JT CIT 24(2), MUMBAI V. M.K., MUMBAI

ITA 4639/MUM/2016

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 9400 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2007-2008
• Appeal Filed On: 07-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Assessment record; Reassessment proceedings
• Section: 92C; 143(3); 92CA; 148; 90

Judgement Text

ITA NO. 4639 /MUM/201 6 ASSESSMENT YEAR: 2007 - 08 PAGE 1 OF 6 INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH, MUMBAI [CORAM: PRAMOD KUMAR (VICE PRESIDENT) AND SAKTIJIT DEY (JUDICIAL MEMBER)] ITA NO. 4639 /MUM/2016 ASSESSMENT YEAR: 2007 - 08 JOINT COMMISSIONER OF INCOME TAX - 24(2) MUMBAI. .. APPELLANT VS. M/S. M.K .RESPONDENT 103, BLOCK - 1, SEEPZ, VIKHROLI LINK ROAD, SEEPZ SEZ ANDHERI (E), MUMBAI 400096 [PAN: AAHFM4131F ] APPEARANCES: LOVISH KUMAR FOR THE APPELLANT MADHUR AGARWAL FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : JANUARY 04, 2021 DATE OF PRONOUNCEMENT : JANUARY 04, 2021 O R D E R PER PRAMOD KUMAR, VP: 1. BY WAY OF THIS APPEAL, THE ASSESSEE OFFICER HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 17.03.2016 , PASSED BY THE LEARNED CIT(A) IN THE MATTER OF ASSESSMENT U/S. 143(3) R.W.S 147 OF THE INCOME TAX ACT 1961, FOR THE ASSESSMENT YEAR 2007 - 08. 2. GRIEVANCES RAISED BY THE ASSESSING OFFICER ARE AS FOLLOWS: - ITA NO. 4639 /MUM/201 6 ASSESSMENT YEAR: 2007 - 08 PAGE 2 OF 6 I) WHETHER ON THE FACTS AND IN CIRCUM STANCES OF THE CASE AND LAW, THE LD.CIT(A) IS JUSTIFIED IN DELETING THE ADDITION OF RS.2,56,55,638/ - MADE BY THE AO MERELY ON TECHNICAL GROUND WITHOUT EXAMINING IN DEPTH THE FACTS OF THE CASE AND THE QUANTUM OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE. II) 'WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT( A) IS JUSTIFIED IN NOT APPRECIATING THE FACT THAT, THE FINDINGS, OF THE TPO IN MAKING THE ADJUSTMENT IS FACTUALLY CORRECT AND THAT ON THE BASIS OF ADJUSTMENT MADE BY THE TPO, THE AO HAS RE - OPENED AND MADE THE ADDITION'. III) 'WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID.CIT(A) IS JUSTIFIED IN DELETING THE ADDITION OF RS.2,56,55,638/ - MADE BY THE AO MERELY ON TECHNICAL LACUNE OF NOT TAKING APPROVAL OF CIT FOR REFERRING TO THE TPO, WHEREAS TECHNICAL LACUNE COULD BE CURED DURING THE APPELLATE PROCEEDINGS'. IV) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) IS JUSTIFIED IN NOT GIVING ANY FINDINGS ON THE CORRECTNESS OF AD JUSTMENTS/ADDITIONS MADE BY THE TPO AND THE AO. V) 'WHETHER ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) IS JUSTIFIED IN NOT APPRECIATING THE FACT THAT AO HAD GIVING A COPY OF ORDER U/S 92CA(3) OF THE ACT AND PROVIDED OPPORTUNITY TO THE ASSESSEE TO FURNISH AN EXPLANATION AS TO WHY THE AD DITION PROPOSED BY THE TRANSFER PRICING OFFICER SHOULD NOT BE MADE IN THE ASSESSMENT ORDER FOR WHICH THE ASSESSEE HAS NOT RAISED ANY OBJ ECTION AT THE ASSESSMENT STAGE. 