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TMI Blog2021 (9) TMI 691X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad in facts. 2. That on the facts and in the circumstances of the case, the Ld. Pr. CIT, Udaipur grossly erred in assuming jurisdiction and initiating proceeding under section 263 of the Act since the order passed by the ld. AO was neither 'erroneous' nor 'prejudicial' to the interest of the Revenue as the AO had not only made adequate inquiries, but had also undertaken necessary verification on basis of the details sought from the assessee during the course of the assessment proceedings and had taken one of the permissible views as per law. 3. That on the facts and in the circumstances of the case, the Ld. Pr. CIT, Udaipur grossly erred in assuming jurisdiction merely change of opinion by reappraising evidence which is not within the parameters of revisional jurisdiction u/s. 263 of the Act. 4. That on the facts and in the circumstances of the case, the Ld. Pr. CIT, Udaipur grossly erred in holding that the case of the assessee was covered by para 3.2 of instruction No. 03/2016 dated 10.03.2016 issued by CBDT. 5. That on the facts and in the circumstances of the case, the Ld. Pr. CIT, Udaipur grossly erred in holding that non making referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the AO after making extensive enquiry and verification of the documentary evidences and explanations furnished by the assessee reached the judicial conclusion and accepted the returned income as declared by the assessee. It was submitted that the AO had also followed the guidelines issued by the Board in respect of scope of enquiry and instruction No. 3/2016 dated 10/03/2016. 5. The ld. AR drawn our reference to the show-cause notice dated 31/12/2020 issued by the ld. PCIT, Udaipur and the relevant contents thereof read as under: 4) Your case for A.Y. 2015-16 was required to be referred to the TPO for another reason also. The fact is that your case for this year was selected for complete scrutiny under the CASS and one of the reasons for selection of your case (i.e. as per code TX 12.01) was Large Outward Remittances to a Non-resident not being a company or to a foreign company (form 15CA) and also receipt of large value foreign remittance. These reasons involve several issues i.e. sources of outward foreign remittance, appropriate withholding and reporting obligation and also International Transactions with your Associated Enterprises. However, the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reasons for scrutiny selection under CASS shows that neither the case of the assessee has been selected on the basis of transfer pricing risk parameters nor the reasons for selection fall under the aforementioned second condition stipulated under the said instruction and therefore, it was not mandatory for the AO to refer the transactions to the TPO. Further, the ld. PCIT had not been recorded any finding that the conditions mentioned in the said guideline for mandatory reference by the AO which should have been made to the TPO has been violated. In fact, the AO has himself examined the entire report and transfer pricing documentation and having satisfied with such documents, and hence there was no requirement for referring it to the TPO. Thus, no error has been committed by the AO for not making the reference to the TPO. 8. It was further submitted that the assessee had categorically submitted and also from the record, it is established that the case was selected for limited scrutiny. However the ld. PCIT had mentioned that the case was selected for complete scrutiny. Further also the ld. PCIT on the basis of documentary evidences and explanations furnished before the AO a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier assessment years that has been set aside by the ITAT, High Court or Supreme Court on the issue of said adjustment Reference to the TPO is mandatory 11. It was accordingly submitted that as per the CBDT Instruction, all cases selected for scrutiny, either under the Computer Assisted Scrutiny Selection [CASS] system or under the compulsory manual selection system (in accordance with the CBDT's annual instructions in this regard for example, Instruction No. 6/2014 for selection in F.Y 2014-15 and Instruction No. 8/2015 for selection in F.Y 2015-16), on the basis of transfer pricing risk parameters [in respect of international transactions or specified domestic transactions or both] have to be referred to the TPO by the AO, after obtaining the approval of the jurisdictional Principal Commissioner of Income-tax (PCIT) or Commissioner of Income-tax (CIT). The fact that a case has been selected for scrutiny on a TP risk parameter becomes clear from a perusal of the reasons for which a particular case has been selected and the same are invariably available with the jurisdictional AO. Thus, if the reason or one of the reasons for selection of a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 