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TMI Blog2021 (3) TMI 1229X X X X Extracts X X X X X X X X Extracts X X X X ..... than substantive. (3).Without prejudice, in a case of transfer pricing of "Specified Domestic transactions", even otherwise, the AO having examined all the details of the payments made to persons specified u/s 40A(2)(b), assuming jurisdiction has led to another possible view. (II)Explanation 2 to section 263 of the Income Tax Act (the Act) became effective from 01.06.2015, therefore, the same cannot even otherwise apply to the AY 2014-15. (1).The PCIT was not justified in considering the Explanation 2 to Section 263 of the Act (applicable from 01.06.2015) as declaratory or clarificatory in nature particularly the provision was neither benevolent in nature nor required any clarity. (2).Explanation 2 to section 263 of the Act, being fiction, its application cannot be applied retrospectively to AY 2014-15. (III) Reliance on the instruction no. 3/2016 dated 10.03.2016 issued by the CBDT u/s 119 of the Act (herein after referred as 'instructions for reference of case to TPO' for considering order issued by the AO as erroneous so far as it was prejudicial to the interest of the revenue. (1).The instructions for reference of case to TPO being merely interna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal but at the time of hearing the main grievance of the assessee has been confined to ground no.2 raised by the assessee which relates to Explanation-2(c) to section 263 of the Income Tax Act, which became effective from 01.06.2015. Therefore, the assessee prayed that the said Explanation-2(c) to section 263 does not apply to Assessment Year 2014-15, under consideration. 4. Before proceeding to adjudicate the main grievance of the assessee, it would be appropriate to note the background of the case. The assessee before us, is an individual and has filed his return of income for the assessment year 2014-15 on 24.08.2014, declaring total income to the tune of Rs. 41,02,180/-. 5. Later on, assessee`s case was selected for complete scrutiny through CASS, with one of the reason as "Large specified domestic transaction(s)(form 3CEB)". The Assessing Officer has framed assessment order on 09.11.2016 and assessed the income at Rs. 63,61,000/-, after making addition of Rs. 20,38,778/-, under section 68 and addition of Rs. 2,20,041/- under section 56(2)(vii)(b) of the Income Tax Act. 6. Thereafter, Learned Principal Commissioner of Income Tax -3, [in short "the ld. PCIT"] has exercised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee wants to press ground No. 2 only, which relates to Explanation-2(c) to Section 263 of the Act and other grounds of appeal raised by assessee are not pressed. Shri Vepari pointed out that Explanation-2(c) to Section 263 does not have retrospective application. In assessee's case, the assessment year involved, is the Assessment Year 2014-15, however, the Explanation-2(c) to Section 263 came into the statute books with effect from 01.06.2015 and it is prospective in nature. He pointed out ld. PCIT has exercised the jurisdiction under section 263 of the Act merely on account of Explanation-2(c) to Section 263 of the Act, vide para 5 of the order of the ld PCIT, which is not applicable to the assessment year 2014-15 under consideration, therefore, order passed by the assessing officer under section 143(3) dated 09.11.2016 for A.Y.2014-15, is neither erroneous nor prejudicial to the interest of revenue, and hence the order passed by the ld PCIT under section 263 of the Act may be quashed. 10. On the other hand, Shri T S Bidari, the Learned Departmental Representative (DR) for the Revenue, pointed out that even before insertion of Explanation-2(c) to Section 263, by the Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l CIT is erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedents laid down by the Hon'ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer's order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer's order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63 of the Income Tax Act, 1961, which makes assessment order erroneous in so far as it was prejudicial to the interest of the Revenue, if the order has not been made in accordance with any order, direction or instruction issued by the CBDT under section 119 of the Income Tax Act. 13. Based on these facts, first we shall address the solitary grievance of ld DR for the Revenue. The ld. DR argued before us that in the assessee's case under consideration, it