TMI Blog2020 (10) TMI 1011X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer has considered the submissions even though he has not discussed it in his order under Section 143(3) -material submitted before us clearly indicate that assessee has made elaborate submissions on this issue and the Assessing Officer has satisfied himself that assessee is eligible to claim deduction under Section 36(1)(vii) and 36(1)(viia) and, therefore, in our considered view, ld. PCIT cannot form another view on the same issue in which the Assessing Officer has already satisfied himself and passed an order which clearly indicates that the Assessing Officer has verified and investigated the matter in detail. Even in this issue, the provisions of Section 263 of the Act cannot be invoked. With regard to the third issue raised in the show cause notice, i.e. disallowance under Rule 8D which was not considered in computing the book profits, we notice that the ld. PCIT himself dropped this issue and has not directed any revision to the Assessing Officer. Issues raised in the show cause notice issued under Section 263 of the Act do not survive. Therefore, in our considered view, the order passed under Section 263 of the Act deserves to be quashed. Large international ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue, therefore, we rejected the submissions of ld. DR and proceeded to hear the appeal. 3. The brief facts of the case are that assessee filed its return of income for assessment year 2014-15 dated 27.03.2018, declaring total loss of ₹ 2187,39,64,977/- and book profit of ₹ 2673,16,90,715/-. The assessee filed revised return of income on 29.03.2016, revising the total income to Rs.(-) 2167,65,72,076/- and book profit to ₹ 3082,62,82,624/-. The assessment under Section 143(3) of the Act was completed on 29.03.2016. 4. On examination of records by ld. PCIT, he observed that the order passed by the Assessing Officer was erroneous insofar as it is prejudicial to the interests of the Revenue and required revision. Accordingly, a show cause notice was issued on 09.03.2018 and the reasons recorded for revision was sent along with the show cause notice, which for the sake of clarity is reproduced below. (i) It is observed that while computing book profit, the reduction of ₹ 813,47,01,960/-has been claimed towards 'Profit of foreign Branches'. It is further observed that in the P L A/c, the assessee has debited an amount of ₹ 5693,63,27,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore rendered the assessment order u/s 143(3) dated 29.3.2016 erroneous in so far as it is prejudicial to the interest of the revenue. ii) It is observed that section 36(1)(vii) of the Act provides that subject to subsection 2, in respect of an assesee to which clause (viia) applies. The amount of deduction allowed in respect of bad debts written off shall be limited to the amount by which such debt exceeds credit balance in the provision for bad and doubtful debt account made under section 36(1)(viia). The Finance Act 2013 has inserted an Explanation 2 to section 36(1)(vii) to clarify the scope and applicability of section 36(1)(vii) (viia) stating that for the purposes of the proviso to section 36(1)(viia) and section 36(2)(v), only one account as referred to therein is made in respect of provision for bad and doubtful debts under clause (viia) of sub-section (1) of section 36 and such account relates to all types of advances, including advances made by rural branches. Therefore, in the case of the assessee section 36(1)(viia) applies without any distinction between rural advances and other advances. The CBDT, vide instruction no. 17/2008 dated 26.11.2008 had cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntroduction of Rule 8D and hence not applicable for the current year. Furthermore, on introduction of Rule 8D, it is not open for the Assessing Officer to make disallowance under Section 14A of the Act other than following Rule 8D. However, it was observed that in earlier assessment years, which was relied by the assessee, was not accepted by the Department and disallowance was made as per Rule 8D and the same was also upheld by the ld. PCIT. As the facts and circumstances remain same in the year under consideration, the disallowance in the year is also required to be made as per Rule 8D only. Even on this count, the assessment order passed under Section 143(3) of the Act is erroneous insofar as it is prejudicial to the interests of the Revenue. 6. In response to the above show cause notice, assessee filed detailed submissions and ld. PCIT summarised the submissions made by the assessee, which is reproduced below :- I. The order passed u/s. 143(3) dated 29-Mar-2016 by the learned DCIT-2(1)(1) is sought to be revised as the same is considered erroneous, in so far as it is prejudicial to the interests of the revenue, on the following matters: a. Adjustments for computation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 3834,28,77,000 u/s. 36(1)(vii) in the assessment and the deduction allowed is notso erroneous. d. i. The proviso to Section 36(1)(vii) requires maintenance of Provision for Bad and Doubtful Debts ( PBDD ) account u/s. 36(1)(viia). The deduction in respect of PBDD allowed u/s. 36(1)(viia) is required to be credited to this account by the Assessee Bank. Section 36(2)(v) requires bad debts written off by the Assessee Bank to be debited to this account. The proviso to Section 36(1)(vii) states that opening credit balance in this account as on first day of the previous year should be reduced from the amount of bad debts written off during the previous year and excess of bad debts written off, if any, shall be allowed as a deduction u/s. 36(1)(vii). ii. Asper combined reading of the proviso to Section 36(1)(vii) read with Section 36(2)(v) of the Act and the Explanation inserted vide Finance Act 2013 in Section 36(1)(vii), only one account in respect of PBDD should be maintained relating to all types of advances, including advances made by rural branches, and the bad debts written off relating to all such types of advances should be debited to such PBDD account maintaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of CIT(A) dated 21.06.2017. He observed that as per the provisions of clause (c) of Explanation 1 to Section 263 of the Act, the power of revision extends to such matters which were not considered and decided in appeal. In view of the aforesaid provisions of law, the power of revision can be exercised on such matters which have not been considered and decided in appeal. B) So far as applicability of Rule 8D r.w.s 14A of the Act is concerned, he observed that application of Rule 8D in calculating the amount of disallowance is compulsory, however, since the amount (quantum) of disallowance under Section 14A of the Act has been confirmed, the undersigned is restrained from exercising the power of revision on the matter of quantum of disallowance. C) Assessee has contended that the CIT(A) in his order dated 21.06.2017 has held that the provisions of Section 115JB of the Act are not applicable in case of assessee. The ld. PCIT observed that the above said decision has been appealed against before the Hon'ble ITAT and the said appeal is pending. He further observed that so far as the addition of ₹ 813.47 crores on account of profit of foreign branches and ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to Nil on account of debit of PBDD during the assessment year 2013-14 and the unadjusted or excess PBDD will be allowed under Section 36(1)(vii) of the Act. Thus, for the assessment year under consideration, i.e. assessment year 2014-15, the minimum opening balance shall be ₹ 2039.28 crores which has been claimed as deduction under Section 36(1)(viia) of the Act during the preceding assessment year, i.e. 2013-14. Thus, excess claim of PBDD to the extent of ₹ 2039.28 crores has been allowed. This has rendered the assessment order erroneous insofar as it is prejudicial to the interests of the Revenue. 8. Further, he observed that the contention of the assessee is that the Assessing Officer passed the assessment order after examining the details of the aforesaid issues and such order cannot be revised. In this regard, the ld. PCIT observed that the assessment order is found to be erroneous insofar as it is prejudicial to the interests of the Revenue on law as well as on facts as discussed in the above paragraphs. Accordingly, he invoked the provisions of Section 263 of the Act and held that the order passed by the Assessing Officer is erroneous and prejudicial to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, the ld. Assessing Officer assessed the international transactions and specified domestic transactions reported by the bank at arm s length and did not consider it necessary or expedient to refer the case to the TPO. The assessment order was passed after making an informed decision and was, therefore, not erroneous and prejudicial to the interests of the Revenue. 12. After considering the submissions of the assessee, ld. PCIT observed that facts of the case and provisions of law were examined in this case. The CBDT vide Instruction No. 3/2016 dated 10.03.2016 issued guidelines for reference to the TPO. As per clause 3.2 of the above said instructions, all cases selected for scrutiny either under CASS on the basis of transfer pricing risk parameter in respect of international transactions or specified domestic transactions, or both, have to be referred to the TPO after obtaining the approval of the jurisdiction PCIT or CIT. The fact that the case has been selected for scrutiny on a transfer pricing risk parameter becomes clear from a perusal of the reasons for which a particular case has been selected, and the same are invariably available with the jurisdictional Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the TPO under Section 92CA of the Act for determination of arm s length price in accordance with CBDT instructions and follow the subsequent provisions of law; (ii) allow deduction of bad debts under Section 36(1)(vii) of the Act in accordance with the findings/observations given in its order; (iii) make adjustment to book profits in respect of profit of foreign branches and provisions in accordance with the findings/observations in its order. 15. Aggrieved with the above order, assessee is in appeal before us raising the following grounds of appeal. 1. Ground no. 1: On the facts and in the circumstances of the case and in law, the Hon'ble Principal Commissioner of Income-tax - 2 [ PCIT ] has erred in revising the order passed u/s. 143(3) of the Income-tax Act, 1961 ( the Act ) dated March 29, 2016 considering the same as erroneous in so far as it is prejudicial to the interests of revenue. The Appellant Bank prays that the initiation of revision proceedings u/s. 263 is without jurisdiction and bad in law and the resultant order passed u/s. 263 dated March 27, 2018 be quashed accordingly. 2. Without prejudice to Ground no. 1 above: Assuming without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e year under appeal, then on the facts and in the circumstances of the case and in law: (i) The Hon'ble PCIT has erred in directing the learned A.O. to disallow exclusion of profits of foreign branches of the Appellant Bank situated in countries with whom India has entered into a Double Taxation Avoidance Agreement (DTAA) aggregating to ₹ 813,47,01,960 while computing book profit u/s. 115JB without appreciating that the provisions of Sec. 90 override the provisions of Sec. 115JB of the Act. The Appellant Bank prays that the learned A.O. be directed to allow deduction for exclusion of profits of foreign branches of ₹ 813,47,01,960 while computing book profit u/s. 115JB and reduce the book profit accordingly. (ii) Without prejudice to Ground no. 2-D-(i) above: Assuming without accepting that the exclusion of profits of the aforesaid foreign branches aggregating to ₹ 813,47,01,960 is not allowable while computing book profit u/s. 115JB and therefore, taxable in India, in such case the Appellant Bank prays that the learned A.O. be directed to allow the credit for taxes paid by such branches in their respective countries while determining tax liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT has erred in directing the learned A.O. to refer the case of the Appellant Bank to the Transfer Pricing Officer u/s. 92CA for determination of arm's length price in relation to international transactions and specified domestic transactions. The Appellant Bank prays that the learned A.O. be directed not to refer the case to the Transfer Pricing Officer u/s. 92CA of the Act. 16. Before us, the ld. AR submitted that show cause notice under Section 263 of the Act dated 09.03.2018 was issued to assessee for the reason given therein, viz. i) in computing book profits under Section 115JB of the Act, profits of foreign branches was wrongly excluded and certain provisions were omitted to be added back. ii) deduction under Section 36(1)(vii) of the Act in respect of bad debts written off was incorrectly allowed by the Assessing Officer. iii) addition as per Rule 8D was not made in computing book profits. 