13.12.2019) AIC Iron Industries Pvt. Ltd. Vs. PCIT-1, Kolkata (ITA No. 1332/Kol/2019 dated 31.12.2019) 14. It was further submitted that in the case of assessee, the AO had made extensive and judicial enquiry and also respectfully followed the guidelines issued by the Board. Therefore it is established beyond doubt that the ld. PCIT in his order u/s. 263 had exceeded the jurisdiction by holding the order of AO as erroneous in so far as prejudicial to the interest of Revenue on those items which are not emanating from the reasons for limited scrutiny. In support, reliance was placed on following decisions:- Mahendra Singh Dhankhar (HUF) Vs. ACIT (2021) 35 NYPTTJ 458 (Jp) M/s. Storewell Construction Engineers Vs. Pr. CIT (ITA No. 768/PUN/2019 dated 05.12.2019) Rakesh Khandelwal Vs. CIT (ITA No. 204/Ind/2019 dated 29.01.2020) CIT Vs. M/s. Green Triveni Developer (D.B. Income Tax Appeal No. 114/2015 dated 24/10/2017) It was accordingly submitted that the order passed by ld. PCIT may kindly be quashed and set-aside. 15. Per contra, the ld. CIT/DR submitted that the case of the assessee was selected for complete scrutiny through CASS and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot required to be verified. 17. It was further submitted that the case of the assessee was selected to examine the large outwards remittance and this value of transaction of ₹ 44.79 Crores involved TP risk parameters because of the fact that transactions were made by the assessee with its associated enterprises and hence the AO was required to refer to the TPO to compute Arm's length price in respect of such transactions as entered into by the assessee with its associated enterprises as para no. 3.2 of the Instruction No. 3/2016 dated 10.03.2016 says that all cases selected for scrutiny, under the Computer Assisted Scrutiny selection [CASS] system or under the compulsory manual selection system on the basis of transfer pricing risk parameters in respect of international transactions or specified domestic transactions or both have to be referred to the TPO by the AO. Since there was TP risk parameter in international transactions with the AEs because of outward remittance and hence such international transactions with the AEs were required to be referred to the TPO for computation of Arm's length Price by the AO which he has failed to do. 18. It was submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .79 Crores with AEs after obtaining the approval from the concerned/jurisdictional CIT/PCIT as required u/s. 92CA of the I.T. Act and obtain the report from the TPO and in case if any adjustment/addition is required to be made to the total income of the assessee on the basis of report of the TPO, then the AO is directed to make such adjustment or addition to the total income of the assessee in accordance with the provisions of Income Tax Act and Income Tax Rules by passing the fresh assessment order u/s. 143(3) of the I.T. Act for A.Y. 2015-16. It was accordingly submitted that the order u/s. 143(3) in the case of assessee was rightly held to be erroneous in so far as it is prejudicial to the interest of revenue on account of non-reference to the TPO and therefore such assessment order u/s. 143(3) was rightly set-aside by the ld. PCIT and there is thus no infirmity in the order so passed by the ld. PCIT and the same should be upheld and the appeal of the assessee be dismissed. 19. We have heard the rival contentions and perused the material available on record. The power to determine the Arm's Length Price (ALP) in an international transaction or specified domestic transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of the Income-tax Act and findings regarding transfer pricing issues in respect of international transactions or specified domestic transactions or both have been recorded by the Investigation Wing or the AO; or a case involving a transfer pricing adjustment in an earlier assessment year that has been fully or partially set-aside by the ITAT, High Court or Supreme Court on the issue of the said adjustment shall invariably be referred to the TPO for determination of the ALP. 21. It has been further provided in the aforesaid Instruction that in all these cases where reference to TPO is required to be made, the AO must, as a jurisdictional requirement, record his satisfaction, after providing an opportunity to the assessee and disposing off objections if any by way of speaking order, that there is an income or a potential of an income arising and/or being affected on determination of the ALP of an international transaction or specified domestic transaction before seeking approval of the PCIT or CIT to refer the matter to the TPO for determination of the ALP. 22. It has been further provided in the aforesaid Instruction that for administering the transfer pricing regime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for such selection was TX 12.01. It was submitted that the said parameter on which the case was selected was non-transfer pricing parameter as the code used for selection of cases for transfer pricing risk parameter is TP10.03 and which is different from the code TX 12.01 used in the instant case and secondly, there is no narration/mention of transfer pricing risk parameter on perusal of the reasons so recorded for selection of case. It was further submitted that Form 15CA is for reporting of transactions relating to foreign remittance and such remittance may be to associated enterprises or non-associated enterprises and therefore, mere selection of transactions for examination as reported in Form 15CA cannot be linked with transfer pricing risk parameters which is restricted to transactions with associated enterprises. 