TMI Blog2021 (9) TMI 1436X X X X Extracts X X X X X X X X Extracts X X X X ..... notice u/s 263 which has been issued it is evident that the selection of the case was for complete scrutiny and the issues was not on transfer pricing parameters risk factors.The Instruction No. 3 of 2016 in para 3.3 states that where cases are selected for scrutiny on non transfer pricing risk parameters but also having international transactions or specified domestic transactions, shall be referred to TPO in specified circumstances. The clause (a) states where there are international transactions or specified transactions or both and the taxpayer has not filed any report required to be submitted under section 92E. This is not a situation in the case of the assessee and report was submitted and also during the assessment the same was submitted. The second situation where in previous assessments if any addition on account of transfer pricing adjustment of more than ten crores and addition being upheld in appellate proceedings is also not applicable in the case of the assessee, and this is not a case where search or seizure or survey operations had been carried out. In such a situation it cannot be said that the assessment is erroneous as reference to TPO was not made. As in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) To examine the write off of bad debts of Rs. 23.99crores in the books against the provisions for doubtful debts made in the earlier years, which was added back in the total income of the respective earlier year and directed to him to add back in the total income if the amount is not written off in the year. (c) To examine the net loss of Rs. 6.66 crores on account of foreign currency loan on fixed assets u/s 43A of the IT Act. (d) To make to the total income and/ or to the book profit u/s 115JB wherever required in accordance with the provisions of the Income Tax as discussed in para 14 of the order u/s 263. 3. That the order passed originally by the assessing Officer under section 143(3) of the Income Tax was neither erroneous nor prejudicial to the interest of Revenue, therefore the impugned order passed u/s 263 by the ld. Principal Commissioner of Income Tax, Udaipur is bad in law and clearly beyond the ambit of section 263 of the IT Act and liable to be quashed. 4. The appellant crave leave to add, alter, amend and modify any grounds of appeal on or before the date of hearing. 2. The assessment for the year 2016-17 was completed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumptions or suspicion that an inquiry might have unearthed any escaped taxable income as held by the Hon ble Delhi High Court in its judgment in the case of CIT vs. Leisure Wear Exports Ltd. (2010) 46 DTR (Del) 97wherein the Hon ble Court while relying upon the principle laid down by the Hon ble Apex Court in the case of Malabar Industrial Co. Ltd 243 ITR 83 (SC) has held that in the entire order emphasis laid by the CIT is that in respect of four issues mentioned by him, no queries were raised by the AO. On this premise, though it is observed that there was no application of mind on the part of the AO and the AO has not recorded any reasons to justify the omission to consider the said facts, the CIT does not take the said order to its logical conclusion which was the prime duty of the CIT in order to justify exercise of power under s.263. There is not even a whisper thatthe order is erroneous. Even if it is inferred that non-consideration of the issues pointed out by the CIT would amount to an erroneous order, it is not stated as to how this order is prejudicial to the interest of the revenue. 6. The assessee further pleaded that the facts of the said judgment of the Hon bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DHIRAJLAL DHRUVE (2008) 305 ITR 332 h. CIT vs. Nahar Exports Ltd. (2008) 173 TAXMAN 3 i. Virendra Kumar Jhamb vs. CIT (2009) 222 CTR (Bom) 88 j. CIT V/s. GirdhariLal (2002) 258 ITR 331 (Raj) (DB) k. CIT V/s. ArvindJewllers (2002) 259 ITR 502 l. CIT V/s. Shiv HariMadhu Sudan (1998) 233 ITR 649 (Raj) m. CIT V/s. Mehsana District Co-operative Milk Producers Union Ltd. (2003) 263 ITR 645 (Guj) 9. In regard to the reference to the TPO is concerned, the assessee referred to para 3 of the CBDT Instruction No.3/2016, F.No.500/9/2015-APA-II Government of India, Ministry of Finance, Department of Revenue, Central Board of Direct Taxes, Foreign Tax and Tax Research Division-I, APA-II Section, New Delhi, dated 10th March, 2016, which read as 3. Reference to Transfer Pricing Officer(TPO) 3.1 The power to determine the Arm s Length Price (ALP) in an international transaction or specified domestic transaction is contained in sub-section (3) of Section 92C. However, Section 92CA provides that where the Assessing Officer (AO) considers it necessary or expedient so to do, he may refer the computation of ALP in relation to an international transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll or has not disclosed the said transactions in the Accountant s report filed; (b) 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 (c) where search and seizure or survey operations have been carried out under the provisions of the 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. 