2023 (1) TMI 705 - AT - Income Tax

Scope of limited scrutiny - whether value of international transactions in respect of mutual agreement or arrangement have been correctly shown in Form 3CEB? - HELD THAT - The scrutiny was only for the purpose of verifying whether the international transactions with the related parties have been correctly declared by the assessee in the audit report. It is a fact on record that the assessing officer noticing that assessee has entered into international transactions with AE had made a reference to the TPO to evaluate the arm s length nature of such transactions in the context of assessee s claim that the revenue received in respect of such transactions are not taxable in India. Undisputedly, the TPO after examining the transactions as reported in Form 3CEB, passed an order accepting the value of the transactions. Thus, the order of the TPO demonstrates that the assessee had correctly reported the international transactions with the AE in Form 3CEB. Out of the four transactions reported by the assessee, the assessing officer has accepted three and only made a deviation in respect of one transaction relating to provision of training services generating revenue of Rs.16,20,992. AO has treated it as FTS both under domestic law as well as India- Singapore DTAA. The question arising for consideration is, whether the Assessing Officer could have expanded the scope of the limited scrutiny to traversed into a completely different arena of examining whether an item of revenue received by the assessee falls in the category of FTS. Once, the international transactions reported in Form 3CEB have been verified by the TPO and no adjustments were suggested, it has to be accepted that assessee has reported the transactions correctly. Therefore, then, the purpose of limited scrutiny gets sub-served and the matter should have ended there. However, the Assessing Officer exceeding his jurisdiction has ventured into recheracterizing the nature and character of a particular item of income, which in our view, is beyond the scope of limited scrutiny. This is so because, in terms of CBDT Instruction nos. 20/2015 and 5/2016 read with DGIT(Vigilance) letter dated 30th November, 2017 before venturing into other issues outside the scope of limited scrutiny, the Assessing Officer should have taken prior approval of PCIT/CIT. Admittedly, in the facts of the present appeal, AO has not taken any such approval of the concerned authorities. Therefore, the assessment order passed is in violation of CBDT Instructions, referred to above. Therefore, the question which arises for consideration is, what will be the fate of such an order passed in violation of the extant CBDT Instructions/circulars.

Summary

Issues:
Admission of additional ground in appeal; Jurisdictional issue of assessing officer enlarging scope of limited scrutiny.

Analysis:
The appeal was filed against the order of the Commissioner of Income-Tax for the assessment year 2016-17. An additional ground was raised by the assessee regarding the assessing officer exceeding the limited scrutiny's scope. The Tribunal admitted the additional ground as it was a legal and jurisdictional issue crucial to the appeal's outcome, citing relevant legal precedents.

The assessing officer selected the case for limited scrutiny to verify international transactions. The Transfer Pricing Officer (TPO) accepted most transactions but disagreed on one related to training services. The assessing officer treated this as Fee for Technical Services (FTS), leading to a tax liability. The Commissioner (Appeals) upheld this decision.

The assessee argued that the assessing officer went beyond the limited scrutiny's scope by changing the nature of a receipt to FTS without proper jurisdiction. They cited CBDT instructions and legal cases to support their claim. The Departmental Representative contended that the assessing officer acted within the limited scrutiny's bounds.

The Tribunal found that the assessing officer exceeded the limited scrutiny's scope without obtaining necessary approvals, violating CBDT instructions. Citing legal precedents, the Tribunal declared the assessment order null and void due to lack of jurisdiction. Consequently, the Commissioner (Appeals) order was set aside, and the appeal was allowed. Other grounds raised by the assessee were deemed infructuous.

In conclusion, the Tribunal held that the assessing officer's actions were beyond the limited scrutiny's scope, rendering the assessment order null and void. The appeal was allowed, and the parties were given the liberty to contest any arising issues in future proceedings.