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2021 (7) TMI 283 - AT - Income TaxRevision u/s 263 - applicability of provision of section 92BA(i) - assessee has challenged the legality of the said order by submitting that when the Assessing Officer ceased with the matter, the provision of Section 92BA(i) of the Act stood omitted and hence, did not warrant reference to the Transfer Pricing Officer placing reliance - HELD THAT - In this case, Section 92BA(i) of the Act was omitted w.e.f.01.04.2017 and after its omission, the Ld. Pr. Commissioner of Income Tax passed order u/s.263 dated 28.02.2020. Since Section 92BA(i) of the Act was unconditionally omitted without a saving clause in favour of pending proceedings, therefore, the Ld. Pr. Commissioner of Income Tax ought not to have proceeded u/s.263. Since such omission in Section 92BA(i) of the Act is unconditional i.e. it does not say that pending proceedings under clause (i) of Section 92BA would continue in future even after its omission on 01.04.2017. Therefore, the Ld. Pr. Commissioner of Income Tax erred in exercising jurisdiction u/s.263 of the Act, in so far as clause (i) of Section 92BA is concerned, the reason being in the eyes of law after omission of clause (i) of Section 92BA of the Act, it would be treated as if it never existed in the statute book. Thus we hold that the exercise of jurisdiction u/s.263 of the Act by the Ld. Pr. .Commissioner of Income Tax was void and not legally valid - Decided in favour of assessee.
Issues Involved:
1. Whether the assessment order passed by the AO u/s 143(3) was erroneous and prejudicial to the interests of the revenue. 2. Whether the AO failed to refer the case to the TPO as required under Section 92BA(i). 3. Whether the omission of Section 92BA(i) by the Finance Act, 2017 affects the validity of the CIT's order u/s 263. 4. Whether the AO conducted proper inquiry and verification regarding payments made to related persons u/s 40A(2)(b). 5. Whether the CIT's direction to the AO to refer the matter to the TPO was legally warranted. 6. Whether the CIT's order u/s 263 was void due to the omission of Section 92BA(i). Detailed Analysis: Issue 1: Erroneous and Prejudicial Assessment Order The CIT concluded that the assessment order dated 18.12.2017 was erroneous and prejudicial to the interests of the revenue. The CIT noted that the AO did not refer the case to the Transfer Pricing Officer (TPO) for determination of Arm's Length Price (ALP) as required under Section 92BA(i) of the Act. The CIT also observed that the AO did not properly examine the genuineness and reasonableness of payments made to related persons u/s 40A(2)(b). Issue 2: Referral to TPO under Section 92BA(i) The CIT noted that the assessee had transactions exceeding the ?5 Crore limit specified under Section 92BA(i). The AO was required to refer these transactions to the TPO for determination of ALP, which was not done. This failure was considered a significant lapse, rendering the assessment order erroneous. Issue 3: Omission of Section 92BA(i) The assessee argued that Section 92BA(i) was omitted by the Finance Act, 2017 w.e.f. 01.04.2017, and therefore, the provision did not exist when the CIT passed the order u/s 263 on 28.02.2020. The Tribunal agreed with this argument, citing the Karnataka High Court decision in Texport Overseas (P) Ltd. Vs. DCIT, which held that the omission of a provision without a saving clause means it should be treated as if it never existed. Issue 4: Inquiry and Verification by AO The assessee contended that the AO had issued a notice u/s 142(1) and verified the transactions with related parties u/s 40A(2)(b). However, the CIT found that the AO did not record any specific findings or satisfaction regarding the genuineness of these transactions, making the assessment order incomplete and erroneous. Issue 5: Legal Warrant for CIT's Direction The CIT directed the AO to refer the matter to the TPO despite the omission of Section 92BA(i). The Tribunal found this direction legally unwarranted, as the omitted provision could not be applied retrospectively. The Tribunal cited the Supreme Court's decision in Kolhapur Canesugar Works Ltd. Vs. Union of India, which held that the omission of a statute without a saving clause means it should be treated as if it never existed. Issue 6: Validity of CIT's Order u/s 263 The Tribunal held that the CIT's order u/s 263 was void due to the omission of Section 92BA(i). The Tribunal emphasized that the omission was unconditional and did not include any saving clause for pending proceedings. Therefore, the CIT's exercise of jurisdiction u/s 263 was not legally valid. Conclusion: The Tribunal quashed the CIT's order u/s 263, holding it void and not legally valid due to the omission of Section 92BA(i). The appeal of the assessee was allowed, and the assessment order was not found to be erroneous or prejudicial to the interests of the revenue based on the omitted provision.
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