3 . TO ADJUDICATE ON THIS APPEAL ONLY A FEW MATERIAL FACTS NEED TO BE TAKEN NOTE OF. T HE AS SESSEE BEFORE US IS A MANUFACTURE AND EXPORTER OF DIAMOND STUDDED GOLD JEWELLERY AND HAD ENTERED INTO CERTAIN INTERNATIONAL TRANSACTION. THE CASE OF THE ASSESSEE WAS NOT SELECTED FOR ANY SCRUTINY ASSESSMENT PROCEEDINGS, T HE ASSESSING OFFICER , HOWEVER MADE A REFERENCE TO THE TRANSFER PRIC ING OFFICER U/S. 92CA(1) NEVER THE LESS BUT ADMITTEDLY WHILE MAKING TH IS REFERENCE HE DID NOT OBTAIN THE PRIOR APPROVAL OF THE COMMISSIONER OR THE PRINCIPAL COMMISSIONER OF THE INCOME TAX. ON RECEIPT OF TRANSFER PRIC ING OFFICER S ORDER , HE RE OPENED THE ASSESSMENT U/S. 147 AND PROCEEDED TO MAKE ALP ADJUSTMENT ON THE BASIS OF THIS TPO ORDER. 4. AGGRIEVED, ASSESSEE THE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A) . THE LEARNED CIT(A) IN A VERY WELL REASONED AND DETAILED ORDER TOOK NOTE OF THE FACT THAT THE REFERENCE WAS MADE WITHOUT THE PRIOR APPROVAL OF THE CHIEF COMMISSIONER, AS ADMITTED BY THE ASSESSING OFFICER IN SUBMISSIONS MADE BEFORE HER , AND ALSO THE FACT THAT THERE WERE NO PROCEEDINGS PENDING AS ON DATE WHEN THE REFERENCE TO TRANSFER PRIC ING OFFICER WAS MADE. IN THE ORDER THE INTER ALIA OBSERVED AS FOLLOWS: - ITA NO. 4639 /MUM/201 6 ASSESSMENT YEAR: 2007 - 08 PAGE 3 OF 6 3.4 DECISION: I HAVE GONE THROUGH THE FACTS OF THE CASE AND THE CONTENTIONS OF THE APPELLANT. INDEED IT IS A VERY PECULIAR CASE AND THE FACTS NEED TO BE SEEN CAREFULLY. THE ORIGINAL RETURN OF INCOME WAS FILED ON 29.09.2007 AND THE SAME WAS PROCESSED U/S 143(1). SUBSEQU ENTLY, NOTICE U/S 147 WAS ISSUED ON 7.04.2011. IN REPLY TO THIS THE ASSESSEE HAS SUBMITTED THAT THE ORIGINAL RETURN SHOULD BE TAKEN AS RETURN FILED IN RESPONSE TO NOTICE U/S 147. MEANWHILE IT IS INTERESTING TO NOTE THAT THE TPO IN THE ORDER MADE ON 29.10.2 010 RECORDS THAT THE REFERENCE FROM THE AO WAS RECEIVED ON 19.10.2007. NATURALLY THIS CANNOT HAVE BEEN IN RESPONSE TO THE RETURN FILED IN RESPONSE TO NOTICE U/S 147. THE NOTICE U/S 147 IS ISSUED ALMOST 5 MONTHS AFTER THE TPO ORDER IS PASSED. THE ARGUME NT OF THE APPELLANT IS THAT THE AO NEEDED TO TAKE PREVIOUS APPROVAL OF THE COMMISSIONER BEFORE REFERRING THE IT TO THE TPO AND THAT THE SAME HAS NOT BEEN DONE. THE SECTION AS IT STOOD IN 2009 - 10 IS REPRODUCED HERE: '(1) WHERE ANY PERSON, BEING THE ASSESSE E, HAS ENTERED INTO AN INTERNATIONAL TRANSACTION FOR S PECIFIED DOMESTIC TRANSACTION) IN ANY PREVIOUS YEAR, THE ASSESSING OFFICER CONSIDERS IT NECESSARY OR EXPEDIENT SO TO DO, HE MAY, WITH THE PREVIOUS APPROVAL OF THE COMMISSIONER, REFER THE COMPUTATION OF THE ARM'S LENGTH PRICE IN RELATION TO THE SAID INTERNATIONAL