Shri Durga Loha Bhandar vs. Pr. CIT Dehradun: Revision under Section 263 for Non-Referral to TPO – ITA 803/DEL/2021

Shri Durga Loha Bhandar vs. Pr. CIT Dehradun: Revision under Section 263 for Non-Referral to TPO – ITA 803/DEL/2021

Case Number: ITA 803/DEL/2021

Appellant: Shri Durga Loha Bhandar Private Limited, MuzaffarNagar

Respondent: Principal Commissioner of Income Tax (Pr. CIT), Dehradun

Assessment Year: 2015-16

Case Filed on: 2021-06-28

Order Type: Final Tribunal Order

Date of Order: 2023-05-04

Pronounced on: 2023-05-04

Background

This case involves Shri Durga Loha Bhandar Pvt. Ltd., which filed an appeal against the Principal Commissioner of Income Tax (Pr. CIT), Dehradun, challenging the revision proceedings initiated under Section 263 of the Income Tax Act, 1961, for the assessment year 2015-16. The Pr. CIT deemed the assessment order erroneous and prejudicial to the interest of Revenue due to the Assessing Officer’s (AO) failure to refer the matter to the Transfer Pricing Officer (TPO) for determining the Arm’s Length Price (ALP) on specified domestic transactions.

Grounds of Appeal

The appellant raised the following ground of appeal:

“That on the facts and circumstances of the case and in law, the order passed by the Ld. PCIT setting aside the assessment framed u/s 143(3) of the Act and holding the assessment order as erroneous and prejudicial to the interest of the revenue is bad in law.”

Assessment and Show Cause Notice

The assessee company filed its return of income on 30.09.2015, declaring income of Rs. 90,62,200/-. The case was selected for limited scrutiny through CASS to verify interest expenses related to exempt income under section 14A, mismatch in sales turnover reported in the audit report and ITR, and mismatch in the amount paid to related persons under section 40A(2)(b) of the Act. The assessment was completed under section 143(3) on 22.09.2017, determining the income at Rs. 94,29,100/-.

Subsequently, a show cause notice was issued under section 263 of the Act, questioning why the assessment order should not be treated as erroneous and prejudicial to the interest of Revenue due to the AO’s failure to refer the matter to the TPO.

Assessee’s Contentions

The assessee contended that the assessment order was passed after proper enquiry and verification. The AO examined the related party transactions and other reasons for the selection of the case for limited scrutiny, making an addition/disallowance of Rs. 2,50,000/- towards expenses incurred for related parties under section 40A(2)(b) of the Act. The assessee argued that it was not mandatory for the AO to refer every case to the TPO and that the AO acted within his jurisdiction.

Pr. CIT’s Order

The Pr. CIT, by order dated 26.03.2021, set aside the assessment order passed under section 143(3) and directed the AO to pass a fresh assessment order after verifying the issue, as the AO failed to refer the specified domestic transactions to the TPO for determining the ALP.

Tribunal Proceedings

The case was heard by the Income Tax Appellate Tribunal (ITAT) Delhi Bench “H” with Shri G. S. Pannu, President, and Shri Challa Nagendra Prasad, Judicial Member, presiding over the matter. The appellant was represented by Shri Alok Gupta, C.A., and Shri Vivek Chauhan, C.A., while the respondent was represented by Ms. Sapna Bhatia, CIT (DR).

Tribunal’s Decision

The ITAT noted that sub-clause (i) of section 92BA, which mandated the referral of specified domestic transactions to the TPO, was repealed by the Finance Act, 2017, with effect from 01.04.2017. This amendment was made even before the completion of the assessment under section 143(3) on 22.09.2017 and the passing of the revision order by the Pr. CIT under section 263 on 26.03.2021.

The tribunal referred to several decisions, including those of the Kolkata Bench in M/s. Raipur Steel Casting India Pvt. Ltd. and the Gauhati Bench in M/s. Bhartia-SMSIL (JV), which held that the omission of a provision without a saving clause implies that the provision was never in existence. Therefore, any action based on the omitted provision would be invalid.

The ITAT concluded that since clause (i) of section 92BA was omitted from the statute, the Pr. CIT could not exercise jurisdiction under section 263 based on that clause. The tribunal quashed the revision order passed by the Pr. CIT and allowed the appeal of the assessee.

Conclusion

In conclusion, the ITAT ruled in favor of Shri Durga Loha Bhandar Pvt. Ltd., quashing the revision order passed by the Pr. CIT under section 263 for non-referral to the TPO. The tribunal’s decision was based on the fact that clause (i) of section 92BA was omitted from the statute, rendering any action based on it invalid. This case highlights the significance of legislative amendments and their impact on ongoing and future proceedings.

Order Pronounced in the Open Court on 04/05/2023

Signed:
G. S. Pannu, President
C. N. Prasad, Judicial Member

Assistant Registrar, ITAT, New Delhi

Shri Durga Loha Bhandar vs. Pr. CIT Dehradun: Revision under Section 263 for Non-Referral to TPO – ITA 803/DEL/2021