Tribunal voids CIT's order under sec 263 for lack of Section 92BA(i)

The Tribunal quashed the CIT's order u/s 263, deeming it void and legally invalid due to the absence of Section 92BA(i). The appeal by the assessee was successful as the assessment order was not considered erroneous or prejudicial to revenue interests in light of the omitted provision.

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Issues Involved:
1. Whether the assessment order passed by the AO u/s 143(3) was erroneous and prejudicial to the interests of the revenue.
2. Whether the AO failed to refer the case to the TPO as required under Section 92BA(i).
3. Whether the omission of Section 92BA(i) by the Finance Act, 2017 affects the validity of the CIT's order u/s 263.
4. Whether the AO conducted proper inquiry and verification regarding payments made to related persons u/s 40A(2)(b).
5. Whether the CIT's direction to the AO to refer the matter to the TPO was legally warranted.
6. Whether the CIT's order u/s 263 was void due to the omission of Section 92BA(i).

Detailed Analysis:

Issue 1: Erroneous and Prejudicial Assessment Order
The CIT concluded that the assessment order dated 18.12.2017 was erroneous and prejudicial to the interests of the revenue. The CIT noted that the AO did not refer the case to the Transfer Pricing Officer (TPO) for determination of Arm's Length Price (ALP) as required under Section 92BA(i) of the Act. The CIT also observed that the AO did not properly examine the genuineness and reasonableness of payments made to related persons u/s 40A(2)(b).

Issue 2: Referral to TPO under Section 92BA(i)
The CIT noted that the assessee had transactions exceeding the Rs. 5 Crore limit specified under Section 92BA(i). The AO was required to refer these transactions to the TPO for determination of ALP, which was not done. This failure was considered a significant lapse, rendering the assessment order erroneous.

Issue 3: Omission of Section 92BA(i)
The assessee argued that Section 92BA(i) was omitted by the Finance Act, 2017 w.e.f. 01.04.2017, and therefore, the provision did not exist when the CIT passed the order u/s 263 on 28.02.2020. The Tribunal agreed with this argument, citing the Karnataka High Court decision in Texport Overseas (P) Ltd. Vs. DCIT, which held that the omission of a provision without a saving clause means it should be treated as if it never existed.

Issue 4: Inquiry and Verification by AO
The assessee contended that the AO had issued a notice u/s 142(1) and verified the transactions with related parties u/s 40A(2)(b). However, the CIT found that the AO did not record any specific findings or satisfaction regarding the genuineness of these transactions, making the assessment order incomplete and erroneous.

Issue 5: Legal Warrant for CIT's Direction
The CIT directed the AO to refer the matter to the TPO despite the omission of Section 92BA(i). The Tribunal found this direction legally unwarranted, as the omitted provision could not be applied retrospectively. The Tribunal cited the Supreme Court's decision in Kolhapur Canesugar Works Ltd. Vs. Union of India, which held that the omission of a statute without a saving clause means it should be treated as if it never existed.

Issue 6: Validity of CIT's Order u/s 263
The Tribunal held that the CIT's order u/s 263 was void due to the omission of Section 92BA(i). The Tribunal emphasized that the omission was unconditional and did not include any saving clause for pending proceedings. Therefore, the CIT's exercise of jurisdiction u/s 263 was not legally valid.

Conclusion:
The Tribunal quashed the CIT's order u/s 263, holding it void and not legally valid due to the omission of Section 92BA(i). The appeal of the assessee was allowed, and the assessment order was not found to be erroneous or prejudicial to the interests of the revenue based on the omitted provision.

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