TRANSACT/ON (OR SPECIFIED DOMESTIC TRANSACTION) UNDER SECTION 92C TO THE TRANSFER PRICING OFFICER.' AS IT IS EVIDENT FROM THE SAID SECTION THE AO NEEDED TO TAKE THE APPROVAL OF THE COMMISSIONER A S PER THE COMMUNICATION AVAILABLE, THE ITO - 20(2)(2) HAS SUBMITTED THAT...... ' ON PERUSAL OF RELEVANT ASSESSMENT RECORD IT IS SEEN THAT THERE IS NOTHING ON RECORD TO SHOW THAT THE APPROVAL OF THE RESPECTED COMMISSION OF LNCOME - TAX - 20, MUMBAI WAS SOUGHT FOR AND GRANTED BY THE RESPECTED COMMISSIONER OF INCOME - TAX - 20, MUMBAI U/S. 92CA(1) OF THE INCOME - TAX ACT, 1961.' TO VERIFY THE CONTENTION OF THE APPELLANT THAT THE MANDATORY APPROVAL OF THE COMMISSIONER HAS NOT BEEN OBTAINED A FACTUAL REPORT HAS BEEN SOUGHT FROM THE CONCERNED INCOME TAX OFFICER 24(3)(1), MUMBAI. IT MAY BE NOTED THAT POST RESTRUCTURING OF THE INCOME TAX DEPARTMENT IN NOVEMBER 2014 THE JURISDICTIONS HAVE BEEN RE - ALLOCATED AND THAT IS WHY THE DIFFERENCE IN THE NOMENCLATURE OF THE CONCERNED INCOME TAX OFFICER. A LETTER FROM THIS OFFICE DATED 7 DECEMBER 2015 HAS BEEN ISSUED TO ITO 24(3)(1) REGARDING THE SEEKING OF THE APPROVAL. THE SAID ITO THEN INFORMED THIS OFFICE THAT THE JURISDICTIONS HAD CHANGED CONSEQUENT TO THE RESTRUCTURING AND THE REFORE A FRESH LETTER WAS ISSUED ON 5TH OF JANUARY 2016 TO THE INCOME TAX OFFICER 24 (2) (4). IN A REPORT DATED 3RD OF FEBRUARY 2016 THE AO HAS INFORMED THAT FROM THE RECORD AVAILABLE IN HER OFFICE NO RECORD OF COMMISSIONER'S APPROVAL REFERRING THE CASE TO THE TRANSFER PRICING OFFICER WAS FOUND TO BE AVAILABLE AND THEREFORE SHE SENT A REQUEST TO THE TRANSFER PRICING OFFICER 3 (2) - 2, MUMBAI FOR PROVIDING A COPY OF THE APPROVAL LETTER IF ANY AVAILABLE ON THEIR RECORDS. IN RESPONSE THE TRANSFER PRICING OFFIC ER HAS SENT A ITA NO. 4639 /MUM/201 6 ASSESSMENT YEAR: 2007 - 08 PAGE 4 OF 6 LETTER DATED 28 MAY 2010 WRITTEN BY THE THEN ADDITIONAL COMMISSIONER OF INCOME TAX TRANSFER PRICING TO - (3), MUMBAI TO THE ADDITIONAL COMMISSIONER OF INCOME TAX RANGE 20 (2) MUMBAI WHEREIN HE CLEARLY STATES THAT '.. IF YOU STILL FEEL THAT THE CASE IS TO BE REFERRED TO THE TPO FOR DETERMINING THE ALP, THEN A PROPER AND VALID REFERENCE IS TO BE MADE AFTER OBTAINING THE APPROVAL OF THE HONORABLE COMMISSIONER OF INCOME TAX IN TERMS OF THE ABOVE CBDT INSTRUCTION. 'IN THE COMMUNICATION THE OFFICER HA S CLEARLY RECORDED THAT THERE IS A LETTER RECEIVED FROM ITO 20 (2) - 2 MUMBAI FORWARDING THERE WITH THE 3CEB REPORT. THE ADDITIONAL COMMISSIONER TRANSFER PRICING THEN NOTES THAT FROM THE CONTENTS OF THE LETTER IT TRANSPIRES THAT AO IS NOT AWARE AS TO HOW A R EFERENCE IS MADE TO THE TPO, DISREGARDING THE CBDT INSTRUCTION NUMBER 3 OF 2003 DATED 25.5.2003. IN VIEW OF THE ABOVE IT IS MENTIONED THAT THE EARLIER OFFICERS HAD WRITTEN 3 LETTERS TO