC / 69 taxmann.com 170 (SC).
We have considered the rival submissions of the parties and perused the order of lower authorities carefully. We have also deliberated on various case laws relied by ld AR for the assessee. There is no dispute that the ae while filing return of income, in its report inForm3CEB reported various 17 (A.Y 18-19) Hubergroup India Pvt. Ltd. international as well as specified domestic transfer. The assessing office made reference to TPO for determination of Arm’s length price of certain international transactions only. Admittedly the assessee reported specified domestic transactions with its associated enterprises for more than Rs.47.00 Crore, which is more than the threshold limit of Rs.10.0 Crore for making reference to the TPO. The specified domestic transaction which consist of transfer of steam from boiler unit is of Rs.23.65 Crore. Thus, admittedly remaining specified domestic transaction of more than threshold limit of Rs. 10.00 Crore, nowhere discussed examined or disallowed by assessing officer.
We find that the assessing office disallowed the deduction of section 80IA on the basis of finding of TPO in earlier years. Such action of assessing office in not in accordance with mandate of CBDT Circular no.3 of 2016. There is no dispute that the Circulars of CBDT is binding on the assessing officer. So far as other / remaining specified domestic transaction of more than Rs. 23 Crore, the assessment order is totally silent, hence, the assessment order is certainly not only erroneous on such issue but so far as prejudicial to the interest of (A.Y 18-19) Hubergroup India Pvt. Ltd. revenue. In absence of reference to TPO with regard to such domestic transaction, the transaction remained unexamined. The specified domestic transaction has direct bearing on the computation of income, therefore, to that extent it is certainly prejudicial to the interest of revenue. Further clause (c) of Explanation-2 of section 263 is also attracts in the present case. In our considered view the twin conditions for invoking the jurisdiction under section 263 is fully met out.
So far as objection of ld AR for the assessee that the ld PCIT while granting approval of reference to TPO with regards to international transaction reported by ae, considered the issue of specified domestic transaction and now cannot review of decision of his predecessor and that impugned order will enlarge the period of limitation for passing order by TPO. We are not convinced with such submission of ld AR for the assessee, once the order passed by assessing officer is found to be erroneous and so far as prejudicial to the interest of revenue and stand revised, all necessary legal consequences are to be followed as per the statutory provisions. The ratio of decision in Virtusa Consulting Services (P Limited Vs DRP (supra) is not applicable on the facts of the present case. In (A.Y 18-19) Hubergroup India Pvt. Ltd. the said case the TPO passed the order beyond permissible limit of 21 months. However, in our case, ethe assessing officer or TPO will be bound to pass order giving effect as per the statutory proceeding. And there is no such enlargement of period of limitation as argued by ld AR for the assessee. We are also not convinced with the submissions that the ld PCIT has revived order of his predecessor by passing order under section 263. As recorded earlier that once it is proved that assessment order is erroneous and prejudicial to the interest of revenue, the PCIT has no option except to exercise his jurisdiction under section 263. There is no bar in section 263 that the ld PCIT cannot revise the issue where it contained the determination of Arm’s Length Price. Thus, in view of the aforesaid discussions, we do not find any merits in all the grounds of appeal
raised by the assessee.
17. In the result, appeal of the assessee is dismissed. Order pronounced in the open court on 06/05/2023.