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2020 (2) TMI 897 - AT - Income TaxRevision u/s 263 - Non making reference to the TPO for determining arm s length price of assessee s specific domestic transactions - scope of amendment - HELD THAT - In EVEREADY INDUSTRIES INDIA LTD. VERSUS PRINCIPAL COMMISSIONER OF INCOME-TAX, KOLKAT-4, KOLKATA. 2019 (12) TMI 1033 - ITAT KOLKATA holds that such a reference prescribed in section 92BA(i) regarding any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of sub- section (2) of section 40A stands omitted by the Finance Act 2017 w.e.f 01.04.17 and therefore, the foregoing omission is applicable with retrospective effect in the impugned assessment year 2014-15 as well. PCIT has erred in law and as well as on facts in terming the above regular assessment dated 19.12.16 as erroneous causing prejudice to interest of the revenue qua the assessee s specified domestic transaction not having subjected to section 92CA reference to the Transfer Pricing Officer. We make it clear that learned coordinate bench has already held in assessment year 2014-15 itself that the Finance Act 2017 s omission of section 92BA(i) carrying retrospective effect and therefore, such an inaction in not making reference to the TPO does not render the assessment erroneous causing prejudice to interest of the revenue. We accordingly reverse the PCIT s revision directions therefore. - Decided in favour of assessee.
Issues Involved:
1. Whether the Assessing Officer's failure to refer specified domestic transactions to the Transfer Pricing Officer (TPO) under section 92CA rendered the assessment order erroneous and prejudicial to the interests of the revenue. 2. Applicability of the Finance Act 2017's omission of section 92BA(i) with retrospective effect. Detailed Analysis: 1. Assessing Officer's Failure to Refer Specified Domestic Transactions to TPO: The Principal Commissioner of Income Tax (PCIT) exercised revision jurisdiction under section 263 of the Income Tax Act, 1961, terming the assessment dated 19.12.2016 as erroneous and prejudicial to the interests of the revenue. The PCIT's primary contention was that the Assessing Officer (AO) failed to refer specified domestic transactions to the TPO for determining the arm’s length price, as mandated by CBDT Instruction No. 3/2016 dated 10.03.2016. The PCIT argued that the AO's inaction in not making the mandatory reference to the TPO, despite the presence of large specific domestic transactions, constituted an error. The PCIT cited several judicial precedents, including the Delhi High Court's decision in GEE VEE Enterprise vs. Addl. CIT and the Supreme Court's decision in Malabar Industrial Co. Pvt. Ltd vs. CIT, to support the proposition that an assessment order could be considered erroneous if the AO failed to make necessary inquiries. The PCIT concluded that the AO's failure to refer the case to the TPO amounted to passing an assessment order without proper inquiry, thus making it erroneous and prejudicial to the interests of the revenue. 2. Applicability of the Finance Act 2017's Omission of Section 92BA(i): The tribunal's coordinate bench in Eveready Industries India Ltd. vs. PCIT, ITA No.805/Kol/2019, held that the omission of section 92BA(i) by the Finance Act 2017, effective from 01.04.2017, applied retrospectively to the assessment year 2014-15. The bench noted that the legal effect of the omission was that section 92BA(i) never existed in the statute. Consequently, any reference to TPO under section 92CA for transactions covered by the omitted provision would be invalid. The tribunal found that the PCIT's reliance on the CBDT Instruction No. 3/2016 was misplaced, as the instruction did not mandate a reference to the TPO for cases selected on non-transfer pricing risk parameters. The tribunal emphasized that the AO had conducted necessary inquiries, including examining the assessee's international transactions with associated enterprises, and found no basis for the PCIT's claim that the AO's order was erroneous. The tribunal also highlighted that the PCIT's direction to the AO to consider making a reference to the TPO in the set-aside proceedings was contrary to the view expressed in the coordinate bench's decision in DVC Emta Coal Mines Ltd & Ors Vs ACIT, which held that any proceeding initiated under the omitted clause (i) of section 92BA would not survive. Conclusion: The tribunal concluded that the PCIT erred in law and on facts by terming the assessment order dated 19.12.2016 as erroneous and prejudicial to the interests of the revenue. The omission of section 92BA(i) by the Finance Act 2017 with retrospective effect meant that the AO's inaction in not making a reference to the TPO did not render the assessment erroneous. The tribunal reversed the PCIT's revision directions and allowed the assessee's appeal. Order: The assessee's appeal is allowed, and the order is pronounced in the open court on 31.12.2019.
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