2020 (8) TMI 166 - AT - Income Tax

Revision u/s 263 - HELD THAT - We find that the order was passed by the Hon ble Bombay High Court for demerger on 14.11.2014 and appointed date was fixed as 01.01.2014. Accordingly, the income and expenses of pharma division of Jay Precision Products (India) Pvt. Ltd. for the period 01.01.2014 to 31.03.2014 was transferred to the assessee-company. From examination of the documents filed by the assessee before the AO during the course of assessment proceedings, we find that during the year the job work charges payable to pharma division of Jay Precision Products (India) Pvt. Ltd., upon merger of the pharma division of Jay Precision Products (India) Pvt. Ltd., the sales shown by them to the assessee were therefore adjusted and cancelled against expenses of same account debited to the P L account and accordingly the net amount was claimed and the said net amount was reported in the tax audit report and in Form 3CEB, the labour/processing charges and electricity and fuel charges as mentioned in the impugned order are related to and incurred by the pharma division of Jay Precision Products (India) Pvt. Ltd. for the period 01.01.2014 to. 31.03.2014. The expenses referred in the impugned order were incurred by the pharma division of Jay Precision Products (India) Pvt. Ltd. so acquired by the assessee pursuant to the order of the Hon ble High Court and the sale of pharma division of Jay Precision Products (India) Pvt. Ltd. for the period 01.01.2014 to 31.03.2014 were also transferred to the assessee-company due to the effective demerger, the amount reported in the tax audit report (Form 3CD) and Form 3CEB are the gross amount of the said purchases including duties, taxes and freight. All the above details were filed by the assessee before the AO during the course of assessment proceedings. In the case of Moil India Limited 2017 (5) TMI 258 - BOMBAY HIGH COURT it is held that the Assessing Officer is not expected to raise more queries if he was satisfied about admissibility of claim on the basis of materials and details supplied and therefore, the order is not erroneous or prejudicial to the Revenue. In view of the above factual matrix and position of law, we cancel the order u/s 263 passed by the Pr. CIT. In the case of Nirav Modi 2016 (6) TMI 1004 - BOMBAY HIGH COURT held satisfaction of the Assessing Officer on the basis of documents was not shown to be erroneous in the absence of making a further inquiry. This was a case where a view was taken by the Assessing Officer on inquiry. Even if this view, in the opinion of the Commissioner was not correct, it would not permit him to exercise power u/s 263 of the Act. The Tribunal was right in setting aside the order u/s 263 of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice issued and the revision order passed under Section 263 of the Income Tax Act.
2. Examination of job work charges, labour charges, electricity and fuel charges, and purchases.
3. Proper disclosure and netting of receipts against expenses in Form 3CD and 3CEB.
4. Reference to Transfer Pricing Officer (TPO) for specified domestic transactions.
5. Procedural delay in pronouncement of the order due to COVID-19 pandemic.

Issue-wise Detailed Analysis:

1. Validity of the Notice and Revision Order under Section 263:
The assessee challenged the notice issued and the revision order passed by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act, arguing that the assessment order was neither erroneous nor prejudicial to the interest of revenue. The Pr. CIT initiated the proceedings on the grounds that the Assessing Officer (AO) failed to examine certain issues regarding job work charges, labour charges, and electricity and fuel charges.

2. Examination of Job Work Charges, Labour Charges, Electricity and Fuel Charges, and Purchases:
The Pr. CIT observed discrepancies in the job work charges, labour charges, and electricity and fuel charges related to the pharma division of a related party, which was demerged and taken over by the assessee. The assessee had reported job work charges of ?10,68,26,606/- but only ?6,93,11,793/- was shown in Form 3CD and 3CEB. The Pr. CIT found that the assessee had netted receipts against expenses, leading to incorrect disclosure. The assessee argued that the amounts were correctly reflected and claimed due to the demerger and provided detailed submissions and documents to support their claim.

3. Proper Disclosure and Netting of Receipts Against Expenses:
The Pr. CIT held that the assessee's practice of netting receipts against expenses and showing only net figures in Form 3CD and 3CEB was incorrect. The assessee contended that the net amount was reported correctly due to the demerger and provided supporting documents, including audited financial statements, tax audit reports, and ledger accounts.

4. Reference to Transfer Pricing Officer (TPO) for Specified Domestic Transactions:
The Pr. CIT directed the AO to make a fresh assessment and refer the specified domestic transactions to the TPO for verification. The assessee argued that the AO had already examined the relevant details during the assessment proceedings and that the Pr. CIT's direction was unwarranted.

5. Procedural Delay in Pronouncement of the Order Due to COVID-19 Pandemic:
The judgment addressed the delay in pronouncement of the order, which exceeded the 90-day limit due to the COVID-19 pandemic and subsequent nationwide lockdown. The tribunal acknowledged the unprecedented situation and the disruption of judicial work, citing orders from the Hon'ble Supreme Court and Bombay High Court extending the limitation period due to the pandemic.

Conclusion:
The tribunal found that the assessee had provided sufficient evidence and details during the assessment proceedings, and the AO had made inquiries and was satisfied with the claims. The tribunal referred to precedents, including the cases of Nirav Modi and Moil India Limited, to support its decision that the AO's order was not erroneous or prejudicial to the revenue. Consequently, the tribunal cancelled the order passed by the Pr. CIT under Section 263 and allowed the appeal filed by the assessee. The procedural delay in pronouncement of the order was justified due to the COVID-19 pandemic.