ITAT upholds Revision Order due to Non-Compliance with ALP Determination Requirement [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) recently upheld the revision order due to non-compliance with the arm's length price(ALP) determination requirement. The assessee DBS Bank India Limited had filed an appeal challenging the revision order passed by Commissioner of Income tax (IT), Mumbai for assessment year 2018-19. The contention of the assessee was that the impugned revision order was not valid. The assessing officer completed the assessment for the relevant year under section 143(3) read with section 144C(3) of the Income Tax Act. The Commissioner of Income Tax reviewed the assessment and found that it had been selected for scrutiny due to reasons including the "TP Risk Parameter - International Transactions." It was observed that the taxpayer had engaged in multiple international transactions totaling Rs. 279,457.28 crores. The Commissioner also noted that as per CBDT Instruction No. 3/2016 issued on March 10, 2016, the assessing officer was required to refer the determination of Arm's Length Price (ALP) of international transactions to the Transfer Pricing Officer (TPO). However, the assessing officer had failed to do so, thereby not following the CBDT instruction. Consequently, the Commissioner concluded that the assessment order was both erroneous and prejudicial to the interests of revenue, as per clause (c) of Explanation 2 to section 263 of the Income Tax Act. Therefore, revision proceedings under section 263 were initiated by the Commissioner. The assessee was given sufficient opportunities to respond and participate in the proceedings.Aggrieved assessee filed an appeal before Tribunal. The counsel for the assessee argued that the Assessing Officer had already conducted a thorough investigation of international transactions. They pointed out that the Assessing Officer had not referred to the determination of Arm's Length Price (ALP) in previous years and had not made any transfer pricing adjustments. They also argued that the Assessing Officer has the discretion to determine the ALP of international transactions and that the CBDT circular cannot override the provisions of the Income Tax Act. The counsel further contended that the assessee had complied with country-by-country reporting requirements and that there was no transfer pricing risk involved. They criticized the Commissioner of Income Tax (IT) for issuing a revision order without following the required procedures and extending the time limit for assessment completion. Counsel for the revenue submitted that the case of CIT(IT) is that the Assessing Officer was required to refer the matter of determination of ALP to TPO as per the Instruction no.3/2016 issued by CBDT. Since the circular of CBDT is binding on the Assessing Officer, he has to mandatorily comply with the instructions given in it. Accordingly, the counsel contended that non-compliance of the instructions issued by CBDT would make the assessment order erroneous and prejudicial to the interests of revenue as per the Explanation 2(c) of sec. 263 of the Income Tax Act. The bench, consisting of two members, Judicial Member Kavitha Rajagopal and Accountant Member,B.R. Baskaran, observed that “the Assessing Officer, in the instant case, did not refer the matter of determination of ALP to the TPO as per the mandatory requirement of Instruction No.3/2016. As per clause (c) of Explanation 2 to Section 263, the order passed without complying with the instruction etc., issued by CBDT under Section 119 of the Income Tax Act would render the order erroneous and prejudicial to the interests of revenue. They further added that there was no infirmity or illegality in the impugned revision order passed by CIT(IT). In result the appeal filed by assessee was dismissed. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

ITAT upholds Revision Order due to Non-Compliance with ALP Determination Requirement [Read Order]

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