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Income Tax Appellate Tribunal, NAGPUR BENCH : : NAGPUR
Before: SHRI S.S.GODARA & DR. DIPAK P. RIPOTE
आदेश/ ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the Assessee against the order passed under section 263 of the Act by ld.Commissioner of Income Tax, Nagpur dated 22.03.2019 for A.Y.2014-15 emanating from assessment order under section 143(3) of the Sunil Narayandas Khatod [A] Act, dated 19.08.2016. The grounds of appeal
filed by the Assessee are as under : Additional Ground : “(1) “That weather the learned PCIT was justified in setting-aside the assessment order u/s. 143(3) dated 19-08-2016, specifically referring to provisions of section 92BA/92CA, which has been omitted by the Finance Act 2017. The action of the learned PCIT is not in accordance with law. We request your Honours to kindly accept the additional ground raised above which according to us is essential and in interest of justice.” GROUND I – INVOKING PROVISIONS OF SECTION 263 OF THE INCOME-TAX Act, 1961 (“THE ACT”) :
1. On the facts and circumstances of the case and in law, the Learned Principal Commissioner of Income Tax - 1, Nagpur (“the Pr. CIT”) erred in invoking the provisions of section 263 of the Act and thereby revising the order passed by the Income Tax Officer -2, Akola (“the AO”) u/s. 143(3) of the Act dated 19 August 2016 (“the order”) on the alleged ground that the order passed by the AO was erroneous and prejudicial to the interest of the revenue.
2. He failed to appreciate and ought to have held that: The AO has examined the issue based on details filed by (a) the Appellant during the course of assessment proceedings and taken a correct view by not making adjustment in respect of issue sought to be revised; Since Large Specified Domestic Transaction was never (b) a reason for selection of case for scrutiny by CASS, the Hon'ble CIT erred in redirecting the AO for completion of assessment after making a reference to the transfer pricing officer; The Hon'ble CIT erred by not complying with the (c) binding guidelines of CBDT which provides a case to be referred to TPO if and only if TP parameter is the reason for selection of scrutiny by CASS In absence of order being erroneous and also (d) prejudicial to the interest of the revenue, order u/s. 143(3) of the Act could not be revised on mere Sunil Narayandas Khatod [A] hypothetical/notional assumptions/presumptions.
3. The Appellant prays that it be held that the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the revenue and accordingly the action of the Pr. CIT in invoking provisions of section 263 of the Act and revising the order be held ab-initio and/ or otherwise void and bad-in-law. WITHOUT PREJUDICE TO GROUND NO I: GROUND II: The Appellant craves leave to add to, amend and/ or alter all or any of the above grounds.”
Brief Facts of the case : 2. The Assessee had filed return of Income on 27/11/2014 declaring total income at Rs.16,07,500/-. The case of the assessee was elected for Scrutiny. The AO made addition of Rs.18,15,468/- on the ground that the Gross profit shown by the assessee was low as compared to earlier years and Rs.66,461/- disallowed out of Brokerage Expenses. The Ld.Pr.CIT invoked jurisdiction u/s 263 on the ground that the AO had not referred the case to the Transfer Pricing Officer though one of the reasons for selection of the case for scrutiny was ‘Large Specifies Domestic Transactions’, which according the Ld.Pr.CIT was mandatory as per the provisions of the Act and CBDT instruction no 3/2016 dated 10.03.2016. Accordingly, after Sunil Narayandas Khatod [A] considering reply of the assessee the Ld.Pr.CIT passed order u/s 263 setting aside the Assessment order for de-novo adjudication as per provisions of the Act. Aggrieved by the order of the Ld.Pr.CIT the assessee has filed appeal before this Tribunal.
Submission of Ld.AR : 3. Ld.AR at the outset submitted that the relevant section 92BA(i) has been omitted by Finance Act 2017, hence in the absence of any saving clause, the AO had no jurisdiction to refer the case of Specified Domestic transactions to the Transfer Pricing Officer. The Ld.AR relied on following case laws :
PCIT Vs Texport Overseas Pvt Ltd 313 CTR 485 (Kar) S.B. Cotgein P Ltd Vs PCIT Ld.AR also made submission on the merits of the case.
Submission of Ld DR: 4. Ld.DR relied on the order of the Ld.Pr.CIT.
Findings and Analysis: 5. We have heard both the parties and perused the records. It is observed that the issue is decided in favour of the assessee by Sunil Narayandas Khatod [A] Hon’ble Karnataka High Court in the case of Texport Overseas Pvt. Ltd.(Supra). The Hon’ble Karnataka High Court has held as under : Quote, “3. It is the contention of learned Advocates appearing for revenue that tribunal was not justified in arriving at a conclusion that Clause (i) of section 92BA of the Act, which had been omitted w.e.f. 01.04.2017 would be applicable retrospectively by presuming the retrospectivity, particularly when the statue itself explicitly stated it to be prospective in nature. As such they have sought for formulating substantial questions of law and have sought for answering the same in favour of revenue and against the assessee. ……………….
