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2019 (12) TMI 253 - AT - Income TaxRevision u/s 263 - Transfer pricing (TP) adjustments - passing an order u/s 143(3) r.w.s 144C after the prescribed time limit u/s 153(1) r.w.s 92CA - an order which is erroneous and prejudice of revenue - CIT was of the view the AO has not made any enquiries during the assessment proceedings and he has not applied his mind to the issues. - CIT directed the AO to conduct proper investigations and frame fresh assessment. Held that - the provisions of section 92CA(1) of the Act, mandates the approval of Commissioner before making any reference to the TPO by the Assessing Officer - the third proviso to section 153(1) of the Act which gives extended time limit to pass the Assessment Order where a reference under sub section (1) of section 92CA was made, the time limit for completion of assessment was prescribed as three years from the end of the Assessment Year. Even assuming that the extended time limit is available for passing an order under third proviso to sub section (1) of section 153 the outer time limit for passing Assessment Order was 31.03.2015, however the assessment in this case was admittedly made on 10.04.2015 and is beyond the period of limitation making the Assessment Order a nullity. When the original Assessment Order passed u/s. 143 (3) of the Act was null and void in the eyes of law, the Commissioner could not have assumed jurisdiction under law to make revision of a non-est order and therefore the impugned order passed u/s. 263 of the Act by the Commissioner is also nullity in the eyes of law. Further, we do not see any minimal enquiries conducted by the Ld. Pr.CIT before coming to the conclusion that the Assessment Order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. The detailed submissions made by the assessee along with the evidences were not even examined by the Ld. Pr.CIT before arriving at the conclusion that the Assessment Order passed is erroneous. Thus, in view of the above reasons the order passed u/s.263 of the Act by the Ld. Pr.CIT is hereby quashed.
Issues Involved:
1. Legality of the order passed by the Pr.CIT u/s. 263 of the Income Tax Act. 2. Whether the assessment order passed u/s. 144C(1) r.w.s. 143(3) was time-barred. 3. Validity of the reference made by the Assessing Officer to the Transfer Pricing Officer (TPO) u/s. 92CA(1). 4. Allocation of interest expenditure between tonnage and non-tonnage business. 5. Whether the interest expenditure was capital in nature and its allowability under sections 36(1)(iii) and 37(1) of the Act. 6. Requirement of minimal inquiry by the Pr.CIT before passing an order u/s. 263. Issue-wise Detailed Analysis: 1. Legality of the Order Passed by Pr.CIT u/s. 263: The assessee challenged the legality of the Pr.CIT's order passed u/s. 263, arguing that the final assessment order dated 10.04.2015 was time-barred and thus non-est in the eyes of law. Consequently, the proceedings initiated by the Pr.CIT u/s. 263 were deemed illegal and bad in law. The Tribunal agreed with the assessee, holding that since the assessment order was passed beyond the period of limitation, it was invalid, making the subsequent order u/s. 263 also invalid. 2. Whether the Assessment Order Passed u/s. 144C(1) r.w.s. 143(3) was Time-barred: The Tribunal observed that the final assessment order for AY 2011-12 was passed on 10.04.2015. The assessee argued that the order was time-barred as the reference to the TPO was made without prior approval from the Commissioner, which was obtained only after the reference was made. The Tribunal held that since the approval was obtained after the reference, the extended time limit for passing the assessment order was not applicable. Thus, the assessment order should have been completed by 31.03.2014, making the order passed on 10.04.2015 time-barred and invalid. 3. Validity of the Reference Made by the Assessing Officer to the TPO u/s. 92CA(1): The Tribunal noted that the reference to the TPO was made on 23.10.2013, while the approval from the Commissioner was obtained on 28.10.2013. The Tribunal held that the reference was invalid as it was made without prior approval, as required under section 92CA(1). Consequently, the extended time limit for passing the assessment order was not applicable, rendering the assessment order invalid. 4. Allocation of Interest Expenditure Between Tonnage and Non-tonnage Business: The Pr.CIT directed the allocation of interest expenditure on NCD and FCCB between tonnage and non-tonnage business in the ratio of turnover. The assessee argued that the borrowed funds were utilized for non-tonnage business, supported by bank statements and FIRCs. The Tribunal found that the allocation made by the assessee was supported by evidence and had been accepted in the predecessor's hands while completing the assessment u/s. 143(3). The Tribunal held that the Pr.CIT did not conduct any inquiry to substantiate his conclusion, rendering his directions invalid. 5. Whether the Interest Expenditure was Capital in Nature and its Allowability Under Sections 36(1)(iii) and 37(1): The Pr.CIT contended that the interest expenditure of ?14.17 crores was capital in nature and not allowable under section 37(1). The assessee argued that the expenditure was incurred for business purposes and was allowable under section 36(1)(iii). The Tribunal noted that the interest expenditure had been accepted as revenue expenditure in the predecessor's hands and held that the Pr.CIT did not provide any reasoning to disallow the expenditure, making his conclusion invalid. 6. Requirement of Minimal Inquiry by the Pr.CIT Before Passing an Order u/s. 263: The Tribunal emphasized that for exercising jurisdiction under section 263, the Pr.CIT must conduct minimal inquiry to conclude that the assessment order is erroneous and prejudicial to the interests of the Revenue. The Tribunal found that the Pr.CIT did not conduct any inquiry or verification before passing the order, which was required to justify the exercise of jurisdiction under section 263. The Tribunal cited various judicial precedents to support this view, concluding that the Pr.CIT's order was invalid due to the lack of minimal inquiry. Conclusion: The Tribunal quashed the order passed by the Pr.CIT u/s. 263, holding it invalid on jurisdictional grounds. The assessment order dated 10.04.2015 was found to be time-barred and invalid, making the subsequent proceedings u/s. 263 also invalid. The Tribunal emphasized the requirement of minimal inquiry by the Pr.CIT before passing an order u/s. 263, which was not conducted in this case.
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