TMI Blog2018 (5) TMI 1633X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim of deduction from income - Decided in favor of assessee. - ITA No(s). 2459/Mum/2017 - - - Dated:- 21-5-2018 - SHRI G.S.PANNU, AM AND SHRI RAVISH SOOD, JM For The Appellant : Shri Anant N. Pai, A.R. For The Respondent : Sh. Jayant Kumar, CIT, D.R. ORDER PER RAVISH SOOD, JUDICIAL MEMBER: The present appeal filed by the assessee is directed against the order passed by the Principal Commissioner of Income Tax-31, Mumbai (for short Pr. CIT) under Sec. 263 of the Income Tax Act, 1961 (for short Act ), dated 06.03.2017, which in itself arises from the order passed by the A.O under Sec. 143(3) of the Act, dated 31.03.2015 for A.Y. 2012-13. The assessee assailing the order of the Pr.CIT had raised before us the following grounds of appeal:- 1. On facts and circumstances of the case and in law, the learned Principal Commissioner erred in revising the Appellant s assessment order without any credible finding, either at the time of issue of notice of initiation of revision proceedings or at time of passing his order u/s. 263, to show that the assessment order passed was erroneous and prejudicial to the interests of the Revenue. The Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 31.03.2015 as erroneous in so far as it was prejudicial to the interest of the revenue in view of Explanation 2(a) of Sec. 263(1) of the Act. The Pr. CIT in the backdrop of his aforesaid conviction issued a notice under Sec. 263(1) of the Act to the assessee, calling upon him to show cause as to why the assessment order passed under Sec. 143(3), dated 31.03.2015 may not be revised. 4. The assessee in his reply objected to the proposed revision of the order and submitted that as per the mandate of law an order could be revised, subject to the condition that the same is found to be erroneous in so far as it is prejudicial to the interest of the revenue. It was the contention of the assessee that in a case where the order passed was erroneous, but not prejudicial to the interest of revenue or where the order was found to be prejudicial to the interest of the revenue, but not erroneous, in either of such a situation the power of revision under Sec. 263 could not be exercised. The assessee further submitted that where in a case there were two possible views and the A.O had taken one of the possible view, no occasion to exercise the power of revision did arise. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of an inadequate inquiry by the A.O. Alternatively, it was submitted by the assessee that even if the transaction of advancing interest free loan to the WOS (being shareholder function) was considered as an international transaction, the maximum amount of addition that could have been made was ₹ 1,66,538/- being interest @ LIBOR rate. The assessee by raising the aforesaid contention tried to impress upon the Pr.CIT that now when the A.O while framing the assessment had made a disallowance of ₹ 31,91,837/- under Sec. 36(1)(iii) of the Act, in respect of the interest pertaining to the amounts advanced free of interest to the WOS, and also made a disallowance of ₹ 4,829/- under Sec. 14A of the Act, the order passed by him under Sec. 143(3) could not be held to be prejudicial to the interest of revenue. The assessee further submitted that if the order of the A.O was to be revised under Sec. 263 then the additions of ₹ 31,91,837/- and ₹ 4,829/- made under Sec. 36(1)(iii) and 14A of the Act, respectively, would have to be deleted, as in the event of referring the matter to the TPO, the latters order would supersede the order of the A.O with respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s required to make a reference to the TPO to determine the ALP of the international transaction under consideration. The Pr. CIT was of the view that as the A.O had failed to make the required reference, thus in view of clause (c) to Explanation 2 of Sec. 263(1), the order passed by the A.O not being in conformity with the instruction issued by the CBDT, was to be deemed to be erroneous in so far as it was prejudicial to the interest of the revenue. (ii) The Pr. CIT was also not impressed with the contention of the assessee that now when the A.O had made a disallowance of interest on borrowed capital of ₹ 31,91,837/- under Sec. 36(1)(iii) and ₹ 4,829/- under Sec. 14A of the Act, which had been upheld by the CIT(A), therefore, no prejudice was caused to the revenue. The Pr. CIT was of the view that though the aforesaid disallowance made by the A.O had been upheld by the CIT(A), but as the assessee had not forgone its right of carrying the matter in further appeal before the Tribunal, therefore, the aforesaid contention of the assessee did not carry any force. Still further, the Pr.CIT observed that a perusal of the order passed by the CIT(A) revealed that the disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CBDT Instruction No. 3, dated 28.05.2003, though a statutory obligation was cast upon the A.O to have made a reference to the TPO, but no such reference in the course of framing of the assessment was made by him. It was further observed by the Pr. CIT that as per Para 3.2 of the Instruction No. 3, issued by the CBDT on 10.03.2016, it was clearly provided that all cases selected for scrutiny on the basis of transfer pricing risk parameters had to be referred to the TPO by the AO. Still further, as per Para 3.3 of the said Instruction, a case selected for scrutiny on non Transfer Pricing parameters but having an international transaction had to be referred to the TPO, where the A.O notices that the international transactions were undertaken, but the tax payer had not filed the auditors report under Sec. 92E of the Act. As per Para 3.4 of the Instruction the cases where the tax payer had declared the international transaction or specified domestic transaction in the Auditors report filed under Sec. 92E of the Act, but had made certain qualifying remarks to the effect that the said transaction or transactions were not international transactions or did not impact the income of the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the course of the assessment