26. It has been further submitted on behalf of the assessee that the case of the assessee doesn't falls under any of the situations/circumstances as so specified in the Instruction no. 3/2016 which require the AO to refer the matter to the TPO and in this regard, the AO has duly examined the matter and has called for information/documentation from the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of case under limited scrutiny, it is noted that the case was selected to examine large value remittance to non-resident not being a company or a foreign company (Form 15CA) and receipt of large value foreign remittance. Admittedly, the code used to examine large value remittance to non-resident not being a company or a foreign company (Form 15CA) was TX 12.01 which is different from the code TP10.03 used for selection of cases for transfer pricing risk parameter. Further, on perusal of Form 15CA, submitted before the AO during the course of assessment proceedings and also placed before us as part of the paperbook, we find that the assessee has disclosed international transactions towards purchases from non-resident entities and corresponding foreign remittances to the tune of ₹ 1,49,05,62,623/-. Further, on perusal of Form 3CEB, it is noted that the assessee has disclosed international transactions with associated enterprises to the tune of ₹ 44,79,25,787/-. We therefore find that 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 enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra), where one of the reasons for selection of case was mismatch in amount paid to related persons u/s. 40A(2)(b) reported in Form 3CEB and ITR, the Coordinate Kolkata Benches didn't accept the arguments advanced on behalf of the Revenue that it was mandatory for the AO to refer to TPO as per para 3.2 of Instruction no. 3 of 2016 and has observed as under: 23. We find that the assessee's case was selected under CASS inter alia on the parameter that Mismatch in amount paid to related persons u/s. 40A (2) (b) reported in Audit report and ITR . We note that with reference to this CASS reason the assessee was required to provide its explanation about the alleged mismatch of the figures reported in terms of Section 40A(2)(b) in ITR and Tax Audit Report. We note that explanation in that regard was furnished vide Para 9 of assessee's letter dated 09.12.2016 [Page 109 of paper book]. It was explained before the lower authorities as also before us that in clause 9A of Part A-OI of the Income-tax Return in ITR-6, the assessee was required to specify the quantum of the amounts debited to the Profit Loss Account to the extent disallowable u/s. 40A, to the persons specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of specified domestic transactions or large value of international transactions so as to warrant an inference that the case was selected on transfer pricing risk parameter. On the contrary, the CASS reason merely claimed that there was mismatch in the amount paid to related persons u/s. 40A(2)(b) of the Act reported in Audit report and ITR. From plain reading of the said CASS reason, we are of the view that no prudent person properly instructed in law would have inferred that the aforesaid parameter constituted 'transfer pricing risk parameter' so as to warrant mandatory reference u/s. 92CA of the Act in terms of the Para 3.2 of CBDT Instruction No. 3 of 2016 and failure to make TP reference made the assessment order erroneous. We further find that once the incorrect presumption on Ld. Pr. CIT's part was highlighted by the assessee in it's submission then in the impugned order the Ld. Pr. CIT himself completely digressed from the reason set out in the SCN but none the less justified his action on the ground that the reference to TPO was necessary because the assessee's case was selected for scrutiny under the category of 'complete scrutiny'. We ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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. 33. In light of aforesaid discussions and in the entirety of facts and circumstances of the case, we are of the considered view that 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 recor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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