Income Tax Appellate Tribunal - Lucknow
Prem Manohar Gupta, Kanpur vs Astt. Commissioner Of Income Tax-2, ... on 20 March, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
LUCKNOW BENCH"A", LUCKNOW
BEFORE SHRI. T.S. KAPOOR, ACCOUNTANT MEMBER
AND SHRI PARTHA SARATHI CHAUDHURY,JUDICIAL MEMBER
ITA No.825/LKW/2017
Assessment Year:2014-15
Prem Manohar Gupta v. Pr. CIT-I
77, Factory Area Kanpur
Fazalganj, Kanpur
TAN/PAN:ACDPG9412D
(Appellant) (Respondent)
Appellant by: Shri Ashish Jaiswal, Advocate
Respondent by: Shri J.S. Minhas, CIT (DR)
Date of hearing: 15 03 2018
Date of pronouncement: 20 03 2018
ORDER
PER PARTHA SARATHI CHAUDHURY, J.M:
This appeal preferred by the assessee emanates from the order of the Pr. CIT-I, Kanpur dated 9/11/2017.
2. The main grievance of the assessee is assumption of jurisdiction by the Pr. CIT under section 263 of the Act and passing an order therein.
3. The brief facts appearing in this case are that the return of income was filed by the assessee on 30.11.2014 declaring total income of Rs.9,97,521/-. Subsequently, the case was selected for scrutiny under CASS on the guidelines issued by the CBDT. The assessment was completed on 02.12.2016 u/s 143(3) on the income of Rs. 11,97,520/. The case was selected under CASS for the following reasons:-
ITA No.825/LKW/2017Page 2 of 6i) Mismatch in amounts paid to related persons u/s. 40A(2)(b) of the Income Tax Act, 1961, reported in the Audit Report and ITR.
ii) Large specified domestic transactions [Form 3CEB] which is related to TP risk parameter.
4. On going through the assessment records for A.Y. 2014-15, it was seen that during the course of assessment proceeding for A.Y. 2014-15, the issue of mismatch in the amounts paid to the related persons u/s. 40A(2)(b) of the Income Tax Act, 1961 reported in the Audit Report and ITR, has been examined, but the second issue of CASS selection, i.e. 'Large specified domestic transactions [Form 3CEB] which is related to TP Risk Parameter' has not been examined. It has been noticed that the A.O. has not referred the matter to the Transfer Pricing Officer for determining the Arm Length Price as there is money transactions between the assessee and his relatives u/s. 40A(2)(b) of the Income Tax Act, 1961. Therefore, the Pr. CIT-I has passed an order under section 263 of the Act on the ground that the Assessing Officer while framing the assessment has not referred the matter relating to 'Large specified domestic transactions related to TP Risk Parameter' for examination before the TPO. Since this exercise was not done by the Assessing Officer, it was held by the Pr. CIT-I that the order of the Assessing Officer was erroneous and prejudicial to the interest of Revenue.
