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2014 (5) TMI 112 - AT - Income TaxValidity of order u/s 263 of the Act – Allowability of deduction u/s 10B(3) of the Act – Suomoto Adjustment made under Transfer pricing provisions – Non-reference to TPO – Turnover exceeds RS. 5 Crores on international transactions – Held that:- The AO enquired about the export turnover and total turnover and called for details u/s 10B(3) of the Act - it is not on record nor it can be deduced from the record whether he has formed any opinion in allowing the deduction of section 10B on the suomoto income/adjustment made by the assessee as seen from the computation of income - The amount was added in the computation of income only while arriving at the income on the STPI unit - Obviously, this working is before the AO - there is nothing on record that AO has applied his mind to the issue as at the point of time there was dispute about the allowance and non-allowance of deduction under section 10B of the Act on the suomoto adjustment. The issue was not decided on merits by the CIT at all - There is no direction given to the AO to do in a particular manner - The issue was analysed only in arriving at the reasoning to establish that the order is erroneous and prejudicial - He simply set aside the order with a direction to refer the matter to the TPO first and then complete the assessment keeping in mind the above issues - It cannot be stated that the CIT has decided the issue on merits - Since the order is to be upheld on the issue of non-reference to the TPO in violation of the Board circular, the order of CIT u/s 263 is upheld - Decided against Assessee. As the CIT has not decided the first issue on merits and left it to the AO for his consideration in re-assessment proceedings, the merits and demerits of the assessee's claim of deduction u/s 10B of the Act cannot be adjudication - This can be examined afresh in the consequential proceedings, which are pending with the ITAT – thus, there is no need for adjudication - Even though the assessee's export turnover received in foreign exchange was which the CIT also accepts in the order u/s 263 of the Act, AO wrongly reduced the suomoto adjustment made by the assessee as 'foreign exchange not realized' and reduced the actual sales turnover - this is more erroneous than the original order passed by the AO - This indicates non application of mind by AO even in reassessment proceedings, even after invocation of jurisdiction by CIT u/s 263 – Decided against Assessee.
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