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2022 (11) TMI 184 - AT - Income TaxRevision u/s 263 by CIT - ALP of international transaction or specified domestic transaction listed in Form 3CEB / 3CD - HELD THAT - The admitted fact is that one of the reasons for selection of the assessment for scrutiny is transfer pricing risk parameter. In the assessment completed u/s 143(3) of the I.T.Act, there is no discussion about the ALP of international transaction or specified domestic transaction listed in Form 3CEB / 3CD. In such a scenario, as per the Board Instruction No.3/2016 dated 10.03.2016, the case ought to have been mandatorily referred to the TPO by the AO after obtaining necessary approvals. The instruction further states that if the information on international transactions or specific domestic transactions has not been disclosed in the return or the audit report, and the AO comes to know about the same during the course of scrutiny proceedings which have otherwise been selected on non TP risk parameter, then also the A.O. has to mandatorily refer the transactions for examination by the TPO. As further stated in the said Board Instruction that the power to determine the ALP of the international transaction should not be carried out at all by the A.O. Therefore, inspite of the assessment being picked up for scrutiny on account of transfer pricing risk parameter, the A.O. having not referred the matter to the TPO to determine the ALP of the international transaction undertaken by the assessee with its AE, was in direct contravention / non adherence to the Board Instruction, cited supra. Clause (c) of Explanation 2 to section 263(1) states that the assessment order made not in accordance with any order, direction or instruction issued by the Board u/s 119 of the I.T.Act is erroneous order and prejudicial to the interest of the revenue. The Board Instruction No.3/2016 has been issued u/s 119 - Therefore, non-compliance of the above said Instruction by the A.O. will render the said assessment order as erroneous and prejudicial to the interest of the revenue. Hon ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. 2011 (11) TMI 196 - DELHI HIGH COURT had held that when Board Instruction No.3/2016 has been validly upheld, it is binding on the Assessing Officer and not taking recourse thereto would render the assessment order as erroneous and prejudicial to the interest of the revenue - we uphold the order of the PCIT passed u/s 263 as correct and in accordance with law. Appeal filed by the assessee is dismissed.
Issues:
1. Validity of Principal Commissioner of Income Tax's order under section 263 of the Income-tax Act, 1961. 2. Compliance with Board Instruction No.3/2016 regarding reference to the Transfer Pricing Officer (TPO). 3. Impact of non-reference to TPO on the assessment order. 4. Interpretation of Section 263(1) of the Income-tax Act. 5. Precedent set by the Hon'ble Delhi High Court and the Mumbai Bench of the Tribunal. Issue 1: Validity of Principal Commissioner of Income Tax's order under section 263 of the Income-tax Act, 1961: The appeal challenged the Principal Commissioner of Income Tax's order dated 27.02.2020 under section 263 of the Income-tax Act, 1961. The Principal Commissioner set aside the assessment order as erroneous and prejudicial to the interest of the revenue, directing the Assessing Officer to refer the matter to the TPO for international transactions. The appellant contended that the order was bad in law and should be quashed. Despite the absence of the appellant during the appeal, the Tribunal found the issue to be prima facie decided by the Hon'ble Delhi High Court in a relevant case. Issue 2: Compliance with Board Instruction No.3/2016 regarding reference to the Transfer Pricing Officer (TPO): The case involved the failure of the Assessing Officer to refer the matter to the TPO for determining the Arm's Length Price (ALP) of international transactions, as required by CBDT Instruction No.3/2016. The Principal Commissioner held that non-reference to the TPO was against the Instruction, rendering the assessment order erroneous and prejudicial to the interest of the revenue. The Tribunal emphasized that non-compliance with the Instruction by the Assessing Officer would make the assessment order erroneous and prejudicial to the revenue's interest, as per Explanation 2 to section 263(1) of the Income-tax Act. Issue 3: Impact of non-reference to TPO on the assessment order: The failure to refer the matter to the TPO for determining the ALP of international transactions was deemed a direct contravention of the Board Instruction No.3/2016. The Tribunal highlighted that the power to determine the ALP should not be carried out by the Assessing Officer, emphasizing the mandatory nature of the reference to the TPO in such cases. The Principal Commissioner's order to set aside the assessment and direct the reference to the TPO was upheld based on legal provisions and precedents. Issue 4: Interpretation of Section 263(1) of the Income-tax Act: The Tribunal interpreted Section 263(1) of the Income-tax Act, emphasizing that any assessment order made not in accordance with orders, directions, or instructions issued by the Board would be considered erroneous and prejudicial to the revenue's interest. The non-compliance with Board Instruction No.3/2016, issued under Section 119 of the Income-tax Act, rendered the assessment order erroneous, justifying the Principal Commissioner's decision to set it aside. Issue 5: Precedent set by the Hon'ble Delhi High Court and the Mumbai Bench of the Tribunal: The Tribunal referred to the judgments of the Hon'ble Delhi High Court and the Mumbai Bench of the Tribunal in relevant cases, supporting the mandatory nature of referring matters to the TPO for determining the ALP of international transactions. The decisions emphasized that non-reference to the TPO would render the assessment order erroneous and prejudicial to the revenue. Based on these precedents, the Tribunal upheld the Principal Commissioner's order under section 263 of the Income-tax Act as correct and in accordance with the law. This detailed analysis of the judgment covers the issues involved comprehensively, highlighting the legal interpretations, compliance requirements, and the impact of non-compliance on the assessment order.
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