5. At the time of hearing before us, the ld. A.R. of the assessee vehemently argued that reference to TPO was a matter containing in Circular of 2016 where it was stated that a reference shall be made to TPO, however, Income Tax statute has given a discretionary power and it is not mandatory for the Assessing Officer to make reference to the ITA No.825/LKW/2017Page 3 of 6 TPO. For that the word in the statute used is "may". Supporting his contention, the ld. A.R. of the assessee relied on the decision of the Co- ordinate Bench of the Tribunal in ITA No.545/Bang/2012 in the case of M/s Obulapuram Mining Company Pvt. Ltd., Bellary vs. Dy. CIT wherein the Co-ordinate Bench analysed the issue which finds place also in the decision of the ITAT Mumbai Bench wherein the same issue was analysed in the case of DCIT vs. Tata Consultancy Services Ltd. in ITA No.7513/Mum/2010, order dated 4/11/2015 wherein it has been pointed out in para-31 of that order, the Tribunal has followed the same judgment of the Hon'ble Bombay High Court rendered in the case of Vodafone India Services Pvt. Ltd., Vs Union of India, 361 ITR 531 and held that the CBDT Instruction No.3 dated 20-05-2003 is contrary and departs from the provisions of law. Here the Co-ordinate Bench has relied upon the decision of the Hon'ble Bombay High Court in Vodafone India Services Pvt. Ltd., Vs Union of India (supra) and correspondingly reflected in Circular of 2003 wherein it was mandatory for reference to TPO. The Hon'ble Bombay High Court has held that CBDT Instruction No.3 dated 20/5/2003 is contrary to the decision being taken and it is not binding on the Assessing Officer. It was held that this instruction departs from the provisions of law. The statute gives discretion to the Assessing Officer for reference to the TPO whereas the Circular of 2003 makes it binding and therefore the Hon'ble High Court has held that Circular cannot override the provisions of statute and in case of conflict, it is only statute that shall prevail over the Circular. Taking this guidance, the Co-ordinate ITAT Bangalore Bench in the above referred case has finally held that "From the above paras of this Tribunal order and particularly para-31 of the Tribunal order, it is seen that as per this tribunal order, CBDT Instruction No. 3 dated 20.05.2003 is not binding on the A.O. Hence, the action of the A.O. of himself determining the TP ITA No.825/LKW/2017Page 4 of 6 adjustment without referring the matter to the TPO in the present case is a possible view as per this Tribunal order. In this view of the matter, the assessment order cannot be said to be erroneous because the view taken by the A.O. of not referring the matter to the TPO is a possible view as per this Tribunal order. Learned DR of the Revenue could not point out any other basis indicated by the learned CIT in the impugned order to say that the assessment order is erroneous. This is settled position of law by now that revisionary powers of CIT u/s 263 can be invoked only when the assessment order is erroneous as well as prejudicial to the interest of the Revenue. Since, in the present case, the assessment order could not be established to be erroneous, the impugned order of learned CIT u/s 263 is not sustainable and therefore, we quash the same."
6. The ld. A.R. of the assessee further brought our attention to the Circular of 2016 relevant in the present case where also it says mandatory reference to be made to the TPO which is again contrary to the provisions of statute as opined by the Hon'ble Bombay High Court in the case of Vodafone India Services Pvt. Ltd., Vs Union of India (supra). When the Circular cannot override the statute, therefore, non-reference by the Assessing Officer to the TPO cannot be the basis for 263 jurisdiction to be invoked by the Pr. CIT. In this case, the Assessing Officer has conducted independent enquiry so far as the bulk domestic transactions are concerned under section 40A(2)(b) of the Act. Thus, it is neither prejudicial also.
7. The ld. D.R., on the other hand, relied upon the order of the Pr. CIT.
8. We have perused the case records, heard the rival contentions and we find that only basis for revisional powers invoked by the Pr. CIT ITA No.825/LKW/2017Page 5 of 6 under section 263 is because as per 2016 Circular mandatory reference to the TPO was not made by the Assessing Officer. However, we find Assessing Officer has conducted independent enquiry so far as domestic transactions were concerned and as required within the periphery of section 40A(2)(b) of the Act. We also take note from the decision of the Hon'ble Bombay High Court and as followed by the Co-ordinate ITAT Bangalore Bench that Circular cannot override the statute. Whenever there is a conflict, it shall be statute only that shall prevail over the Circular. The sole ground of 263 jurisdiction by the Pr. CIT was that as per Circular, reference was not made by the Assessing Officer. This itself cannot be said to be erroneous and prejudicial to the interest of the Revenue since Circular is contrary to the provisions of law. Therefore, on these facts and observations and following the guidelines in the Vodafone case of the Hon'ble Bombay High Court and as per the principle laid down by the Co-ordinate ITAT Bangalore Bench, as discussed in this order, we hold that assumption of revisionary power by the Pr. CIT under section 263 was not justified and therefore we quash the order passed under section 263 of the Act by the Pr. CIT and allow the appeal of the assessee.
9. In the result, appeal of the assessee is allowed.
Order pronounced in the open Court on 20/03/2018.
Sd/- Sd/-
[T.S. KAPOOR] [PARTHA SARATHI CHAUDHURY]
ACCOUNTANT MEMBER JUDICIAL MEMBER
DATED:20th March, 2018
JJ:1503
ITA No.825/LKW/2017Page 6 of 6
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR