TMI Blog2014 (5) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... sue 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 pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a are received in, or brought into, India by the assessee in convertible foreign exchange with in a period of six months from the end of the previous year or within such further period as the competent authority may allow in this behalf." By a plain reading of the above section it is very clear that sec.10B contemplates allowing deduction if only the proceeds pertaining to export are received in convertible foreign exchange. It is fairly admitted by the assessee in its written submissions that the additional income offered by the assessee is nothing but "notional adjustment". Since the excess of arm's length price as per the Transfer Pricing Audit Report over the export price recorded in the books of account, was not received in India in convertible foreign exchange, the essential requirement of sec.10B is not fulfilled in the case of the assessee and as such there is an error on the part of the assessing officer in allowing the exemption under sec.10B in respect of this amount, in as much as the assessing officer is not permitted to adopt any view which is against the provisions of the Income Tax Act while framing the assessment under sec. 143(3). Since the various decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the TPO for determining the arms length price are very clear, the orders of the A.O are erroneous and prejudicial in the interest of revenue. 1.5.3 The above view finds support from the Hon'ble Gujarat High Court decision in CWT v. Shmatilal Popatlal (HUF)[1997] 225 ITR 242, wherein, it was held as under: "Sec.25(2) of the Act empowers the CWT to call for and examine the record of any proceeding under the Act and on such examination if he considers that any order passed therein by the AO is erroneous in so far as it is prejudicial to the interest of Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment or canceling it and directing a fresh assessment. It will be noticed that the revisional powers of the CWT under the said provision are of a wide amplitude and they enable the CWT to make any order as the circumstances of the case justify including modification of the assessment or cancellation of the assessment order and to direct a fresh assessment. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second issue of non-reference to TPO in violation of Board circular no.3 by the A.O., the issue is considered by the Hon'ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. v. CIT 345 ITR 193, wherein it was held that in view of the instruction no.3 dated 25.5.2003 issued by the CBDT, it is mandatory on the part of assessing officer to make reference to TPO for determination of ALP, wherein correct value of international transactions exceeds Rs. 5 crores. The facts in the above Ranbaxy case are similar to the assessee's case, wherein also the CIT in exercise of the power u/s 263 of the Act set aside the assessment order mainly on the ground that non-reference of the case to TPO made the assessment order erroneous and prejudicial to the interest of revenue. In view of the decision of the Hon'ble High Court of Delhi on similar facts, it was fairly admitted that on the second issue considered by the CIT, the ground is against the assessee. 5. However, Ld. A.R. vehemently argued with reference to the issue in ground no.2 i.e. restriction of deduction u/s 10B of the Act on account of suo motto adjustment on the basis of transfer pricing report of Rs. 4,09,45,804/-. It was su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for fresh consideration. In view of this Ld. CIT(DR) submitted that order u/s 263 of the Act is to be upheld and issue on merits need not be decided as such. 7. We have considered the issue and examined the record. As seen from the order of the Ld. CIT, he has considered two issues; (1) allowance of deduction u/s 10B(3) of the Act on suomoto adjustment made by the assessee under transfer pricing provisions and (2) on non-reference to the TPO when the turnover exceed Rs. 5 crores on international transactions. It was fairly admitted that on the issue of non-reference to the TPO as per the Board circular, the order is erroneous and prejudicial to the interest of revenue in view of the decision of the Hon'ble High Court of Delhi on similar facts in the case of Ranbaxy Laboratories Ltd. (supra). In that case it was held as under: "HELD It is not in dispute that section 92CA enables the Assessing Officer to refer computation of arm's length price in relation to an international transaction, under section 92C, when the Assessing Officer considers it necessary or expedient to do so. Thus, discretion lies with the Assessing Officer. Having regard to the circumstances of a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le doing so this Court had also laid down the rigours of the said Circular No. doubt, this Court observed, in the process that the said Instruction acted as a guideline to the Assessing officer. However, much mileage cannot be drawn by the assessee from those observations as these observations were made while dealing with the contention of the petitioner in the said petition. That Instruction completely takes away the discretion of the Assessing Officer in relation to an international transaction if the aggregate value thereof exceeded Rs. 5 crores. [Para 14] Thus, the Tribunal rightly held that the judgment of Special Bench in Aztec Software Technology (supra) is not in conflict with Sony India (P.) Ltd. (supra) once the validity of said Instruction is upheld by this Court, the follow up thereof is that the Assessing Officer was supposed to refer the matter to the TPO having regard to the fact that Specialized Cell was created by the Department to deal with the complicated and complex issues arising out of I he transfer mechanism. The Tribunal was right in holding that even (he instant case itself provides a good example for need to refer the matter to TPO in such cases. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -assessment proceedings, we do not intend to adjudicate on the merits and demerits of the assessee's claim of deduction u/s 10B of the Act. This can be examined afresh in the consequential proceedings, which we were informed are pending with the ITAT at Mumbai. Therefore, we are of the opinion that there is no need to adjudicate the grounds 2 and 3, which are raised without prejudice to ground no.1. To the extent of upholding the proceedings u/s 263 of the Act on the jurisdictional issue, we uphold the order u/s 263 of the Act and assessee's ground 1 is rejected. 10. Before parting with the order we intend to place our observation on the way assessing officers are considering the assessment proceedings. In the course of arguments, Ld. Counsel placed the consequential assessment order passed by the A.O. in support of the submissions made with reference to the merits of claim u/s 10B of the Act. In that order, even though the assessee's export turnover received in foreign exchange was at Rs. 6,27,75,153/- which the Ld. CIT also accepts in the order u/s 263 of the Act, Assessing officer wrongly reduced the suomoto adjustment made by the assessee as 'foreign exchange not realized' an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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