THE AO ON 3 DIFFERENT OCCASIONS IN THIS REGARD. THE TRANSFER PRICING OF FICER FURTHER NOTES THAT INDEED NO ASSESSMENT PROCEEDINGS SEEM TO BE PENDING BEFORE THE AO. THE TRANSFER PRICING OFFICER THEN CLEARLY OBSERVES THAT IN VIEW OF THE CBDT INSTRUCTION NUMBER 3, A LETTER DATED 15 OCTOBER 2007 OF THE AO CANNOT BE REGARDED AS REF ERENCE TO THE TPO FOR DETERMINING THE ALP OF INTERNATIONAL TRANSACTIONS WITH AE. ACCORDINGLY, SAME LETTER IS NOT TREATED AS REFERENCE TO THE TPO. FROM THE SAME IT IS APPARENT THAT THE MANDATORY APPROVAL OF THE COMMISSIONER OF INCOME - TAX - 20 HAS NOT BEEN SOUGHT FOR. CONSIDERING THAT THE MANDATORY APPROVAL HAS NOT BEEN SOUGHT IT CANNOT BE HELD THAT ANY PROPER REFERENCE HAS BEEN MADE TO THE TPO AND THEREFORE THE LEGAL SANCTITY OF THE ORDER UNDER SECTION 90 2CA (3) OF THE IT ACT 1961 CANNOT BE HELD T O BE VALID. FROM THE FACTS AVAILABLE IT IS FURTHER OBSERVED THAT EVEN AFTER THE NOTICE UNDER SECTION 148 THERE IS NO EXPRESS APPROVAL TAKEN FROM THE CONCERNED COMMISSIONER FOR REFERRING THE CASE TO THE TRANSFER PRICING OFFICER. IT IS ALSO AN IMPORTANT FACT OF THE CASE THAT IN THE ASSESSMENT ORDER AGAINST WHICH THE ASSESSEE IS IN APPEAL IN THE PRESENT INSTANCE WHILE THE AO MENTIONS THAT THE CASE WAS REOPENED BY ISSUANCE OF NOTICE UNDER SECTION 148 HOWEVER THERE IS NO MENTION AS TO THE REASONS FOR WHICH THE S AID NOTICE HAS BEEN ISSUED. INTERESTINGLY IN HIS LETTER DATED 9TH OF JUNE 2010 THE ITO 20 (2) (2) RETURNED TO THE ADDITIONAL COMMISSIONER OF HIS RANGE, THE ITO MENTIONS THAT SINCE THERE WERE NO NEGATIVE REMARKS IN THE FORM NUMBER 3CEB CONSIDERING THE PECUL IAR NATURE OF BUSINESS, THE SAME HAS NOT BEEN SELECTED/ RECOMMENDED FOR SCRUTINY AND HENCE NO APPROVAL OF CIT OBTAINED AS THE CASE WAS NOT SELECTED FOR SCRUTINY. THE MEANING EMERGING OUT OF THE SITUATION IS THAT AS IF IT WAS NOT THE INTENT OF THE AO TO REF ER THE MATTER TO THE TRANSFER PRICING OFFICER. A LETTER DATED 19 OCTOBER 2010 WRITTEN BY THE DIRECTOR OF INCOME TAX TRANSFER PRICING - II, MUMBAI TO THE ADDITIONAL COMMISSIONER TRANSFER PRICING STATES THAT I FIND THAT REFERENCE WAS RECEIVED FROM ITR - 20(2)( 2), MUMBAI AND THAT THEREFORE AN ORDER UNDER SECTION 92CA OF THE IT ACT FOR AY 2007 - 08 MUST BE PASSED. HOWEVER AS SEEN FROM THE FACTS ABOVE THERE IS NO REFERENCE RECEIVED FROM THE ITO CONCERNED. IN THE LIGHT OF THESE FACTS THE ADJUSTMENT ADOPTED BY THE AO IN THE ASSESSMENT ORDER CANNOT BE HELD TO BE VALID. THE APPEAL ON THIS GROUND IS HEREBY DISMISSED. ITA NO. 4639 /MUM/201 6 ASSESSMENT YEAR: 2007 - 08 PAGE 5 OF 6 5. THE ASSESSEE IS AGGRIEVED AND IS IN FURTHER APPEAL BEFORE US. 6. THE LEARNED DEPA RTMENTAL REPRESENTATIVE CONTENDS THAT THE REASSESSMENT PROCEEDINGS B EING VALID , THERE BEING A REASONABLE BASIS ON WHICH THE