2024 (2) TMI 155 - AT - Income Tax

AO's delayed TPO reference past statutory deadline renders assessment invalid under section 263

JP Morgan Chase Bank N. AJP Morgan Tower Versus The Commissioner of Income Tax (IT), Mumbai -3

The ITAT Mumbai upheld the CIT's revision order under section 263, rejecting the assessee's challenge. The CIT properly exercised revisional jurisdiction ... Revision u/s 263 by CIT - as per CIT AO failed to make reference to the TPO - as argued CIT has exercised powers u/s. 263 merely on proposal forwarded by the AO without himself examining the records and proper application of mind - HELD THAT:- There is nothing wrong, if, the AO initiates a proposal for invoking revisional jurisdiction u/s. 263 of the Act and thereafter, the CIT examine the record and after considering the same comes to the conclusion that the order passed by the AO is erroneous and prejudicial to the interest of Revenue. The conditions of sub-section(1) to Section 263 of the Act are satisfied if the CIT independently examines the record, apply his mind dehors the fact that the proposal was made by the Assessing Officer. In the instant case, we find that while issuing notice u/s. 263 CIT categorically records “It is observed on examination of records ”. Thereafter, in the impugned order the CIT records similar observation. On further perusal of the impugned order it is palpable that the CIT has applied his mind and formed an opinion on the failures of the Assessing Officer in not referring the matter to the TPO. We find no force in the submissions of assessee that the CIT has adorned revisional powers merely on proposal forwarded by the AO. Hence, the first argument of the assessee assailing the impugned order is rejected. Non reference to the TPO - as argued AO had made a reference to the TPO, but the reference was returned by the TPO stating it to be time barred - A close examination of sequence of events tabulated above would show that the Assessing Officer had received the approval from the office of CIT on 09/03/2021 i.e. well before the last date for passing of the TP order i.e. 31/07/2021. AO went in slumber and held on to himself the approval from CIT for more than six months. In proceedings under the Act, time is the essence. Thereafter, on 20/09/2021 made reference to TPO, by that time the period to pass the order by the TPO u/s. 92CA(3) of the Act had already elapsed. As is evident from Office Memo the last date for passing the order for TPO was 31/07/2021. The reference made by Assessing Officer to the TPO was clearly time barred and invalid. Such reference is no reference in the eye of law. AO completed the assessment giving a go bye to the mandatory provisions of section 92CA and CBDT Instruction No.3 of 2016. Such an assessment order definitely falls within the meaning of erroneous and prejudicial to the interest of Revenue as envisaged u/s. 263 - assessee has pointed that in ITBA portal the last date for completion of assessment was mentioned as 30/09/2022, therefore, the AO has reason to believe that he has still time to make reference. We find no force in the submission of assessee. The limitation for completion of assessment is to be determined strictly in accordance with the provisions of the Act and not dates mentioned in ITBA portal. Department had issued Office Memo clarifying the doubts over issue of limitation for Transfer Pricing proceedings for AY 2018-19. It is a settled legal position that Board Circulars, Notifications and OMs are binding on the Assessing Officer. We find no infirmity in the action of CIT in invoking revisional jurisdiction - Decided against assessee. Issues Involved:1. Validity of CIT's invocation of revisional jurisdiction under Section 263 of the Income Tax Act.2. Validity of the reference made by the Assessing Officer to the Transfer Pricing Officer (TPO).Summary:Validity of CIT's Invocation of Revisional Jurisdiction:The assessee challenged the validity of the CIT's order invoking Section 263 of the Income Tax Act, arguing that the CIT acted on the proposal of the Assessing Officer without forming an independent opinion. The CIT's examination of records and application of mind are prerequisites for invoking Section 263. The tribunal found that the CIT had indeed examined the records and applied his mind, as evidenced by the language in the show cause notice and the impugned order. Therefore, the tribunal rejected the assessee's argument, stating that the CIT did not act mechanically but took a conscious decision after examining the records.Validity of the Reference Made by the Assessing Officer to the TPO:The assessee argued that the Assessing Officer had made a valid reference to the TPO within the extended time limit, and the TPO erred in returning the reference as time-barred. The tribunal examined the sequence of events and found that the Assessing Officer had received approval for the reference on 09/03/2021 but delayed making the reference until 20/09/2021, well past the deadline of 31/07/2021 for passing the TP order as per the Office Memo dated 28/06/2021. The tribunal held that the reference was thus invalid and amounted to no reference at all. Consequently, the assessment order was erroneous and prejudicial to the interest of Revenue, justifying the CIT's invocation of Section 263.Conclusion:The tribunal upheld the CIT's order invoking Section 263 and dismissed the assessee's appeal, stating that the CIT had correctly exercised revisional jurisdiction and that the reference made by the Assessing Officer to the TPO was invalid. The tribunal emphasized that the limitation for completion of assessment should be determined strictly according to the provisions of the Act and not based on dates mentioned in the ITBA portal.