2021 (9) TMI 691 - AT - Income Tax

Revision u/s 263 - non reference to TPO made - cases as selected for scrutiny on non transfer pricing risk parameters - Limited or complete scrutiny - case of the assessee was selected for complete scrutiny through CASS and the relevant CASS reason was large outward remittance to a non-resident not being a company or a foreign company (form 15CA) - whether the case has been selected on the basis of TP risk parameters or on the basis of non transfer pricing risk parameters ? - HELD THAT - On perusal of notice issued u/s. 143(2) dated 13.03.2016, there is a clear mention on the face of the notice that case of the assessee was selected for limited scrutiny under CASS which also find clear assertion in the assessment order where the AO has clearly stated that the case of the assessee was selected for limited scrutiny. It is therefore a case of limited scrutiny and not that of complete scrutiny where the case has been selected under CASS. Not all international transactions as reported in Form 15CA relates to transactions with associated enterprises and only a part of such international transactions relates to associated enterprises - where there are separate and distinct parameters and coding employed through CASS to selected cases on TP risk parameters and non-TP risk parameters and where not all international transactions as reported in Form 15CA are with associated enterprises, it cannot be said that the case of the assessee was selected through CASS on the basis of TP risk parameters and the AO was mandatorily required to refer the matter to the TPO for determination of ALP. We find that under similar circumstances, as in case of Amira Pure Foods Private limited 2017 (12) TMI 189 - ITAT DELHI where the case of the assessee was selected on account of mismatch between income declared in ITR and amount of remittance received (Form 15CA), negated the arguments advanced on behalf of the Revenue that it was mandatory for the AO to refer to TPO since the case of the assessee was selected for scrutiny on account of international transactions. The Instruction No. 3 of 2016 in para 3.3 states that where cases are selected for scrutiny on non transfer pricing risk parameters but also having international transactions or specified domestic transactions, shall be referred to TPO in specified circumstances. The said clause 3.3 of the Instruction specifies three situations and we find that none of the situation is applicable in the case of the assessee. The first situation requires that where there are international transactions or specified transactions or both and the taxpayer has not filed any report required to be submitted under section 92E. This is not a situation in the case of the assessee as the report was duly submitted. The second situation where in previous assessments if any addition on account of transfer pricing adjustment of more than ten crores and addition being upheld in appellate proceedings is also not applicable in the case of the assessee. Thirdly, this is not a case where search or seizure or survey operations had been carried out. In such a situation, it cannot be said that the assessment order is erroneous as reference to TPO was not made. The necessary enquiries and examination as reasonably expected have been carried out by the Assessing officer and he has taken a prudent, judicious and reasonable view after considering the entire material available on record as well as following the CBDT Instruction no. 3 of 2016 and the order so passed u/s. 143(3) cannot be held as erroneous in so far as prejudicial to the interest of Revenue. The impugned order passed by the ld. PCIT u/s. 263 is accordingly set aside - Decided in favour of assessee.

Issues Involved:
1. Legality of the order passed under section 263 by the Principal Commissioner of Income Tax (Pr. CIT).
2. Jurisdictional error by the Pr. CIT in assuming proceedings under section 263.
3. Whether the original assessment order was erroneous and prejudicial to the interest of the Revenue.
4. Necessity of reference to the Transfer Pricing Officer (TPO) as per CBDT Instruction No. 03/2016.
5. Adherence to principles of natural justice in the proceedings under section 263.

Detailed Analysis:

1. Legality of the Order Passed Under Section 263:
The assessee challenged the legality of the order passed under section 263 by the Pr. CIT, Udaipur, arguing that the original assessment order passed by the Assessing Officer (AO) was neither erroneous nor prejudicial to the interest of the Revenue. The AO had made adequate inquiries and undertaken necessary verifications based on the details provided by the assessee during the assessment proceedings.

2. Jurisdictional Error by the Pr. CIT:
The assessee contended that the Pr. CIT grossly erred in assuming jurisdiction under section 263, as the AO had taken one of the permissible views as per law. The Pr. CIT was accused of reappraising evidence and changing the opinion, which is not within the parameters of revisional jurisdiction under section 263.

3. Erroneous and Prejudicial to the Interest of Revenue:
The Pr. CIT held that the AO's failure to make a reference to the TPO rendered the assessment order erroneous and prejudicial to the interest of the Revenue. The Pr. CIT argued that the case was selected for complete scrutiny, and the AO should have verified all issues, including international transactions with Associated Enterprises (AEs).

4. Necessity of Reference to the TPO:
The Pr. CIT argued that the case involved large outward remittances to a non-resident, which required verification of international transactions with AEs. The Pr. CIT cited CBDT Instruction No. 03/2016, which mandates reference to the TPO in cases selected for scrutiny on transfer pricing risk parameters. The assessee countered that the case was selected for limited scrutiny on non-transfer pricing risk parameters (code TX 12.01) and that the AO had followed the guidelines and instructions issued by the CBDT.

5. Adherence to Principles of Natural Justice:
The assessee argued that the Pr. CIT violated the principles of natural justice by setting aside the assessment order without providing a proper basis for how the order was erroneous and prejudicial to the interest of the Revenue. The Pr. CIT was also accused of recording findings contrary to the material available on record.

Tribunal's Findings:

The Tribunal noted that the case was selected for limited scrutiny under CASS to examine large outward remittances to a non-resident and receipt of large value foreign remittance. The AO had made extensive inquiries and verifications during the assessment proceedings, and the assessee had provided all necessary documentary evidence and explanations.

The Tribunal emphasized that the AO had followed the CBDT guidelines and instructions, and the case was selected on non-transfer pricing risk parameters. The Tribunal found that the Pr. CIT had incorrectly held the assessment order as erroneous and prejudicial to the interest of the Revenue, as the AO was not mandated to refer the matter to the TPO under the circumstances specified in Instruction No. 03/2016.

The Tribunal also highlighted that the Pr. CIT had not specified which conditions of the CBDT instructions were violated by the AO. The Tribunal referred to similar cases where it was held that the AO was not bound to make a reference to the TPO if the case was selected on non-transfer pricing risk parameters and the AO had followed the CBDT instructions.

Conclusion:
The Tribunal concluded that the AO had conducted necessary inquiries and taken a judicious view based on the material available on record. The assessment order was not erroneous or prejudicial to the interest of the Revenue. The Tribunal set aside the order passed by the Pr. CIT under section 263 and sustained the original assessment order. Both appeals filed by the assessee were allowed.

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