2020 (1) TMI 1198 - AT - Income Tax

Revision u/s 263 - denial the deduction u/s 10A - DRP has not considered the Proviso to sub section (4) of section 92C - HELD THAT - Tribunal in A.T. Kearney India Pvt Ltd 2019 (6) TMI 1092 - ITAT DELHI while considering similar ground of appeal held that the Proviso to section 92C(4) of the Act would not be attracted on voluntary transfer pricing adjustment made by the assessee and Proviso was to apply only in cases where adjustment has been made by AO / TPO. It was further held that once the assessee has voluntarily offered the income to tax, it forms part of the profit of the business and deduction u/s 10A cannot be denied. M/S I. GATE GLOBAL SOLUTIONS LTD 2014 (6) TMI 1007 - KARNATAKA HIGH COURT once the assessee suo moto allowed the deduction u/s 10A in the return of income while determining the ALP, the revenue cannot deny the deduction u/s 10A Re-assessment the AO raised necessary queries, the assessee furnished detailed submission, which was accepted by the AO though no reference about the consideration of such issue in the assessment order. Considering the aforesaid legal discussion, we are of the considered view that the view taken by the AO in accepting the explanation furnished by assessee in response to the show cause notice dated 18-12-2017 during re-assessment was one of the possible views and the order dated 29-12-2017 is not erroneous though may be prejudicial to the interest of revenue. Thus, the twin conditions as enumerated in section 263 is not fulfilled, hence, the revision of the assessment order is not justified. More over the issue on which the order is revised is debatable issue. Considering the fact that twin conditions as enunciated in section 263 are not satisfied, therefore, the revision order passed u/s 263 dated 25-06-2018 is set aside / quashed. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Validity of Order under section 263
2. Violation of natural justice
3. Direction to delete deduction under section 10B on suo-moto Transfer Pricing adjustments
4. Initiation of penalty proceedings under section 271(l)(c)

Detailed Analysis:

1. Validity of Order under section 263:
The primary issue revolves around whether the Commissioner of Income Tax (CIT) had the jurisdiction to revise the assessment order under section 263. The assessee contended that the reassessment order passed by the Assessing Officer (AO) was neither erroneous nor prejudicial to the interest of the revenue. The assessee argued that the AO had made necessary inquiries and had applied his mind to the facts and circumstances of the case before allowing the deduction under section 10B. The CIT, however, held that the AO did not consider the proviso to section 92C(4) while allowing the deduction under section 10B, making the order erroneous and prejudicial to the revenue's interest. The Tribunal, referencing the principles established by the Supreme Court in Malabar Industrial Co. Ltd. and the Bombay High Court in Gabriel India Ltd., concluded that the AO's order was not erroneous as it was based on a plausible view after due inquiry.

2. Violation of Natural Justice:
The assessee argued that the CIT failed to dispose of the objections filed against the proceedings under section 263, thereby violating the principles of natural justice. The Tribunal noted that the CIT did not discuss the contents of the reply/explanation furnished by the assessee to the show cause notice under section 263. The CIT's failure to address the assessee's objections and provide an opportunity to make submissions on the merits of the case was seen as a violation of natural justice.

3. Direction to Delete Deduction under section 10B on Suo-Moto Transfer Pricing Adjustments:
The CIT directed the AO to withdraw the deduction under section 10B on the grounds that the proviso to section 92C(4) prohibits such deductions on income enhanced due to transfer pricing adjustments. The assessee argued that the proviso to section 92C(4) applies only to adjustments made by the AO/TPO and not to suo-moto adjustments made by the assessee. The Tribunal referenced the Karnataka High Court's decision in I-Gate Global Solutions Ltd., which held that the proviso to section 92C(4) does not apply to voluntary transfer pricing adjustments made by the assessee. The Tribunal also noted that the AO had raised and addressed this issue during the reassessment proceedings, and the assessee's explanation was accepted. Therefore, the Tribunal concluded that the AO's order was not erroneous and the CIT's direction to delete the deduction was not justified.

4. Initiation of Penalty Proceedings under section 271(l)(c):
The CIT directed the AO to initiate penalty proceedings under section 271(l)(c) for furnishing inaccurate particulars of income. The assessee argued that it had not furnished inaccurate particulars of income and that the issue was debatable. The Tribunal noted that the AO had examined the issue during the reassessment proceedings and had accepted the assessee's explanation. Given that the AO's order was not erroneous, the Tribunal found no basis for initiating penalty proceedings under section 271(l)(c).

Conclusion:
The Tribunal set aside/quashed the revision order passed under section 263, concluding that the AO's order was not erroneous and prejudicial to the interest of the revenue. The Tribunal emphasized that the AO had made necessary inquiries and had applied his mind to the facts and circumstances of the case. The Tribunal also highlighted that the CIT failed to address the assessee's objections and provide an opportunity to make submissions on the merits of the case, thereby violating the principles of natural justice. Consequently, the appeal of the assessee was allowed.