2020 (10) TMI 612 - AT - Income Tax

Revision u/s 263 - assessee has made payment to persons specified u/s 40A(2)(b) for purchase of Grey Cloth, which falls under the definition of specified domestic transactions - Whether matter could not be referred to the Ld. TPO? - HELD THAT - Admittedly for some reason or the other the actual Audit Report of the assessee in Form 3CB-3CD was not made available before the Ld. AO and, thus, the fact of making payment to the persons specified under Section 40A(2)(b) for purchase of gray as mentioned in the said Audit Report could not be considered. Consequentially the matter could not be referred to the Ld. TPO in terms of the CBDT instruction. Needless to mention that the AO has not considered the reason for scrutiny selection as per CASS and failed to conduct necessary enquiry for the reason as narrated hereinbefore. We, therefore, find substance in the argument advanced by the Ld. DR. Mr. Sharma. Also we do not appreciate the submission made by the Ld. AR in support of his case. Though the said 3CB-3CD report was submitted through electronic media on 30.09.2014 we have to consider that during that relevant point of time when filing of documents through electronic media was introduced it is quite natural that without having expertise knowledge every person in the department is expected to Act accordingly. When the Ld. AO has requisitioned the said Audit Report of the assessee, we failed to understand as to how Audit Report of other persons can be made available to the AO instead of the assessee s. No enquiry has been done by the Ld. AO and if any enquiry has been claimed to have been done the same was acted on the basis of the wrong 3CB-3CD report which vitiates the entire proceeding. We, therefore, find no infirmity in the observation made by the Ld. PCIT in setting aside the assessment order considering it erroneous and prejudicial to the interest of Revenue and in passing direction upon the concerned AO to complete proper enquiries and verification de-novo so as to warrant interference. - Decided against assessee.

Summary

Issues:
1. Validity of assessment order under section 263 of the Income Tax Act, 1961.
2. Disallowance under Section 14A of the Act and late payment of PF & ESIC.
3. Submission of incorrect Audit Report and subsequent rectification.
4. Determination of Arm's Length Price of specified domestic transaction.
5. Necessity of referring the matter to the Transfer Pricing Officer.
6. Cooperation of the assessee with the Assessing Officer.
7. Error in assessment order and directions for proper enquiries.

Analysis:

1. The appeal challenged the order passed by the Pr. Commissioner of Income Tax, which directed a fresh assessment under section 263 of the Income Tax Act, 1961. The original assessment finalized under Section 143(3) of the Act included disallowances under Section 14A and late PF & ESIC payments.

2. The discrepancies arose when the assessee submitted the wrong Audit Report during assessment proceedings. The correct Audit Report revealed significant payments falling under specified domestic transactions. The failure to refer the matter to the Transfer Pricing Officer due to the incorrect report was a key issue.

3. The assessee argued that the payments were made between its proprietary firms and did not require TPO reference. However, the incorrect Audit Report submission hindered proper assessment. The Department stressed the necessity of TPO reference based on CBDT instructions.

4. The Tribunal observed that the correct Audit Report was not available to the Assessing Officer, leading to the omission of crucial details in the assessment. The failure to conduct necessary enquiries and the reliance on incorrect information rendered the assessment erroneous.

5. The Tribunal criticized the assessee for not cooperating adequately with the Assessing Officer and submitting the correct documents promptly. The lack of proper enquiry and reliance on incorrect reports were highlighted as flaws in the assessment process.

6. Ultimately, the Tribunal upheld the Pr. Commissioner's decision to set aside the assessment order as erroneous and prejudicial to the Revenue's interest. The direction for proper enquiries and verification de-novo was deemed necessary, leading to the dismissal of the assessee's appeal.

In conclusion, the judgment highlighted the importance of accurate documentation, cooperation with tax authorities, and the need for thorough assessments to ensure compliance with tax laws and fair determination of tax liabilities.