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2021 (9) TMI 457 - AT - Income TaxRevision u/s 263 by CIT - TP Adjustment - Non reference to the TPO - HELD THAT - PCIT has failed to specify as to how and on what ground the assessment order is erroneous and/ or which part of the CBDT instructions were not adhered to by the AO. Merely not recording the satisfaction, the AO on the records does not make the assessment order erroneous and prejudicial to the interest of revenue, as is decided in the various judicial pronouncement by various courts - as perused Instruction no 3/2016 and are of the opinion that it was not mandatory for the AO to make a reference to the TPO. Even as per the order and the show cause notice u/s 263 which has been issued it is evident that the selection of the case was for complete scrutiny and the issues was not on transfer pricing parameters risk factors. The clause (a) states where there are international transactions or specified transactions or both and the taxpayer has not filed any report required to be submitted under section 92E. This is not a situation in the case of the assessee, and report was submitted and also during the assessment the same was submitted. The second situation where in previous assessments if any addition on account of transfer pricing adjustment of more than ten crores and addition being upheld in appellate proceedings is also not applicable in the case of the assessee, and this is not a case where search or seizure or survey operations had been carried out. In such a situation it cannot be said that the assessment is erroneous as reference to TPO was not made. Claim u/s 80IA(4)(iv) - As the said deduction had already been disallowed by the AO in the assessment order, and therefore the order on such issue cannot be said to be prejudicial to the interest of revenue. Claim u/s 35(2AB) - Deduction u/s 35 (2AB) of the IT Act 1961, was allowed on the basis of the expenditure based on the report submitted to DSIR. Thereafter, the Government of India Ministry of Science Technology, Department of Scientific and industrial Research, Technology Bhawan New Delhi vide its letter No. TU/IV-15(493)/2017 dated 3.11.2017 had restricted the eligible expenditure for Research, and accordingly the deduction was allowed in the assessment order, and the issue was again duly examined at the time of assessment, and no error in such claim has been pointed out to us. As regards claim u/s 10AA the claim was allowed on the basis of report in form 56F and after examining the facts of the case, and this was not the first year of claim and was also allowed in the earlier years also.In light of above discussion we hold that the order u/s 263 cannot be sustained as we find that the assessment order passed by the AO cannot be said to be erroneous or prejudicial to the interest of revenue, and accordingly the order made u/s 263 of the is quashed.- Decided in favour of assessee.
Issues Involved:
1. Validity of the order under section 263 of the Income Tax Act, 1961. 2. Alleged errors and prejudices in the original assessment order. 3. Requirement of reference to Transfer Pricing Officer (TPO) for computation of Arm's Length Price (ALP). 4. Examination of asset acquisition and installation for deduction under section 32AC. 5. Examination of deduction claims under sections 35(1)(iv), 80IA, and 115JB. 6. Compliance with statutory requirements for invoking section 263. Issue-wise Detailed Analysis: 1. Validity of the Order under Section 263: The assessee contended that the impugned order under section 263 is invalid as the mandatory statutory requirements for assuming jurisdiction under section 263 were not fulfilled. The provisions of section 263 can be invoked only if the order is both erroneous and prejudicial to the interest of revenue, as established in the case of Malabar Industrial Co. Ltd. The assessee argued that neither condition was met in this case, making the invocation of section 263 unwarranted. 2. Alleged Errors and Prejudices in the Original Assessment Order: The Principal Commissioner of Income Tax (PCIT) held that the original assessment order was erroneous and prejudicial to the interest of revenue. The PCIT directed the Assessing Officer (AO) to re-examine various issues, including outward remittances, deductions under sections 32AC, 35(1)(iv), 80IA, and adjustments under section 115JB. The assessee argued that the AO had made proper inquiries and that the assessment order was neither erroneous nor prejudicial to the interest of revenue. 3. Requirement of Reference to TPO: The PCIT directed the AO to refer the computation of ALP to the TPO for international transactions amounting to ?2.87 crores. The assessee argued that the case was not selected for scrutiny based on transfer pricing risk parameters, and hence, reference to the TPO was not mandatory. The assessee cited CBDT Instruction No. 3/2016, which outlines specific circumstances under which a reference to the TPO is required, none of which were applicable to the assessee's case. 4. Examination of Asset Acquisition and Installation for Deduction under Section 32AC: The PCIT questioned the verification of asset acquisition and installation for claiming deduction under section 32AC. The assessee submitted that all details regarding additions to fixed assets were provided, and the AO had verified the same during the assessment proceedings. The assessee argued that the AO's satisfaction with the claim was evident from the assessment order, and merely not recording the satisfaction does not make the order erroneous. 5. Examination of Deduction Claims under Sections 35(1)(iv), 80IA, and 115JB: The PCIT directed the AO to examine deductions claimed under sections 35(1)(iv) and 80IA. The assessee provided detailed submissions and supporting documents for these claims during the assessment proceedings. The AO had disallowed the entire claim under section 80IA, indicating that the issue was thoroughly examined. The assessee argued that the PCIT's directions were vague and non-specific, and the AO had already verified these claims. 6. Compliance with Statutory Requirements for Invoking Section 263: The assessee argued that the PCIT did not conduct any independent inquiry before invoking section 263, as required by law. The PCIT's order lacked specific findings on how the assessment order was erroneous and prejudicial to the interest of revenue. The assessee cited various judicial pronouncements, including the Delhi High Court's decision in CIT vs. Leisure Wear Exports Ltd., emphasizing that mere non-mention of inquiries in the assessment order does not justify invoking section 263. Conclusion: The tribunal concluded that the assessee had furnished all required information, and the AO had duly considered it during the assessment proceedings. The PCIT failed to specify how the assessment order was erroneous or prejudicial to the interest of revenue. The tribunal held that the order under section 263 could not be sustained and quashed it, finding no errors or prejudices in the original assessment order.
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