SHRI DURGA LOHA BHANDAR PRIVATE LIMITED,MUZAFFARNAGAR vs. PR, CIT, , DEHRADUN

This appeal is filed by the assessee against the order of the ld. Pr. Commissioner of Income Tax (hereinafter referred to Pr. CIT) 1 Dehradun, dated 26.03.2021 for assessment year 2015-16 holding that the assessment order passed under section 143(3) of the Income Tax Act, 1961 (the Act) as erroneous and prejudicial to the interest of Revenue and setting aside the assessment.

The assessee in its appeal has raised the following ground of appeal:-

Briefly stated the facts are that the assessee company filed its return of income on 30.09.2015 declaring income of Rs.90,62,200/-. The case was selected for limited scrutiny through CASS to verify interest expenses relatable to exempt income under section 14A, mismatch in sales turnover reported in audit report and ITR and mismatch in the amount paid to related persons under section 40A(2)(b) of the Act reported in audit report and ITR. The assessment was completed under section 143(3) of the Act on 22.09.2017 determining the income of the assessee at Rs.94,29,100/-. Subsequently a show cause notice was issued under section 263 of the Act as to why the assessment order passed under section 143(3) of the Act should not be treated as erroneous and prejudicial to the interest of Revenue as the Assessing Officer failed to refer the matter to the TPO for determining the Arm’s Length Price (ALP) on the specified domestic transactions with “related persons” specified in section 40A(2)(b) of the Act. Assessee 2 furnished its reply stating that assessment order passed by the Assessing Officer is not erroneous and prejudicial to the interest of Revenue as the same was passed after proper enquiry and verification. It was contended that Assessing Officer has examined in detail the related party transactions and other reasons for selection of case for “limited scrutiny” and thereafter made addition/disallowance of Rs.2,50,000/- towards expenses incurred for related parties under section 40A(2)(b) of the Act as provided in sub section (i) of section 92CA of the Act.

In so far as reference to TPO is concerned, it was contended that each and every case is not to be referred to TPO and it is the satisfaction of the Assessing Officer to refer the matter to TPO with the previous approval of the Pr. CIT. The assessee contended that the Assessing Officer has sought for the explanation from the assessee in respect of the related party transactions on the query raised and the same has been replied by the assessee vide reply dated 21.08.2017 in the course of assessment proceedings. The assessee contended that the issue regarding completion of impugned assessment without any reference to TPO for determining the Arm’s Length Price is not in contravention of Board’s Circular No. 3/2016 dated 10.03.2016. It is the case of the assessee that all the documents pertaining to specified domestic transactions as per Form 3CBE with details and comparisons were furnished before the Assessing Officer, who had duly examined the same. It was also further contended that one of the scrutiny reasons was mismatch in the amount paid to related persons under section 40A(2)(b) of the Act reported in the audit report and ITR and as per CBDT Circular No. 3/2016 which replaced earlier Circular No. 2015 and as such it was not mandatory on the part of the Assessing Officer to refer the case to TPO and mismatch in figures cannot be said to be a case for transfer pricing risk parameters.

However, the ld. Pr. CIT by order under section 263 of the Act dated 26.03.2021 cancelled the assessment order passed under section 143(3) of the Act and to pass fresh assessment order after due verification of the issue as the Assessing Officer failed to refer the specified domestic transactions to the TPO for determining the Arm’s Length Price after due enquiry and verification.

Before us the ld. Counsel for the assessee submits that during the concerned AY 2015-16, assessee was subjected to the provisions of Domestic Transfer Pricing under section 92BA(i) as assessee had made purchases from its related party. The case of appellant was selected for "Limited Scrutiny" through CASS for the reason large interest expenses relatable to exempt income u/s 14A mismatch in sales turnover reported in Audit report and ITR and mismatch in amount paid to related person u/s 40A(2)(b) reported in Audit report and ITR. The order of assessment has been framed u/s 143(3) on date 22.09.2017 making following addition/disallowance. Disallowance of interest of Rs. 1,16,880/-. Payment to related party on account of rent Rs.2,50,000/-. Ld. Counsel submits that this is an appeal filed against the order of PCIT passed u/s 263, whereby ld. PCIT has cancelled the assessment order. According to the ld. PCIT reference was required to be made to TPO as only TPO is empowered to determine the arm's length 4 price after due enquiry and verification and since reference had not been made to TPO and hence the provision of the Income-tax Act, 1961 had not been correctly applied by the AO. Therefore, the assessment order passed by Id. AO is erroneous and also prejudicial to the interest of revenue and directed the AO to pass a fresh assessment order.

Ld. Counsel for the assessee submits that section 92BA(i) has been repealed vide Finance Act, 2017 w.e.f. 01.04.2017 and the assessment order passed was not erroneous insofar as prejudicial to the interest of the revenue. Ld. Counsel submits that since clause (i) of Section 92BA has been omitted by the statute through the Finance Act, 2017 w.e.f. 01.04.2017, therefore, it is deemed that the said clause was never part of the Act. While deleting clause (i) of section 92BA of the Income-tax Act, 1961 did not specify whether proceeding initiated or action taken on this section will continue or not. Ld. Counsel submits that since there was no express saving clause or provision, stating whether the pending proceedings shall continue, it is deemed that the said clause has been deleted since its inception. Accordingly, any pending proceedings are null and void. Ld. Counsel further submits that the effect of omission of a provision without any saving clause of General Clauses Act means that the said provision was not in existence or never existed in the statute book. If a provision of a statute is unconditionally omitted without a saving clause in favour of pending proceedings all actions must stop where the omission finds them, and if final relief has not been granted before the omission goes into effect, it cannot be granted afterwards. It is submitted that the omission of clause (i) of section 92BA is unconditional, that is, it does not say that pending proceedings under the clause would continue in future even after its omission on 01.04.2017. Therefore, in the absence of such condition/ saving clause it would be presumed that clause (i) of section 92BA had obliterated from the inception, that is, it would be presumed that clause (i) of section 92BA never existed in the statute book, it had never been passed and to be considered as a law never been existed Ld. Counsel submits that the effect of repealing a statute or deleting a provision is to obliterate it from the statute- book as completely as if it had never been passed, and the statute must be considered as a law that never existed. Reliance was placed on the following decisions:- (i) Pr. CIT Vs. Texport Overseas P. Ltd. [(2020) 114 taxmann.com 568 (Kar.)] (ii) Shahi Expoprts Pvt. Ltd. Vs. CIT (ITA. No. 483/Del/2021) (iii) Yorkn Tech. Pvt. Ltd. Vs. DCIT (ITA. No. 635/Del/2021 dated 18.08.2021; (iv) SMR Automotive Systems India Ltd. Vs. Addl. CIT (ITA. No. 6597/Del/2018); (v) M/s. Bhartia-SMSIL (JV) Vs. ITO (ITA. No. 117/Gau/2019; (vi) M/s. Raipur Steel Casting India Pvt. Ltd. [(ITA. No. 895/Kol/2019 dated 10.06.2020]; (vii) M/s. Srinath li Furnishing Pvt. Ltd. [(ITA. No. 1035/Kol/2019].

The ld. Counsel further placing reliance on the decision of the Kolkata Bench in the case of M/s. Raipur Steel Casting India Pvt. Ltd. (Supra) and M/s. Srinath li Furnishing Pvt. Ltd. (supra) submits that order under section 263 of the Act was passed on 26.03.2021 by the ld. Pr. CIT i.e. after the repeal of clause (i) of section 92BA and, therefore, in view of the judgements no action could have been taken as the section was repealed as if the law had never been engaged.

The ld. DR strongly supported the orders of the authorities below.

Heard rival submissions perused orders of the authorities below. In this case the ld. Pr. CIT held that the assessment order passed under section 143(3) of the Act as erroneous and prejudicial to the interest of Revenue for the only reason that the Assessing Officer failed to refer the specified domestic transactions to the TPO for determining the Arm’s Length Price. It is observed that sub clause (i) of section 92BA has been repealed vide Finance Act, 2017 with effect from 1.04.2017. This Amendment to sub clause (i) of section 92BA was made even prior to completion of assessment under section 143(3) of the Act by the Assessing Officer on 22.09.2017 and for that matter even prior to passing of the order by the ld. Pr. CIT under section 263 of the Act.

In the case of M/s. Bharti (SMSK) (JV) (supra) an identical issue came up before the Gauhati Bench of Tribunal for the assessment year 2014-15 and the Tribunal held as under:-

We note that Id PCIT issued the above show cause notice u/s 263 in respect of specified domestic transactions referred to in clause (i) of section 92BA of the Act which was omitted with effect from 01.04.2017 and effect of such "omission" of clause (i1 of section 92BA means that this provision was never existed in the statute book, since clause fit of section 92BA was never existed in the statute book therefore. Id PCIT cannot exercise his jurisdiction under section 26.1 of the Act in respect of specified domestic transactions referred to in clause (i) of section 92BA of the Act. In other words, since the clause fi) of section 92BA was omitted with effect from 01.04.2017 by the Finance Act 2017. Therefore, in the Act, clause (i) of section 92BA stood "omitted" from the Act as if it was never in the statute bonk. Therefore, "omission" means the above provisions was not in existence or never existed in the statute book ... Argument advanced by Shri Viiav Shankar. (CIT- DR) on behalf of the Revenue was that the prosecution /penalty in respect of clause fi) of section 92BA of the Act, was in force in assessment year 2014-15 and therefore it is valid even after 01.04.2017. [When the clause was omitted]We do not agree with Id DR for the Revenue because omitted clause (i) of section 92BA of the Act, does not contain any condition/ saving clause to the effect that a legal proceeding could be instituted even after the omission of clause (il of section 92BA of the Act. It is clear that when clause (i) of section 92BA was omitted, the Legislature did not make any provision that any prosecution/penalty committed under clause (i) of section 92BA of the Act, would continue to remain punishable even after its omission w.e.f. 01.04.2017. therefore, in the absence of such condition/saving clause it would be presumed that clause (il of section 92BA had obliterated from the inception, that is. it would be presumed that clause till of section 92BA was never existed in the statute book.