ASSESSING OFFICER MADE THE ADDITION. HE FURTHER POINTS OUT THAT THE DEFECTS ON THE BASIS ON WHICH LEARNED CIT(A) HAS QUASHED THE ASSESSMENT ORDER WERE CURABLE IN NATURE AND THIS COULD HAVE BEEN CURED DURING THE APPELLATE PROCEEDING. HE SUBMITS THAT THESE WERE TECHNICAL DEFECTS WHICH WERE CURABLE . THE LEARNED DEPARTMENTAL REPRESENTATIVE PLACED RELIANCE UPON THE STAND OF THE ASSESSING OFFICER 7. THE LEARNED C OUNSEL FOR THE ASSESSEE ON THE OTHER HAND POINTS OUT THAT WHEN THE ASSESSMENT PROCEEDING S WERE NOT ON, THE ASSESSING OFFICER DID NOT HAVE THE POWER TO MAKE ANY REFERENCE TO THE TRANSFER PRIC ING OFFICER. HE FURTHER SUBMITS THAT IN ANY EVENT HE DID SO WITHOUT TAKING PRIOR APPROVAL OF THE COMMISSIONER OR THE PRINCIPAL COMMISSIONER OF INCOME TAX AND THIS IS EVIDENT BY THE R EMAND REPORT SUBMITTED TO THE COMMISSIONER OF APPEALS DURING THE APPELLATE PROCEEDING. IT IS FURTHER SUBMITTED THAT THE VERY FOUNDATION OF THE IMPUGNED ASSESSMENT ORDER VITIATED IN LAW AND V ERY ASSUMPTION ON JURISDICTION IN THIS CASE IS WHOLLY INCORRECT . 8. THE LEARNED COUNSEL FURTHER SUBMI TTED THAT ONCE TRANSFER P RICING OFF ICER REFERENCE IS HELD TO BE IN VALID , NO LEGALLY SUSTAINABLE CONSEQUENCES CAN FROM THE SAME , AND , THEREFORE , THE REASSESSMENT PROCEEDINGS MUST ALSO BE QUASHED. IN ANY EVENT HE SUBMITS THAT THE ONLY BASIS OF ADDITION IN THE PRESENT CASE IS ON THE BASIS OF TPO REPORT AND WHEN THE TPO REPORT ITSELF IS BAD IN LAW , NO ADDITION CAN BE MADE. HE THUS URGED TO CONFIRM ED THE ORDER OF LEARNED CIT(A) AND DECLINED TO INTERFERE IN THE MATTER. 9. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED T HE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION . 10. WE FIND THAT THE V ERY ASSUMPTION OF JURISDICTION TO MAKE RE FERENCE TO THE TPO IS CLEARLY V ITIATED IN LAW IN AS MUCH AS NEITHER ANY PROCEEDINGS WERE PENDING BEFORE THE ASSESSING OFFICER NOR ANY APPROVAL OF THE COMMISSIONER OR THE PRINCIPAL COMMISSIONER OF THE INCOME TAX WAS TAKEN IN THE PRESENT CASE. ONCE WE COME TO CONCLUSION THAT THE ASSUMPTION OF JURISDICTION FOR MAKING A REFERENCE TO TPO ITSELF WAS V ITIATED IN LAW , NO OTHER VALID LEGAL CONSEQUENCES CAN FLOW FROM THE SAME. THE CONCLUSIONS ARRIVED AT BY THE L EARNED ITA NO. 4639 /MUM/201 6 ASSESSMENT YEAR: 2007 - 08 PAGE 6 OF 6 CIT(A), THEREFORE CANNOT BE FAULTED. WE THEREFORE, CONFIRM THE WELL REASONED CONCLUSION ARRIVED AT BY THE LEARNED CIT(A) DECLINE TO INTERFERE IN THE MATTER. 11 . IN THE RESULT, THE APPEAL IS DISMISSED. DICTATION IN THE OPEN COURT TODAY ON THE 04 TH DAY OF JANUARY, 2021 . S D / - S D / - SAKTIJIT DEY PRAMOD KUMAR (JUDICIAL MEMBER) (VICE PRESIDENT) MUMBAI, DATED THE 04 TH DAY OF JANUARY, 2021 N.V, SR. PS COPIES TO: (1) THE APPLICANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI