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TMI Blog2022 (8) TMI 1224X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence, the re-assessment proceedings deserve to be quashed on this count itself. It is trite law that jurisdiction of Section 147 of the Act for the ld. AO is to be tested based on reasons recorded by the ld. AO. It is also pertinent to note that the TPO did not make any disallowance / addition for A.Y.2012-13 in respect of fresh reference made during re-assessment proceedings with regard to over pricing of import of pulses from the associated enterprises. This fact is evident from the order passed by the ld. TPO u/s. 92CA(3). Though it is a fact on record that for A.Y.2014-15, TPO had made certain addition on the said transaction vide his order dated 31/10/2017, still he chose not to make any addition in respect of the very same transaction of import of pulses from Aster DMCC, Dubai for A.Y.2012-13 while passing his order on 31/01/2020. These facts collectively go to prove that the entire reasons recorded by the ld. AO for A.Y.2012-13 is without any basis and is merely decided on suspicion, surmise and conjecture not supported by any tangible material. In any case, as stated earlier, no addition has been made by the ld. AO in the re-assessment proceedings with regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. Commissioner of Income Tax (Appeals)-47, Mumbai in appeal No.CIT(A)-47, Mumbai/10376/2019-20 CIT(A)-47, Mumbai/10002/2020-21 respectively dated 15/03/2022 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s. 147 u/s.143(3) r.w.s. 144C respectively of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 07/02/2020 19/03/2020 respectively by the ld. Jt. Commissioner of Income Tax, I/c Central Circle- 1(2), Mumbai (hereinafter referred to as ld. AO). Identical issues are involved in both these appeals and hence, they are taken up together and disposed of by this common order for the sake of convenience. ITA No.1040/Mum/2022 (A.Y.2012-13) Assessee Appeal 2. The first ground raised by the assessee is challenging the validity of jurisdiction u/s.147 of the Act by the ld. AO for reopening the assessment. 3. We have heard rival submissions and perused the materials available on record. The primary facts as stated in the assessment order by the ld. AO are that the assessee is engaged in the business of immovable properties as owners, lessors, licensors, developers, builders and caretakers etc., The assessee is also a memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presence as well as in the domestic market, created a monopolistic condition by procuring and hoarding stocks of pulses, both nationally and globally. They rigged domestic market rates to an unprecedented level and thereafter offloaded their stock; which were procured at low rate. The inordinate profit earned in this manner was not offered to tax in India and was either siphoned off abroad or suppressed by introducing entry operators. The findings of the Investigation Wing regarding the Assessee Company's activities in brief as under a) Edelweiss is a leading player in Commodity, Currency and Stock markets both in India and abroad. It has NBFCs in its group. Group owns a no. of subsidiaries in foreign countries mostly tax havens viz. Mauritius, Dubai, Singapore, Cyprus etc. b) Edelweiss group routed its imports through overseas subsidiaries to siphon off money abroad which was utilized for trading in overseas exchanges. It was also instrumental in manipulating prices of Chana Castor on NCDEX. Chana prices se bench mark for other pulses in the market. c) Aster DMCC Dubai is an Associate Concern i.e. Subsidiary of Edelweiss Commodities Services Limited, as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore whom the proceeding u/s 92CA of the Income Tax Act, 1961, for A.Y. 2014-15 were in progress. Subsequently the TPO passed an Order u/s 92CA(3) of the Income Tax Act, 1961, on 31.10.2017. Vide this Order the TPO had made variation of Rs.19,15,43,189/-, which includes variation on account of purchase of agri commodities by the assessee company from Aster DMCC for the A.Y. 2014-15. However, on perusal of the TPO Order passed u/s 92CA(3) of the Income Tax Act, 1961, dated 28.01.2016, for A.Y. 2012-13, it is observed that unlike TPO Order for AY. 2014-15, there is no addition on account of purchases made through Aster Commodities DMCC. During the year under consideration the Assessee Company made purchases of Rs.848,22,63,265/- from M/s Aster Commodities DMCC. Applying the bench-mark of TPO Order for A.Y. 2014-15 u/s 92CA(3) of the Income Tax Act, 1961, wherein TPO has made variation @ 10.8% of the purchase transactions, coupled with findings of the Investigation Wing, the variation in income on account of transactions with Aster Commodities DMCC for the year under consideration works out to Rs.91.60 crores approximately. Thus it has caused escapement of income on this account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the ld. AO, then the entire satisfaction of the ld. AO of reason to believe and formation of belief , within the meaning of section 147 of the Act, fails. Hence, the re-assessment proceedings deserve to be quashed on this count itself. Reliance in this regard is rightly placed by the ld. AR on the decision of the Hon‟ble Jurisdictional High Court in the case of CIT vs. Jet Airways (I) Ltd., reported in 331 ITR 236 (Bom). The relevant operative portion is reproduced hereunder:- 15. Parliament, when it enacted the Explanation (3) to section 147 by the Finance (No. 2) Act, 2009 clearly had before it both the lines of precedent on the subject. The precedent dealt with two separate questions. When it effected the amendment by bringing in Explanation 3 to section 147, Parliament stepped in to correct what it regarded as an