Appeal allowed, PCIT's order quashed under section 263.

The Tribunal allowed the appeal filed by the assessee, quashing the Principal Commissioner of Income Tax's order under section 263. It was held that the PCIT's assumption of jurisdiction based on Explanation 2(c) was not valid for the Assessment Year 2014-15 as the provision is prospective from AY 2016-17 onwards. The original assessment order was deemed not erroneous or prejudicial to revenue, leading to the dismissal of the PCIT's order.

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Issues Involved:
1. Assuming Jurisdiction by PCIT.
2. Application of Explanation 2 to Section 263 of the Income Tax Act.
3. Reliance on CBDT Instruction No. 3/2016 for reference to TPO.
4. Threshold limit for Specified Domestic Transactions.
5. Validity of Assessment Proceedings post 01.04.2017.
6. Miscellaneous grounds.

Issue-wise Analysis:

1. Assuming Jurisdiction by PCIT:
The assessee contested that the Principal Commissioner of Income Tax (PCIT) was not justified in assuming jurisdiction under section 263, arguing that the original assessment order was not erroneous. The PCIT's assumption of jurisdiction was claimed to be driven by procedural lapses rather than substantive issues, and that the Assessing Officer (AO) had already examined the relevant details.

2. Application of Explanation 2 to Section 263 of the Income Tax Act:
The main grievance of the assessee was confined to Explanation 2(c) to Section 263, which became effective from 01.06.2015. The assessee argued that this provision does not apply retrospectively to the Assessment Year (AY) 2014-15. The Tribunal agreed with the assessee, noting that Explanation 2(c) is prospective and applicable from AY 2016-17 onwards. Therefore, the PCIT could not exercise jurisdiction based on this provision for AY 2014-15.

3. Reliance on CBDT Instruction No. 3/2016 for reference to TPO:
The PCIT's order was based on the AO's failure to refer the case to the Transfer Pricing Officer (TPO) for determination of the arm's length price (ALP) as per CBDT Instruction No. 3/2016. The Tribunal noted that the PCIT's jurisdiction was exercised solely on the basis of Explanation 2(c), which was not applicable for AY 2014-15. Hence, the reliance on this instruction was not valid for the year under consideration.

4. Threshold limit for Specified Domestic Transactions:
The assessee argued that the PCIT did not consider the threshold limit of Rs. 15 Crores for Specified Domestic Transactions, as provided in Instruction No. 3 of 2003. The Tribunal did not delve deeply into this issue, as the main ground of appeal regarding Explanation 2(c) was sufficient to quash the PCIT's order.

5. Validity of Assessment Proceedings post 01.04.2017:
The assessee contended that the assessment proceedings related to Domestic Transfer Pricing became null and void after 01.04.2017, as the transactions were withdrawn from the ambit of Specified Domestic Transactions. The Tribunal did not specifically address this issue, as the main ground of appeal was sufficient to decide the case.

6. Miscellaneous grounds:
The assessee reserved the right to add, alter, or vary any grounds of appeal. However, these miscellaneous grounds were not pressed during the hearing.

Conclusion:
The Tribunal concluded that the PCIT's order under section 263 was based on Explanation 2(c), which is prospective and not applicable to AY 2014-15. Therefore, the original assessment order dated 09.11.2016 was neither erroneous nor prejudicial to the interest of revenue. The appeal filed by the assessee was allowed, and the PCIT's order was quashed.

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