Tribunal rules in favor of assessee, quashing tax order under section 263 for omission error.

The Tribunal quashed the Principal Commissioner of Income Tax's order invoking section 263, holding that the omission of section 92BA(i) meant that the Assessing Officer's failure to refer the specified domestic transactions to the Transfer Pricing Officer was not erroneous or prejudicial to the revenue. The appeal filed by the assessee was allowed, and the order impugned by the Principal Commissioner of Income Tax was set aside.

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Issues Involved:
1. Invocation of provisions of section 263 of the Income Tax Act.
2. Failure to refer specified domestic transactions to the Transfer Pricing Officer (TPO).
3. Assessment order passed without necessary enquiries and investigations.
4. Direction to the Assessing Officer to refer specified domestic transactions to the TPO and pass a fresh assessment order.
5. Omission of section 92BA(i) and its impact on the case.

Detailed Analysis:

1. Invocation of Provisions of Section 263:
The primary issue revolves around whether the Principal Commissioner of Income Tax (Pr. CIT) was justified in invoking section 263 of the Income Tax Act, which allows the Commissioner to revise any order passed by the Assessing Officer (AO) if it is deemed erroneous and prejudicial to the interest of the revenue. The assessee argued that for section 263 to be invoked, both conditions—error and prejudice to revenue—must be satisfied. The assessee cited several judicial precedents to support this claim, including the Hon’ble Supreme Court's ruling in the case of Malabar Industrial Co. Ltd., which emphasized that both conditions must coexist for section 263 to be applicable.

2. Failure to Refer Specified Domestic Transactions to the TPO:
The Pr. CIT observed that the AO did not refer the specified domestic transactions to the TPO to verify if they were at arm’s length price, which is a statutory requirement. The assessee contended that the major transactions were with ARKA Carbon Fuels Pvt. Ltd., which had already been assessed by the jurisdictional TPO with no adjustments required. Therefore, the transactions were at arm’s length price, and no prejudice was caused to the revenue.

3. Assessment Order Passed Without Necessary Enquiries and Investigations:
The Pr. CIT noted that the AO passed the assessment order without making necessary enquiries and investigations into the specified domestic transactions. The assessee argued that there was no tax arbitrage as all parties involved were taxed at the maximum rate of 30%, and hence, there was no loss of revenue. The Pr. CIT, however, maintained that the AO’s failure to follow the mandate of law and refer the transactions to the TPO rendered the assessment order erroneous and prejudicial to the interest of the revenue.

4. Direction to the AO to Refer Specified Domestic Transactions to the TPO and Pass a Fresh Assessment Order:
The Pr. CIT set aside the assessment order and directed the AO to refer the specified domestic transactions to the TPO and pass a fresh assessment order. The assessee challenged this direction, arguing that the transactions had already been examined by the TPO, and no adjustments were required. The Tribunal examined whether the AO is duty-bound to accept the TPO’s adjustments and concluded that the AO must refer specified domestic transactions to the TPO as per the statutory mandate.

5. Omission of Section 92BA(i) and Its Impact on the Case:
The assessee argued that section 92BA(i), which governed specified domestic transactions, was omitted w.e.f. 01.04.2017, and thus, it should be deemed to have never been part of the statute. The Tribunal referred to the Hon’ble Supreme Court’s decision in General Finance Co., which held that the omission of a provision should be considered as if it never existed unless there is a saving clause. The Tribunal concluded that since the provision was omitted, the AO’s failure to refer the transactions to the TPO could not be considered erroneous or prejudicial to the revenue.

Conclusion:
The Tribunal quashed the Pr. CIT’s order invoking section 263, holding that the omission of section 92BA(i) meant that the AO’s failure to refer the specified domestic transactions to the TPO was not erroneous or prejudicial to the revenue. The appeal filed by the assessee was allowed, and the order impugned by the Pr. CIT was set aside.

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