interpretational error in the view which was taken by certain courts that the Assessing Officer has to restrict the assessment or reassessment proceedings only to the issues in respect of which reasons were recorded for reopening the assessment. The corrective exercise embarked upon by Parliament in the form of Explanation 3 consequently provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ( such income ) which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which, comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee. 3.3. We further find that the Hon‟ble Jurisdictional High Court in the case of PCIT vs. Lark Chemicals (P) Ltd., reported in 99 taxmann.com 311(Bom) had also taken a similar view. The Special Leave Petition (SLP) preferred by the Revenue against this decision before the Hon‟ble Supreme Court has been dismissed vide order dated 05/10/2018 by the Hon‟ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich were lacking in the material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced. 3.4. It is also pertinent to note that the ld. Transfer Pricing Officer (ld. TPO) did not make any disallowance / addition for A.Y.2012-13 in respect of fresh reference made during re-assessment proceedings with regard to over pricing of import of pulses from the associated enterprises. This fact is evident from the order passed by the ld. TPO u/s. 92CA(3) of the Act dated 31/01/2020 which is enclosed in pages 89 90 of the paper book. Though it is a fact on record that for A.Y.2014-15, the ld. TPO had made certain addition on the said transaction vide his order dated 31/10/2017, still he chose not to make any addition in respect of the very same transaction of import of pulses from Aster DMCC, Dubai for A.Y.2012-13 while passing his order on 31/01/2020. These facts collectively go to prove that the entire reasons recorded by the ld. AO for A.Y.2012-13 is without any basis and is merely decided on suspicion, surmise and conjecture not supported by any tangible material. In any case, as stated earlier, no a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(2A) of the Act. Based on this TPO‟s order, the ld. AO completed the re-assessment u/s.143(3) r.w.s. 147 of the Act on 19/03/2020 wherein the transfer pricing addition in respect of import of goods from Aster DMCC, Dubai amounting to Rs.33,46,92,911/- was made. Apart from this, further disallowances were also made by the ld. AO in the re-assessment proceedings. 6.1. We find that the assessee preferred a rectification petition u/s.154 of the Act before the ld. TPO stating that gross profit percentage on sales has been erroneously considered by the ld. TPO. The assessee submitted that actual gross profit on sales earned by the assessee is 2.58% whereas the ld. TPO had considered the gross profit at 2.36%.The assessee pleaded before the ld. TPO that if the gross profit of 2.58% is considered, then the assessee would be within the (+/-) 3% tolerance band provided in the statute and hence, there would be no requirement for making any transfer pricing adjustment. The assessee vide its 154 application dated 07/02/2020 duly submitted the complete workings of gross profit margin earned by it on the sales made out of purchases made from Aster before the ld. TPO. The ld. TPO having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justment was brought to Rs.‟Nil‟. The original transfer pricing adjustment made by the ld. TPO was considered by the ld. AO in the final assessment order framed by him on 19/03/2020. Pursuant to the rectification carried out by the ld. TPO by making transfer pricing adjustment of Rs. Nil, it becomes very clear that there was an error in the re-assessment order dated 19/03/2020 framed by the ld. AO. We hold that the order passed u/s.154 of the Act is only to rectify an error that is already prevailing in the previous order. Hence, the rectified order will take effect from the date of original order i.e. in this case, the re-assessment order dated 19/03/2020. Accordingly, it could be safely concluded that in the re-assessment order dated 19/03/2020, the ld. AO could not have made any transfer pricing adjustment and actually not made any transfer pricing adjustment with regard to purchase transactions from Aster DMCC Dubai. Reliance in this regard is placed on the decision of the Hon‟ble Madras High Court in the case of S. Arthanari vs. ITO reported in 83 ITR 828 wherein the Hon‟ble High Court by placing reliance on yet another decision of the Hon‟ble Mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 ; 19 STC 144 (SC) and in the case of Commissioner of Income-tax v. Amritlal Bhogilal Co. [1958] 34 ITR 130 (SC). In the instant case whether the petitioner was a company in which the public were substantially interested or not is a point which could have been the subject-matter of appeal and decision by the Appellate Assistant Commissioner under clause (c) of section 246 of the Income-tax Act, 1961. In the aforesaid view of the matter the order of the Income-tax Officer on this aspect, namely, whether the public were substantially interested in the company, merged in the order of the Appellate Assistant Commissioner. Thereafter, the Commissioner was incompetent to revise the said order. Reliance in this connection may be placed on the observation of Chagla C.J. in the case of Commissioner of Income-tax v. Tejaji Farasram Kharawala [1953] 23 ITR 412, 420 (Bom). If the original assessment order as rectified was the effective and operative order, the same was the subject-matter of appeal before the Appellate Assistant Commissioner and the Appellate Assistant Commissioner having passed the order thereafter, that was the only effective order and the original order had merged in that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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