17. He submitted that the order passed under Section 143(3) of the Act by the Assessing Officer was neither erroneous nor prejudicial to the interests of the Revenue for the reason. With regard to additions to book profits, he submitted that the issue of applicability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PCIT in his order under Section 263 of the Act had not directed any revision in respect of this issue, therefore, the order of Assessing Officer is neither erroneous and prejudicial to the interests of the Revenue. Further, he submitted that even on merits, the directions of ld. PCIT to make reference/additions in order under Section 263 of the Act is not valid for the above reasons. He submitted that subsequently during the revision proceedings, ld. PCIT issued a show cause notice on the issue of reference to the TPO. He submitted that an issue which does not form part of show cause notice under Section 263 of the Act cannot be a matter which can be decided in order under Section 263 of the Act. For this purpose, he relied on the decision of Hon'ble Bombay High Court in the case of Maharashtra Hybrid Seeds Co. Ltd.,[2019] 102 taxmann.com 48 (Bombay). 20. With regard to disallowance of deduction under Section 36(1)(vii) of the Act, he submitted that ld. PCIT erred in concluding that deduction allowed under Section 36(1)(viia) of the Act for the preceding assessment year has to be considered as opening credit balance in provision for bad and doubtful debts opened under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly, as held by the Hon ble Supreme Court in the case of Vijaya Bank vs CIT, 323 ITR 166(SC)it tantamount to write off of these amounts. Since these amounts are written off, these are not mere provisions which can be disallowed in computing book profits under Section 115JB of the Act. At the end, he prayed that the order passed under Section 263 of the Act may be quashed. 23. On the other hand, the ld. DR heavily relied on the order of ld. PCIT and supported the order passed by ld. PCIT. 24. Considered the rival submissions and material placed on record, we notice that ld. PCIT initiated the proceedings under Section 263 of the Act by issuing show cause notice and the reasons mentioned in the show cause notice was that in computing the book profits under Section 115JB of the Act, the profits of foreign branches was wrongly excluded and certain provisions were omitted to be added back, deduction under Section 36(1)(vii) of the Act in respect of bad debts written off was incorrectly allowed and disallowance made as per Rule 8D was not considered in computing the book profits. After careful consideration of the submissions of both the parties, we observe that the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that this issue itself is good enough to treat the assessment order as erroneous insofar as it is prejudicial to the interests of the Revenue. For that purpose, the ld. PCIT issued show cause notice on 23.03.2018 wherein it was brought to the notice of assessee that the Assessing Officer failed to refer the case to the TPO in accordance with the CBDT Circular which is mandatory for the Assessing Officer and non-reference to the TPO amounted to making assessment without proper inquiry and investigation as required by law, which was also warranted in the facts of the case. We notice that the assessee was provided an opportunity and assessee made submissions before the ld. PCIT, and for the sake of brevity it is reproduced below :- I. The Assessee Bank is a public-sector bank engaged in the business of banking and other related financial activities and is subject to the tight supervision, regulatory directions, close monitoring and extensive reporting requirements of the Government of India and RBI. The above is an important factor to be considered while assessing transfer prices for various transactions that the Bank has entered into with its Associated Enterprises. All the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee are within arm s length. The statute and instructions of CBDT are to the Assessing Officer to refer the matter to TPO clearly indicates that the order passed by the Assessing Officer under Section 143(3) of the Act is without proper inquiry and investigation particularly on the issue of computation of ALP in relation to international transactions and ld. PCIT is right in treating the order passed under Section 143(3) of the Act as erroneous insofar as it is prejudicial to the interests of the Revenue. 27. Similarly, the Hon'ble Delhi High Court had held in Ranbaxy Laboratories Ltd. vs CIT, 345 ITR 193 (Delhi)that non-reference to TPO renders the order erroneous and prejudicial to Revenue. 28. In this case,the transactions undertaken by the assessee are domestic as well as international transactions and the issues involving domestic and corporate issues were already verified by the Assessing Officer and also the order of ld. CIT(A) merged with the assessment order, therefore, in our considered view, the Assessing Officer should have referred the international transactions to the TPO to verify the international transactions whether the transaction are at arm s leng ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