We are of the view that at this juncture it is necessary to examine, the meaning of saving clause? As Per the law. Com Law Dictionary & Black's Law Dictionary 2nd Ed. the saving clause has been defined as follows: "A saving clause in a statute is an exception of a special thing out of the general things mentioned in the statute; it is ordinarily a restriction in a repealing act which is intended to save rights pending proceedings penalties etc. from the annihilation which would result from an unrestricted repeal In contracts it is a clause that states that ambiguities should not render a contract void or voidable but the contract should be enforced in all other respects provided it can still exist as a valid and binding agreement" Thus, the saving clause means a clause which denotes a reservation or exception. As per Find Law Legal dictionary saving clause means a clause in a statute exempting something from statute's operation Having discussed the meaning of saving clause, it has become quite clear that at the time of omission of clause (i) of section 92BA with effect from 01.04.2017 the Legislature did not mention any terms and conditions to the effect that after omission of clause [1] of section 92B Apending proceedings/penalties etc. till the date of omission (01.04.20171 will survive. That is the Legislature did not insert new section in the Income Tax Act to the effect that pending proceedings/penalties etc in relation to clause Li) of section 92BA will survive even after omission[That is after 01.04.2017). Hence we note that these terms and conditions, as discussed above, are 11 absent in case of omitted clause [1of section 92BA of the Act, therefore as per the law laid down by the Hon'ble Supreme Court in the case of Rayala Corporation [supra] and Kohlapur Cane Sugar (supra)it will be presumed that clause [i] of section 92BA never existed in the Statute Bookmeaning thereby it is obliterated from the very beginning and hence the jurisdiction exercised by the Ld. PCIT u/s. 263 of the Act invoking clause [if section 92BA for reference by A.Oto TPO is null in the eye of Law as clause [] of section 92 BA is "omitted" and not "repealed" and there is no provision in any other section of the Income Tax Act saving the pending proceedings initiated under the omitted provision [[clause [i] of sec. 92BA]] as the said clause was omitted on 01.04.2017, therefore, subsequent revision proceedings by Id. Pr.CIT u/s 263 on dated 08.03.2019 would be invalid...."

We note that the Coordinate Bench of ITAT Indore in the case of Swastik Coal Corporation Pvt. Ltd. in dated 26.07.2011, has quashed the order of Id PCIT under section 263 of the Act, on the identical facts, as narrated above. The findings of the Coordinate Bench is reproduced below: "8. We find that the above view of the Ld. Pr. CIT is not correct. In view of the aforesaid discussion moreover, the coordinate bench has also examined the issue in the case of Texport Overseas Pvt. Ltd. in IT [TP]A No.1722/Bang/2017Admittedly, in this case, the order has been revised purely on the basis that the assessing officer has not referred to determine the arm's length price to the TPO. Since the provision itself stood omitted at the time when the order was passed by the LdPrCIT, under these undisputed facts in the light of the Judgement of the Hon'ble Supreme Court rendered in the case of General Finance Company [supra] as well as the order of the coordinate bench rendered in the case of Textport Overseas Pvt. Ltd. [supra] the impugned order cannot be sustained, hence is hereby quashed. The order impugned is thus quashed and the grounds raised in the appeal are allowed."

In the case of Yorkn Tech Pvt. Ltd. Vs. DCIT (supra) Delhi Tribunal held as under:-

Further, our decision is equally fortified by the judgment of ITAT Kolkata Bench in the case of M/s. Raipur Steel Casting India (P) Ltd. vs. PCIT which pertained to the Assessment Year 2014-15, and catena of other judgments as relied upon by the Ld. Counsel of the assessee cited extenso in the foregoing paragraphs.”

Ratio of these decisions squarely applies to the facts of the assessee’s case. In the case on hand also admittedly the order under section 143(3) of the Act has been revised solely on the ground that the Assessing Officer has not referred to the TPO to determine the Arm’s Length Price of the specified domestic transactions. Since the provision of sub clause (i) of clause 92BA itself stood omitted at the time when the order was passed by the ld. Pr. CIT, in the light of the above judgements and also the decision of the Hon’ble Supreme Court in the case of General Finance Company the impugned order of the ld. Pr. CIT passed under section 263 cannot be sustained and the same is hereby quashed. The ground raised