TMI Blog2017 (12) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... eign exchange fluctuation is duly recorded in the books of account. It is not the case of the ld. PCIT that Books of account have not been examined by the AO. The interest relating to the capital WIP is already capitalized by the Assessee. The assessee had made purchases/imports from two parties on CIF basis. It is not the case of the LD. PCIT that purchase vouchers and books of account were not produced before the AO during the course of assessment proceedings. Hence it cannot be said that this is a case of no enquiry made by the AO. Merely because the ld. PCIT feels that further enquiry should have been made does not make the order of the AO erroneous. We are also of the view that as per instruction no. 3 of 2016, it was not mandatory for the AO to make a reference to TPO. The assessee had explained before the ld. PCIT that its case does not fall under the conditions referred to in the instruction no. 3 of 2016 and as such it wasn’t obligatory for the AO to make a reference to TPO. The ld. PCIT has not dealt with this contention of the assessee and has given a bald finding that AO should have referred to TPO as per instruction no. 3 of 2016. The ld. PCIT has not specified unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to revise the assessment order passed u/s 143(3). The ld. PCIT has held that the assessment order was passed without making proper inquiries/ verification/investigations which should have been made before accepting the trading results/other issues and therefore, the order is erroneous and prejudicial to the interest of revenue. The LD. PCIT issued show cause notice u/s 263 of the Act in respect to the following issues: i. Transaction for determining the arms length price not analyzed by the AO and the transaction with Associated Enterprise not referred to TPO. ii. Trading results accepted without making any inquiry/investigation and genuineness of sales/purchases accepted without thorough examination iii. Nature of forward contracts and why revenue has not been accounted for, not examined by the AO iv. Purchase of trading items not enquired by the AO v. Foreign exchange fluctuation in respect of CIF transaction have not been examined by the AO vi. Nature and allowability of amount debited under the commission not examined vii. Details/nature of capital work in progress not examined and related interest not disallowed. viii. Identity, genuineness and creditwo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT held that the assessment order has been passed without making proper inquiries/verification/investigations which should have been made before accepting the trading results and other issues and the same is therefore erroneous and prejudicial to the interest of revenue. Accordingly, the ld. CIT(A) vide its order u/s 263 of the Act dated 17.02.2017 set aside the assessment order and directed the AO to redo the assessment de novo after making necessary inquiries/ verification/investigations. 8. Against the order of the ld. PCIT u/s 263 of the Act, the assessee has preferred this appeal before ITAT on the following grounds: 1. That the notice issued u/s 263 and the order passed by the Principal Commissioner of Income Tax ( Pr. CIT ) u/s 263 are illegal, bad in law and without jurisdiction. The order passed by the Assessing Officer ( AO ) u/s 143(3) is neither erroneous nor prejudicial to the interest of Revenue. 2. The order u/s 263 passed by the Pr. CIT is illegal, bad in law and without jurisdiction as detailed replies filed before the Pr. CIT, in response to the notice u/s 263, have not been considered while passing the final order. Hence the order u/s 263 is liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment order u/s 143(3) is neither erroneous nor prejudicial to the interest of Revenue. 10. That the Pr. CIT has erred on facts and in law in holding that the AO has not examined the rates of purchase of goods from Amira C Foods International DMCC and the port of loading is in India. The Pr. CIT has failed to appreciate that in respect of goods purchased from Amira C Foods International DMCC, delivery was from India as Amira C Foods International DMCC had purchased goods from M/S PEC LTD. and STC LTD. in open tender system and wheat was dispatched directly from Krishna Patnam Port and Mundra Port to Bangladesh. The assessment has been completed after examining the various details. Hence the assessment order is legal and not erroneous or prejudicial to the interest of Revenue. 11. That the Pr. CIT has erred on facts and in law in holding that the AO has not examined the details of commission expenses whereas details regarding the same were called for by the AO and were duly filed. The AO is not supposed to write each and every expense, which is allowed in the assessment order. 