6. In fact, Co-ordinate Bench under similar circumstances had examined the effect of omission of sub-section (9) to Section 10B of the Act w.e.f. 01.04.2004 by Finance Act, 2003 and held that there was no saving clause or provision introduced by way of amendment by omitting sub-section (9) of section 10B. In the matter of General Finance Co. v. ACIT, which judgment has also been taken note of by the tribunal while repelling the contention raised by revenue with regard to retrospectivity of section 92BA(i) of the Act. Thus, when clause (i) of Section 92BA having been omitted by the Finance Act, 2017, with effect from 01.07.2017 from the Statute the resultant effect is that it had never been passed and to be considered as a law never been existed. Hence, decision taken by the Assessing Officer under the effect of section 92BI and reference made to the order of Transfer Pricing Officer-TPO under section 92CA could be invalid and bad in law.
7. It is for this precise reason, tribunal has rightly held that order passed by the TPO and DRP is unsustainable in the eyes of law. The said finding is based on the authoritative Sunil Narayandas Khatod [A] principles enunciated by the Hon'ble Supreme Court in Kolhapur Canesugar Works Ltd. referred to herein supra which has been followed by Co-ordinate Bench of this Court in the matter of M/s. GE Thermometrias India Private Ltd., stated supra. As such we are of the considered view that first substantial question of law raised in the appeal by the revenue in respective appeal memorandum could not arise for consideration particularly when the said issue being no more res integra.” Unquote.
Thus, the Hon’ble High Court has categorically held that once the section 92BA(i) was omitted by Finance Act 2017 , the resultant effect is that it had never existed. The Ld.DR has not brought to our notice any contrary decision of the Hon’ble Jurisdictional High Court. Rather the assessee has filed copy of the order passed by ITAT Nagpur in the case of S.B. Cotgein P Ltd (supra) following the decision of Hon’ble Karnataka High Court. As per the Law of Precedence, we are duty bound to follow the decision of Hon’ble Karnataka High Court in the absence of any contrary decision of Hon’ble Jurisdictional High Court on the issue.
Ld.Pr.CIT has invoked jurisdiction u/s 263 on only one ground that the AO had not referred the case to the Transfer Pricing Officer for deciding the Arm’s length Price of “Specified Sunil Narayandas Khatod [A] Domestic Transactions”. The Section 92BA was amended by Finance Act, 2017, the pre-amended section 92BA as on 2014 is reproduced here under :
92BA. For the purposes of this section and sections 92, 92C, 92D and 92E, “specified domestic transaction” in case of an assessee means any of the following transactions, not being an international transaction, namely:— (i) any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of sub-section (2) of section 40A; (ii) any transaction referred to in section 80A; (iii) any transfer of goods or services referred to in sub-section (8) of section 80-IA; (iv) any business transacted between the assessee and other person as referred to in sub-section (10) of section 80-IA; (v) any transaction, referred to in any other section under Chapter VI-A or section 10AA, to which provisions of sub-section (8) or sub- section (10) of section 80-IA are applicable; or (vi) any other transaction as may be prescribed, and where the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of five crore rupees.] 7.1 The Subclause (i) of Section 92 BA was omitted by Finance Act 2017.
We have perused the Form 3CEB filed by the assessee in the paper book at page 23-28. The Specified Domestic Transactions as per the said form 3 CEB are in the nature of Loan, Purchase and Salary payment. Thus sub clause (ii), (iii),(iv),(v) of Section 92BA are obviously not applicable to Sunil Narayandas Khatod [A] these Specified Domestic Transactions of Loan, Purchases, Salary. The only sub clause which was applicable to this specified Domestic Transaction was sub clause (i) of Section 92BA. However, since the Hon’ble Karnataka High Court (supra) has held that once the sub clause (i) of Section 92BA was omitted by Finance Act 2017, the resultant effect is that it never existed on Statute, therefore, question of referring the specified domestic transactions of Loan, Purchases, Salary under sub clause (i) of Section 92BA does not arise at all. Therefore, the AO was right in not referring these specified domestic transaction to the TPO as per Section 92BA(i) of the Act. Therefore, the Assessment Order is not erroneous in not referring the issue to TPO. Therefore, the order u/s 263 is un- sustainable. Accordingly we set aside the order u/s 263 of the Act.
Accordingly Additional ground of appeal raised by the assessee is allowed.
10. Since we have quashed the impugned order u/s 263 on Legal Ground, we do not intend to decide the other grounds Sunil Narayandas Khatod [A] raised by the assessee as they becomes academic in nature. Accordingly other grounds are dismissed as academic.
In the result, appeal of the Assessee is Partly Allowed.
Order pronounced in the open Court on 21st November, 2023.