In a recent case, the Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) has held that assessment without following mandatory provisions of section 92CA of the Income Tax Act, 1961 and CBDT Instruction is erroneous. The Department had issued an Office Memo dated 28/06/2021 (supra) clarifying the doubts over the issue of limitation for Transfer Pricing proceedings for Assessment Year 2018-19. It is a settled legal position that Board Circulars, Notifications and OMs are binding on the Assessing Officer.
JP Morgan Chase Bank N.A, the appellant assessee challenged the order of Commissioner of Income Tax (IT), [‘CIT’] dated 25/03/2022 passed under section 236 of the Income Tax Act, 1961 [ ‘the Act’] for the Assessment Year 2018-19.
Shri P.J.Pardiwala appearing on behalf of the assessee submitted that the CIT has invoked revisional jurisdiction primarily on the ground that the Assessing Officer was mandatorily required to refer to the Transfer Pricing Officer ( TPO ), but the Assessing Officer in violation of CBDT Instructions No.3/2016 dated 10/03/2016 has failed to refer to the TPO. The Counsel for the assessee pointed out that the reasons given by CIT for invoking jurisdiction under section 263 of the Act are contrary to the facts on record.
The Counsel for the assessee referring to the chronology of events pointed out that on 01/03/2021 the Assessing Officer wrote to CIT requesting approval for referring the case to TPO by CBDT Instructions No.3 of 2016. On 09/03/2021 approval was received from the office of CIT for referring the case to TPO via ITBA Portal. On 20/09/2021 reference was made by the Assessing Officer to the TPO via the ITBA Portal. On 24/09/2021 the TPO returned the reference stating that the reference received was not valid considering CBDT’s Internal Office Memorandum(F No.370142/24/2021-TPL), which provided that the last date to pass the transfer pricing order was 31/07/2021 and the said date has elapsed, hence reference cannot be acted upon at this stage. Thereafter, the Assessing Officer on 12/10/2021 made a proposal to CIT for initiation of proceedings under section263 of the Act stating that (i) on the ITBA Portal the time barring for Assessment Year 2018-19 is still showing as 30/09/2022, and (ii) the final assessment order is prejudicial to the interest of Revenue.
Per contra, Shri Ajay Kumar Sharma representing the Department defended the impugned order. He submitted that someone has to bring a deficiency in the assessment order to the notice of CIT. Thereafter, the CIT shall examine the record and form an opinion on whether the assessment order is erroneous and prejudicial to the interest of Revenue.
The first plank of the argument of the assessee is that the CIT has exercised powers under section 263 of the Act merely on a proposal forwarded by the Assessing Officer without himself examining the records and proper application of mind.
A perusal of section 263(1) of the Act shows that the CIT/PCIT may call for and examine records of any proceedings under the Act and if he considers any order passed therein is erroneous in so far as prejudicial to the interest of Revenue may pass such order as the circumstances of the case are justified. For exercising revisional jurisdiction under section 263 of the Act, the section in the first place mandates the examination of records and consideration by the CIT. If both the pre-conditions are satisfied then only the CIT gets the key to move ahead in the domain of revisional jurisdiction.
The provisions of section 92CA(1) of the Act mandate that the Assessing Officer has to make a reference to the TPO with the previous approval of the PCIT/CIT for computation of the arm’s length price of the international transaction. The CBDT Instruction No.3 of 2016 sets out guidelines for implementation of the TP provisions, hence, a reference has to be made by the Assessing Officer to the TPO by provisions of section 92CA read with CBDT Instruction No.3/2016.
It was found that the TPO has to pass the order under section 92CA (3) at any time before 60 days before the date of expiry of limitation for completion of the assessment. Any reference made by the Assessing Officer to TPO in deviation in terms of approvals, timeline, etc. that has the effect of jeopardizing the assessment would make the reference invalid. Such invalid reference is no reference.
The Assessing Officer 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 falls within the meaning of erroneous and prejudicial to the interest of Revenue as envisaged under section 263 of the Act.
The Department had issued an Office Memo dated 28/06/2021 (supra) clarifying the doubts over the issue of limitation for Transfer Pricing proceedings for Assessment Year 2018-19. It is a settled legal position that Board Circulars, Notifications and OMs are binding on the Assessing Officer. Shri Vikas Awasthy, Judicial Member & Ms Padmavathy S, Accountant Member found no infirmity in the action of CIT in invoking revisional jurisdiction under section 262 of the Act in passing the impugned order.
The ITAT upheld the impugned order and dismissed the appeal of the assessee.
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