2020 (7) TMI 35 - AT - Income Tax

Assessment u/s 263 - set aside for consequential enquiries on transactions undertaken by the assessee with sister concern having regard to provisions of Section 92BA of the Act - HELD THAT - Merit in the case made out by the assessee that various clauses of Section 92BA of the Act were not applicable in the factual matrix. As a corollary, merely because a prescribed Form No. 3CEB was filed in accordance with Rule 10E r.w.s. 92BA would not make an assessee susceptible to onerous investigation proceedings on such transactions where the assessee prima facie demonstrates that Section 92BA is wholly inapplicable in any manner at the first instance. CIT was seized with the relevant facts and could have easily satisfied himself of such prima facie assertions. A lack of enquiry in a particular manner or as per certain procedures prescribed would possibly vitiate the assessment order only when it is found that the relevant provisions were applicable to the assessee and not otherwise. The allegations made by the Pr.CIT in the instant case have been successfully rebutted on behalf of the assessee. In view of the domestic transaction with AE not falling in the sweep of Section 92BA of the Act at the threshold, any alleged inaction attributable to the AO in this regard would not vitiate assessment order as erroneous nor did it cause any prejudice to the interest of the Revenue. The ingredients of Section 263 of the Act are thus clearly not fulfilled. Hence, revisional order passed u/s 263 of the Act seeking to set aside the assessment order passed under s.263 - Decided in favour of assessee.

Summary

Issues Involved:
1. Assumption of jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Applicability of Section 92BA regarding 'specified domestic transactions' (SDT).
3. Validity of the assessment order under Section 143(3) in light of the alleged non-referral to the Transfer Pricing Officer (TPO).

Issue-wise Detailed Analysis:

1. Assumption of jurisdiction under Section 263 of the Income Tax Act, 1961:
The Pr. Commissioner of Income Tax (Pr.CIT) invoked Section 263 to set aside the assessment order passed under Section 143(3) on the grounds that the Assessing Officer (AO) failed to refer the matter to the Transfer Pricing Officer (TPO) despite the assessee filing Form 3CEB for specified domestic transactions (SDT). The Pr.CIT issued a show cause notice stating that the assessment order was erroneous and prejudicial to the interests of the Revenue due to non-compliance with mandatory referral to the TPO as per Board’s instruction No. 3/2016. The assessee contested this, arguing that the transactions reported in Form 3CEB did not fall within the scope of SDT as defined under Section 92BA, and thus, no referral to the TPO was warranted.

2. Applicability of Section 92BA regarding 'specified domestic transactions' (SDT):
The assessee argued that the primary transaction under scrutiny, which involved sales to an Associate Enterprise (AE) amounting to ?19,36,86,462, did not fall under the definition of SDT as per Section 92BA(i) which pertains to 'expenditure' and not 'sales'. The assessee also pointed out that the remaining transaction of ?18,000 towards rental expenditure did not meet the threshold of ?5 Crore for SDT. The assessee further contended that the filing of Form 3CEB was done out of abundant caution and was not legally required as the transactions did not qualify as SDT. Additionally, the assessee highlighted that clause (i) of Section 92BA was omitted by the Finance Act, 2017, which implied that it was never considered as law existing in the statute since its inception.

3. Validity of the assessment order under Section 143(3) in light of the alleged non-referral to the Transfer Pricing Officer (TPO):
The Tribunal noted that the Pr.CIT's jurisdiction under Section 263 is to be exercised when the assessment order is erroneous and prejudicial to the interests of the Revenue. The Tribunal found merit in the assessee's argument that the transactions reported in Form 3CEB did not qualify as SDT under Section 92BA. The Tribunal observed that the Pr.CIT could have easily verified the prima facie assertions of the assessee regarding the inapplicability of Section 92BA. Since the transactions did not fall within the sweep of Section 92BA, the AO's non-referral to the TPO did not render the assessment order erroneous or prejudicial to the Revenue. Consequently, the Tribunal quashed the revisional order passed under Section 263.

Conclusion:
The Tribunal concluded that the Pr.CIT's invocation of jurisdiction under Section 263 was not justified as the transactions in question did not fall within the definition of SDT under Section 92BA. The assessment order under Section 143(3) was not erroneous or prejudicial to the interests of the Revenue due to the non-referral to the TPO. The appeal of the assessee was allowed, and the order under Section 263 was quashed.