is not necessary to examine the Explanation-2(c) to Section 263 of the Act, but it is to be seen that whether Assessing Officer has conducted adequate enquiry or not. The ld DR thus, stated that in assessee`s case, the Assessing Officer fails to make adequate enquiry in respect of "specified domestic transactions", therefore, order passed by the assessing officer under section 143(3) of the Act, dated 09.11.2016 is erroneous and prejudicial to the interest of revenue. We do not agree with the plea taken by ld DR to the effect that ld PCIT has mainly exercised his jurisdiction because Assessing Officer fails to make adequate enquiry. We note that ld PCIT, vide para 5 of his order under section 263 of the Act, has held that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstructions issued by the CBDT under section 119 of the Income Tax Act? We note that said Explanation-2(c) to Section 263 of the Act, was inserted by the Finance Act, 2015,with effect from 01.06.2015 and applicable for assessment year 2016-17 and onwards. At this juncture, ld Counsel argued before us that that Explanation-2(c) to Section 263, inserted by the Finance Act, 2015, with effect from 01.06.2015, which is applicable on or after Assessment Year 2016-17, is only prospective in nature, therefore does not apply to the Assessment Year 2014-15, under consideration. Therefore, the ld. PCIT cannot exercise his jurisdiction under section 263 of the Act merely based on Explanation-2(c) to Section 263 of the Act in the assessee`s case under consideration. 16. Now, the next question before us is whether Explanation-2(c) to Section 263 of the Act is prospective or retrospective in nature? We are of the view that the provision as specified in Explanation-2(c) to section 263 of the Act cannot be applied for the year under consideration. In holding so, we find support and guidance from the order of Coordinate Bench of ITAT, Mumbai in the case of M/s Indus Best Hospitality & Realtors Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 01.06.2015 envisaging exercise of revision jurisdiction even when an assessment is framed without any enquires and verification which should have been, in the opinion of revisional authority, deemed to be erroneous in so far as prejudicial to the interest of the revenue. He cites a co-ordinate bench decision of Crompton Greaves Limited vs. CIT - ITA No.1994/Mum/2013 and 2836/Mum/2014 decided on 01.02.2016 holding the above explanation to section 263 of the Act as retrospective in nature. The assessee at this stage informs us that another coordinate bench in ITA nos.870 & 1234/Ahd/2014 decided on 20.05.2016 in the case of Jayanth Murthy vs. DCIT holds the above stated former decision as per incuriam and section 263 Explanation 2 to be only having prospective operation. The Revenue's argument on inadequate enquiry aspect is accordingly rejected. We rely on hon'ble jurisdictional high court's decision in CIT vs. Amit Corporation (2013) 213 Taxman 19 (Gujarat) holding that section 263 is not to be invoked for making further enquiries in case the Assessing Officer had access to all records and he framed assessment after making the relevant enquiries. We accept assessee's argument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 (b) Metacaps Engineering and Mahendra Constructions Co. (JV) v. CIT [ITA No. 2895/Mum/2014] dated 11.09.2017 (c) Reliance Money Infrastructure Ltd. v. PCIT [ITA No. 3259/Mum/2017] dated 06.10.2017. (d) Shantikrupa Estate Pvt. Ltd. [ITA No. 1252/Ahd/2015] dated 09.09.2016 (e) Amira Pure Foods Pvt. Ltd. v. PCIT [ITA No. 451/Del/2017] dated 29.11.2017. 5.8 Accordingly, respectfully following the ratio of the various judgments as referred to in the preceding paragraphs, we have no hesitation in holding that the Ld. Pr.CIT had wrongly invoked the revisionary powers u/s 263 of the Act and we have no option but to quash the same. It is so ordered accordingly." 19. We find that the case before us pertains the Assessment Year 2014-15 and impugned Explanation-2(c) to Section 263 was applicable w.e.f. 01.06.2015. Therefore, we note that Explanation-2(c ) to section 263 of the Act as inserted by the Finance Act, 2015 authorizing the ld. PCIT to hold the order of the Assessing Officer erroneous in so far as prejudicial to the interest of Revenue, is prospective in nature, as held by the various Coordinate Benches of ITAT, cited above. Therefore, in our considered view the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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