12. That the Pr. CIT has erred on facts and in law in not appreciating that inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered and judicially interpreted and the same do not justify the order passed u/s 263. 21. That the assessee craves leave to alter, amend or withdraw all or any objections herein or add any further grounds as may be considered necessary either before or during the hearing. 9. The counsel for the appellant submitted that the order passed by the ld. PCIT is not valid and not maintainable in law as the same has been passed without considering the submissions of the assessee filed in response to the show cause notice u/s 263 of the Act. It is submitted that the order passed is in violation of principle of natural justice because the objections to proceedings u/s 263 of the Act and the submissions made in response to notice u/s 263 of the Act have not been considered at all by the ld. PCIT. It is submitted that the purpose of a show cause notice is to enable the person, against whom action is sought to be taken, to defend his case and the same rests on the principles of natural justice. Serving a show cause notice is not an empty formality and therefore, the principles of natural justice are not met by merely issuing a show cause notice. The ld. PCIT has to apply his mind to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the power of CIT u/s 263 of the Act can only be exercised by the ld. PCIT when the twin conditions of the order being erroneous as well as prejudicial to the interest of revenue, are satisfied and the same cannot be exercised to substitute its own finding in place of the AO and therefore, the ld. PCIT cannot re-examine the issues already inquired into by the AO. Reliance is also placed on the Bombay High Court s decision in the case of CIT v. Gabriel India Ltd. [(1993) 203 ITR 108]. The power u/s 263 of the Act is to be exercised in the case of no inquiry and not in the case of inadequate inquiry or lack of inquiry whereas the case of the assessee is not even a case of lack of inquiry. 13. It is submitted that under the jurisdiction u/s 263 of the Act, the ld. PCIT has initiated revision proceedings in order to carry out fishing and roving enquiries in the matters which are already concluded by the AO and therefore the exercise of jurisdiction u/s 263 of the Act is bad in law. The LD. PCIT has erred in exercising jurisdiction u/s 263 of the Act when the issues raised therein were already enquired into by the AO during the assessment proceedings. The AO had passed the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any justification for exercise of jurisdiction u/s 263 of the Act, the order of ld. PCIT passed u/s 263 of the Act is liable to be set aside. 17. There is difference between Lack of enquiry and inadequate enquiry . It is for the AO to decide the extent of enquiry to be made as it is his satisfaction as what is required under law. Reliance is placed on the decision of CIT v. Sunbeam Auto Ltd. [(2010) 332 ITR 167], wherein Hon ble Delhi High Court has held that if there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass order u/s 263 of the Act, merely because the Commissioner has a different opinion in the matter and that only in cases where there is no enquiry, the power u/s 263 of the Act can be exercised. The ld. PCIT cannot pass the order u/s 263 of the Act on the ground that further/thorough enquiry should have been made by AO. 18. The ld. counsel for the assessee submitted that even though there has been an amendment in the provisions of section 263 of the Act by which Explanation 2 is inserted, w.e.f. 01.06.2015 but the same does not give unfettered powers to the Commissioner to assume jurisdiction u/s 263 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayer has either not filed the Accountant s report u/s 92E at all or has not disclosed the said transactions in the Accountant s report filed ii. Where there has been a transfer pricing adjustment of ₹ 10 crore or more in an earlier assessment year and such adjustment has been upheld by the judicial authorities or is pending in appeal; and iii. Where search and seizure or survey operations have been carried out under the provisions of Income Tax Act and findings regarding transfer pricing issues in respect of international transactions or specified domestic transactions or both have been recorded by the Investigation Wing or the AO. 20. During the course of hearing, the counsel of the assessee submitted a copy of the reasons for scrutiny selection under CASS and contended that neither the case of the assessee has been selected on the basis of transfer pricing risk parameters nor the reasons for selection fall under the aforementioned second condition stipulated under the said instruction and therefore, it was not mandatory for the AO to refer the transactions to the TPO. 21. As regards the issue of enquiry into trading results, the counsel for the assessee submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment entities, in an open tender system and wheat was dispatched directly from Krishna Patnam Port and Mundra Port to Bangladesh. It was submitted that the appellant had rendered explanation with complete details to the ld. PCIT but the same has been ignored by him, he referred to pg 350 of the paper book in this regard. He further submitted that reference to TPO was not mandatory in view of the instructions No 3 of 2016. He also contended that all the purchase vouchers were produced before AO along with books of account during the course of assessment and were checked on test check basis by the AO. Moreover, the effect of foreign exchange fluctuation is duly recorded in the books of account which has been examined by AO. 24. Regarding the issue of addition to unsecure loans, the counsel for the appellant submitted that the appellant company has not obtained any fresh loan during the year under consideration and this fact is clear from the reply dated 10.5.16 to the AO during the course of assessment. Further, as regards the issues of commission expenses, it is contented by the counsel of the assessee that details with PAN and TDS was duly filed during the course of assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been allowed after due examination. Reliance was placed on this Hon ble Tribunal s decision in Vodafone Essar South Ltd. v. CIT ([2011) 12 taxmann.com 233), which is further affirmed by the Hon ble Delhi High Court in CIT v. Vodafone Essar South Ltd. ([2012] 28 taxmann.com 273) iv. Capital work in progress It is submitted that the AO vide questionnaire u/s 142(1) had examined the said issue by a specific and detailed query [relevant question being 4] and the assessee had furnished its reply thereto. Therefore, it is submitted that necessary examination was already done by AO. The related interest is already capitalized. v. Unsecured Loans The AO during the assessment proceedings had raised a specific query vide question no. 2 of the questionnaire issued u/s 142(1) wherein all the details for unsecured/secured loans was sought from the assessee and the assessee had in its reply furnished all the requisite details that there is no fresh loan. 26. On the other hand, the ld. DR strongly relied upon the order of LD. PCIT and submitted that the ld. PCIT has rightly exercised the jurisdiction u/s 263 of the Act setting aside the assessment order. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second condition of Instruction no. 3 of 2016 and the contention of the Ld. DR that the case of the appellant was selected for scrutiny on the basis of international transactions is misplaced. The counsel for the appellant submitted that the case of the was selected for scrutiny on account of mismatch in remittance in ITR and the amount received and this reason has nothing to do with the two reasons for selection laid down in the Instruction No. 3 of 2016 and therefore, it was not mandatory for the AO to refer the matter to the TPO. It is contended that Form No 15CA is for reporting the foreign remittance and it may be to AE or to anyone else, hence it cannot be linked with Transfer pricing risk para meters. 28. We have considered arguments from both sides and perused the documents available on record. We are of the view that the AO had issued a detailed questionnaire raising various queries. The appellant had appeared from time to time and filed the detailed replies to all the queries raised. Books of account were produced along with the supporting vouchers which were examined by the AO. The confirmed copies of account with PAN numbers of the parties to whom sales and purchases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under CASS was made because of mismatch in foreign remittent and Form 15CA, also doesn t help the cause of the revenue. As per Rule 37BB, the reporting in Form 15CA is in respect of payment made to nonresident not being a company or to a foreign company. The reporting is not limited or is not particularly in respect of payment made to associated enterprise. We are of the view that the CASS selection was not on the basis of TP risk parameters as envisaged in instruction No. 3 of 2016 and as such the AO was not bound to make a reference to the TPO. 30. The assessee had filed various replies to the ld. PCIT in response to notice u/s 263 of the Act stating that all the issues raised by the ld. PCIT have been examined by the AO during the course of assessment. The ld. PCIT has ignored the replies of the assessee. He merely states that the reply has been filed by the assessee but he nowhere discusses the contentions raised by the assessee and why he does not agree with the contentions of the assessee. The ld. PCIT has merely remitted the matter back to the AO without making any enquiry himself. The ld. PCIT has mentioned that the fresh loans have not been examined by the AO. The ld ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