12. The assessee mentioned that the assessee case does not attract any of the condition stipulated above and therefore, no reference was required to be made to the TPO. The assessee also mentioned that each of the query of the AO was replied, the fact which is not denied by the PCIT in his order. The assessee submitted that in the course of assessment proceedings, the assessee submitted letters with the audit report u/s 92E of the IT act in form 3CEB evidencing the international and specified domestic transactions done during the year. The same were thereafter verified by the AO duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest of revenue on this aspect. The assessee further submitted that the observation that gross total income of Rs. 778,404,660 is less than the value of foreign remittance sent at Rs. 5,168,404,794/- has no relevance. These foreign remittances were for purchase of raw material, consultancy and other business purposes etc.All the Specified domestic transactions (SDT) worth Rs. 264,524,412 are reported in form 3CEB. The assessee further submitted that all other queries are replied during the assessment and are on records, which have also been agreed by the PCIT in his order. 18. The assessee further submitted that the AO had considered all the submissions, examined the books of accounts and after proper application of mind did not draw any adverse inference therefrom. The AO s observations in para-1 of the assessment order wherein he has categorically stated the assessee had duly submitted replies to the queries issued. 19. On the other hand, the ld CIT DR relied on the PCIT s order and submitted that in view of the Explanation 2 inserted in section 263, the PCIT has a vide power u/s 263, and where ever it is found that due enquiry as required has not been made, su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or both and the taxpayer has not filed any report required to be submitted under section 92E. This is not a situation in the case of the assessee and report was submitted and also during the assessment the same was submitted. The second situation where in previous assessments if any addition on account of transfer pricing adjustment of more than ten crores and addition being upheld in appellate proceedings is also not applicable in the case of the assessee, and this is not a case where search or seizure or survey operations had been carried out. In such a situation it cannot be said that the assessment is erroneous as reference to TPO was not made. 21. We also find that on similar issue the Delhi Bench of ITAT had occasion to examine this issue in the case of M/s Amira Pure Foods Private Limited vs. PCIT in ITA No. 3205/Del/2017, in which following the decision of Hon ble Delhi High Court in the case of Delhi Airport Metro Express Ltd. reported in (2017) 398 ITR 8 (Delhi) in which it has been held as under : It is seen, in the order dt. 30th March 2016, the Principal CIT has proceeded by setting out the contents of the show-cause notice and the contents of the reply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 learned Principal CIT 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 learned Principal CIT 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 learned Principal CIT has not specified under which condition of instruction No. 3 of 2016, the AO should have referred to TPO. The argument of the learned Departmental Representative that selection under CASS was made because of mismatch in foreign remittent and Form 15CA, also doesn t help the cause of the Revenue. As per r. 37BB, the reporting in Form 15CA is in respect of payment made to non-resident 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 suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the order of the AO is erroneous and prejudicial to the interest of revenue, the CIT himself has to undertake some enquiry to establish that the assessment order is erroneous and prejudicial to the interest of revenue. In the case of Narayan Rane a doubt is also expressed regarding the applicability of Expln. 2, which was inserted by Finance Act 2015 w.e.f. 1st June, 2015, the bench also observed that if the explanation is interpreted to have overridden the law as laid down by various High Courts, then the same would empower the Principal CIT to find fault with each and every assessment order and also to force the AO to conduct enquiries in the manner preferred by the Principal CIT, thus prejudicing the mind of the AO, however, the intention of the legislature behind the explanation could not have been so as the same would lead to unending litigation and no finality in the legal proceedings. 23. We also find that in relation to the query letter issued by the AO reply was duly submitted to the AO on various issues which were raised and the assesseehad also appeared personally and filed the detailed replies to all the queries raised and books of accounts were also produced. ..... 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