proceedings had specifically raised the issue of applicability of the Transfer Pricing provisions and had after perusing the Form 3CEB and TP Study Report which was placed on record, as per his directions, was persuaded to be in agreement with the claim of the assessee that the transaction undertaken with the WOS of advancing interest free loan was that of a shareholder function and not of providing any intra group services, hence as per the OECD guidelines the question of arm s length principle did not arise. It was further averred by the ld. A.R that even otherwise as per Sec. 92CA of the Act, it was discretionary on the part of the A.O to make a reference to the TPO. The Ld. A.R. submitted that as the aforesaid view taken by the A.O was in conformity with certain judicial pronouncements as were then so available in context of the issue under consideration, therefore, it could safely be concluded that he had after making necessary inquiries arrived at a possible view. The Ld. A.R averred that now when the A.O while framing the assessment had arrived at a possible view, therefore, the Pr. CIT could not have exercised his revisional jurisdiction f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the backdrop of the fact that even if the transaction of advancing interest free loans by the assessee to its WOS was considered as an international transaction, the maximum amount of addition that could have been made would be ₹ 1,66,538/- being interest @ LIBOR rate. The ld. A.R taking support of his aforesaid contention submitted that it could safely be concluded that the order passed by the A.O under Sec. 143(3) was in no way prejudicial to the interest of the revenue. The ld. A.R further assailed the order passed by the CIT under Sec. 263, on the ground that though a perusal of the Show Cause notice (for short SCN ) issued by the Pr. CIT revealed that the order passed by the A.O was sought to be revised in view of clause (a) to Explanation 2 of sub-section (1) of Sec. 263, however, the revision was carried out by him on the basis of clause (c) to Explanation 2 of sub-section (1) of Sec. 263. The ld. A.R taking support of his aforesaid contention submitted that the Pr. CIT had as a matter of fact traversed beyond the SCN while revising the order in exercise of powers vested with him under Sec. 263 of the Act. The ld. A.R further adverting to the merits of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not filed the audit report in Form No. 3CEB as per the mandate of Sec. 92E of the Act, therefore, its case was not taken up for scrutiny assessment on transfer pricing ground. The ld. A.R further submitted that the A.O despite learning that the international transaction of the assessee were more than ₹ 5 crores, however failed to make a reference to the TPO under Sec. 92CA(4) of the Act. The ld. D.R in support of his contention that it was mandatory on the part of the A.O to have made a reference to the TPO, relied on the judgment of the High Court of Delhi in the case of Ranbaxy Laboratories Ltd. Vs. CIT (2012) 345 ITR 193 (Del), wherein the High Court has held that by virtue of CBDT Instruction No. 3, dt. 25th May, 2003, it is mandatory on the part of AO to make reference to TPO under s. 92CA(4) wherever the aggregate value of international transaction exceeds ₹ 5 crores . The ld. D.R further submitted that if the A.O in discharge of the statutory obligation so cast upon him, would had made a reference to the TPO, then an addition higher than the domestic rate would have been made. The ld. D.R in order to drive home his aforesaid contention relied on the order of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 there was no requirement of making a reference to the TPO in cases which had been picked up for scrutiny assessment on non-transfer pricing issues, therefore, the assessment framed by the A.O in the case of the assessee could not be held to be in contravention or in disregard of the aforesaid Instruction. Rather, the Ld. A.R had further tried to fortify his claim that the requirement of making a reference to the TPO in a case which was selected for scrutiny assessment on non-transfer pricing issue was required only as per the CBDT Instruction No. 3/2016, dated 10.03.2016, which however was not applicable to the case of the assessee for A.Y. 2012-13. 13. We may herein observe, that at the first blush the aforesaid contention of the Ld. A.R appeared to be convincing as the assessment order passed by the A.O under Sec. 143(3), dated 31.03.2015, without making any reference to the TPO was not apparently found to militate against the CBDT Instruction No. 3/2003, dated 20.05.2003, which was applicable only in cases which were selected for scrutiny assessment on transfer pricing issues. But, after deliberating at length on the issue under consideration, we are unable to persuade ours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to the TPO in those cases which were picked up for scrutiny assessment on transfer pricing issues, and not those which had been selected for scrutiny assessment on non-transfer pricing issues. However, in the case before us, though an international transaction was carried out by the assessee during the year, but as the assessee had not filed statutory audit report in Form 3CEB which was obligatory on its part to have been filed latest by 30.09.2012, therefore, the case of the assessee could not have been selected for scrutiny assessment on transfer pricing issue. Rather, the fact that the assessee had carried out an international transaction came to light only in the course of the assessment proceedings, which further stood proved to the hilt on placing on record of Form 3CEB by the assessee. We are of the considered view that the assessee cannot be allowed to take benefit of circumventing the applicability of the CBDT Instruction No. 3/2003, dated 20.05.2003, by withholding the fact of having carried out an international transaction while filing its return of income for A.Y. 2012-13. We thus, are of the view that in the backdrop of the aforesaid facts, it stands proved t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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