2020 (7) TMI 35 - AT - Income Tax

Tribunal rejects Section 263 jurisdiction, rules transactions not 'specified domestic transactions'

The Tribunal held that the Principal Commissioner of Income Tax's invocation of jurisdiction under Section 263 was not justified as the transactions did ... Supervisory jurisdiction under Section 263 of the Income Tax Act - specified domestic transaction (SDT) under Section 92BA of the Income Tax Act - requirement to refer to Transfer Pricing Officer (TPO) - Form No. 3CEB filing does not ipso facto attract SDT provisionsSupervisory jurisdiction under Section 263 of the Income Tax Act - specified domestic transaction (SDT) under Section 92BA of the Income Tax Act - requirement to refer to Transfer Pricing Officer (TPO) - Form No. 3CEB filing does not ipso facto attract SDT provisions - Whether the Pr. Commissioner of Income Tax was justified in exercising powers under Section 263 to set aside the assessment on the ground that the Assessing Officer failed to refer the case to the TPO in respect of alleged specified domestic transactions. - HELD THAT: - The Tribunal found as an admitted fact that the transactions under scrutiny were sales made by the assessee to a sister concern. Clause (i) of Section 92BA, as it stood at the relevant time, deals with expenditure in respect of payments made to specified persons and thus does not encompass sales by the assessee to an associate enterprise. The assessee also did not claim benefits under Section 80IA or trigger any other heads of Section 92BA(ii)-(vi). Filing of Form No.3CEB, in itself, does not convert otherwise inapplicable transactions into specified domestic transactions; where the assessee demonstrates that the statutory definition of SDT is not met, mere procedural non-referral to the TPO does not render the assessment order erroneous or prejudicial to revenue. The Revisional Commissioner could and should have satisfied himself of these prima facie assertions before invoking revisionary powers. Because the ingredients of Section 263 were not fulfilled on the facts - there being no applicability of Section 92BA to the transactions in question - the exercise of revisionary jurisdiction to set aside the assessment was held unjustified.Revisional order under Section 263 quashed; assessment order passed under Section 143(3) restored as Section 263 requirements were not satisfied.Final Conclusion: The appeal is allowed. The revisional order under Section 263 setting aside the assessment is quashed and the assessment framed under Section 143(3) is restored for AY 2014-15. Issues Involved:1. Assumption of jurisdiction under Section 263 of the Income Tax Act, 1961.2. Applicability of Section 92BA regarding 'specified domestic transactions' (SDT).3. Validity of the assessment order under Section 143(3) in light of the alleged non-referral to the Transfer Pricing Officer (TPO).Issue-wise Detailed Analysis:1. Assumption of jurisdiction under Section 263 of the Income Tax Act, 1961:The Pr. Commissioner of Income Tax (Pr.CIT) invoked Section 263 to set aside the assessment order passed under Section 143(3) on the grounds that the Assessing Officer (AO) failed to refer the matter to the Transfer Pricing Officer (TPO) despite the assessee filing Form 3CEB for specified domestic transactions (SDT). The Pr.CIT issued a show cause notice stating that the assessment order was erroneous and prejudicial to the interests of the Revenue due to non-compliance with mandatory referral to the TPO as per Board’s instruction No. 3/2016. The assessee contested this, arguing that the transactions reported in Form 3CEB did not fall within the scope of SDT as defined under Section 92BA, and thus, no referral to the TPO was warranted.2. Applicability of Section 92BA regarding 'specified domestic transactions' (SDT):The assessee argued that the primary transaction under scrutiny, which involved sales to an Associate Enterprise (AE) amounting to Rs. 19,36,86,462, did not fall under the definition of SDT as per Section 92BA(i) which pertains to 'expenditure' and not 'sales'. The assessee also pointed out that the remaining transaction of Rs. 18,000 towards rental expenditure did not meet the threshold of Rs. 5 Crore for SDT. The assessee further contended that the filing of Form 3CEB was done out of abundant caution and was not legally required as the transactions did not qualify as SDT. Additionally, the assessee highlighted that clause (i) of Section 92BA was omitted by the Finance Act, 2017, which implied that it was never considered as law existing in the statute since its inception.3. Validity of the assessment order under Section 143(3) in light of the alleged non-referral to the Transfer Pricing Officer (TPO):The Tribunal noted that the Pr.CIT's jurisdiction under Section 263 is to be exercised when the assessment order is erroneous and prejudicial to the interests of the Revenue. The Tribunal found merit in the assessee's argument that the transactions reported in Form 3CEB did not qualify as SDT under Section 92BA. The Tribunal observed that the Pr.CIT could have easily verified the prima facie assertions of the assessee regarding the inapplicability of Section 92BA. Since the transactions did not fall within the sweep of Section 92BA, the AO's non-referral to the TPO did not render the assessment order erroneous or prejudicial to the Revenue. Consequently, the Tribunal quashed the revisional order passed under Section 263.Conclusion:The Tribunal concluded that the Pr.CIT's invocation of jurisdiction under Section 263 was not justified as the transactions in question did not fall within the definition of SDT under Section 92BA. The assessment order under Section 143(3) was not erroneous or prejudicial to the interests of the Revenue due to the non-referral to the TPO. The appeal of the assessee was allowed, and the order under Section 263 was quashed.