Tribunal quashes Commissioner's order under Income Tax Act Section 263 due to omitted provision

The Tribunal allowed the appeal, quashing the Commissioner's order under Section 263 of the Income Tax Act. It held that the Commissioner's action was invalid as the specified domestic transaction provision had been omitted from the statute. The assessee's appeal was successful, and the order was pronounced on 16th July 2021.

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Issues Involved:

1. Legality of the Commissioner taking cognizance under Section 263 of the Income Tax Act.
2. Validity of the assessment order dated 17.11.2016, and the directive to the AO to pass a fresh assessment order.

Issue-wise Detailed Analysis:

1. Legality of the Commissioner taking cognizance under Section 263 of the Income Tax Act:

The primary grievance of the assessee was that the Commissioner erred in invoking Section 263 of the Income Tax Act and setting aside the assessment order dated 17.11.2016. The Commissioner believed that the assessee's domestic transaction of Rs. 19,44,64,576/- should have been referred to the Transfer Pricing Officer (TPO) for determining the arm's length price, as its value exceeded Rs. 5 crores, making it a specified domestic transaction. The Commissioner issued a notice under Section 263, considering the action of the AO as erroneous and prejudicial to the interests of the Revenue.

The assessee contended that during the assessment proceedings, they had explained the specified domestic transaction to the AO, who concluded that no reference to the TPO was required under Section 92BA. The assessee argued that sub-clause (i) of Section 92BA, which defined specified domestic transactions, was deleted w.e.f. 1-4-2017, and thus the Commissioner could not take cognizance under Section 263 based on an omitted provision.

The Tribunal examined Section 263, which empowers the Commissioner to revise an order if it is erroneous and prejudicial to the interests of the Revenue. The Tribunal noted that the Commissioner must record satisfaction that both conditions are met. The Tribunal also reviewed various judicial pronouncements, including the Supreme Court's decision in Malabar Industries, which outlined principles for invoking Section 263.

2. Validity of the assessment order dated 17.11.2016, and the directive to the AO to pass a fresh assessment order:

The Tribunal analyzed the facts of the case and the transactions entered with related parties. It was noted that the only transaction that could be referred to the TPO was the purchase from Global Enterprises. The AO had examined this transaction during the assessment proceedings and concluded that no reference to the TPO was necessary. The Tribunal observed that sub-clause (i) of Section 92BA, which covered such transactions, was omitted from the statute w.e.f. 1.4.2017.

The Tribunal referred to the Karnataka High Court's judgment in Pr. CIT Vs. Texport Overseas P. Ltd., which held that the omission of a statutory provision without a saving clause means the provision is considered as if it never existed. Therefore, the Tribunal concluded that the Commissioner's action under Section 263 was not justified, as the relevant provision had been omitted by the time the Commissioner took cognizance.

Conclusion:

The Tribunal allowed the appeal, quashing the impugned order of the Commissioner. It held that the Commissioner's action under Section 263 was invalid, as the specified domestic transaction provision had been omitted from the statute. The appeal of the assessee was allowed, and the order was pronounced on 16th July 2021.

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