ITO(TDS), WARD -3(2), Vijayawada V. Mandal Praja Parishad Officer,

ITA 468/VIZ/2013

• Counselvise Citation: 46825314 RSA 2013
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 14-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RONAK
• Assessee Lawyers: K V N CHARYA
• Keywords: Revision of order; Transfer pricing; Opportunity of being heard; International transaction; Competent authority; Reassessment proceedings
• Section: 92C; 143(3); 10B; 263; 10

Judgement Text

ITA NO.468/VIZAG/2007 M/S. AGILISYS IT SERVICES PVT. LTD., MUMBAI IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 468 /VIZAG/ 20 07 ASSESSMENT YEAR : 2003 - 04 AGILISYS IT SERVI CES INDIA PRIVATE LIMITED (FORMERLY KNOWN AS NET DECISIONS PRIVATE LIMITED MUMBAI VS. CIT, CIRCLE-3(1) VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO.AABCN0192Q APPELLANT BY: SHRI RONAK RESPONDENT BY: SHRI K.V.N. CHARYA , CIT(DR) DATE OF HEARING : 0 4 .12.2013 DATE OF PRONOUNCEMENT : 11.12.2013 ORDER PER SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER:- THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF THE CIT-1, VISAKHAPATNAM U/S 263 OF THE INCOME-TAX ACT. THE A SSESSEE IS CHALLENGING THE VALIDITY OF THE ORDER U/S 263 OF TH E ACT IN GROUND NO.1 AND WITHOUT PREJUDICE CONTESTING THE ISSUES ON MERITS I N GROUND NOS.2 & 3. 2. BRIEFLY STATE, ASSESSEE IS A PRIVATE LIMITED CO MPANY ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND EXPORT OF SOFTWARE AND IS REGISTERED AS 100% EXPORT ORIENTED UNIT WITH DEVELO PMENT COMMISSIONER, VSEZ, DUVVADA, VISAKHAPATNAM. THE COMPANY FILED IT S RETURN OF INCOME FOR ASSESSMENT YEAR 2003-04 ON 24.01.2003, WHEREIN ASSESSEE CLAIMED EXEMPTION U/S 10B OF THE ACT FOR A SUM OF ` .50,26,347/- IN RESPECT OF INCOME FROM STPI UNIT AMOUNTING TO ` .55,84,830/-. THE TOTAL INCOME WAS DETERMINED BY THE AO U/S 143(3) OF THE ACT ON 29.03 .2006 BY DISALLOWING CERTAIN CLAIMS MADE ON RESEARCH UNIT AFTER SETTING OFF BROUGHT FORWARD LOSSES FROM EARLIER YEARS. THE CIT-1, VISAKHAPATNA M CALLED FOR RECORDS ITA NO.468/VIZAG/2007 M/S. AGILISYS IT SERVICES PVT. LTD., MUMBAI 2 AND ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE WHY THE ASSESSMENT COMPLETED BY THE A.O. SHOULD NOT BE SET ASIDE ON TH E REASON THAT THE ORDER PASSED WAS ERRONEOUS AND PREJUDICIAL TO THE I NTEREST OF THE REVENUE. THE LD. CIT CONSIDERED TWO ISSUES FOR ARRIVING AT T HE DECISION OF ORDER BEING ERRONEOUS AND PREJUDICIAL WHICH ARE DISCUSSED IN PARA 1.5 ONWARDS AS FOLLOWS: 1.5 AFTER EXAMINING THE MATERIAL ON RECORD, THE RE LEVANT PROVISIONS OF THE STATUTE, THE BOARD CIRCULAR ISSUED CONTAINING D IRECTION TO THE A.O. IN THE M ATTER OF REFERENCE TO TRANSFER PRICING OFFICER IN R ESPECT OF INTERNATIONAL TRANSACTIONS AND THE SUBMISSIONS MADE LEARNED A.R., I AM SATISFIED THAT THE ORDER PASSED U/S 143(3) WAS ERRO NEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 1.5.1 AS REGARDS THE EXEMPTION ALLOWABLE UNDER SEC. 10B OF THE ACT, THE PROVISIONS OF SUB SECTION 3 OF SECTION 10B STIPULAT E AS UNDER : 'THIS SECTION APPLIES TO THE UNDERTAKING IF THE SAL E PROCEEDS OF ARTICLES OR THINGS OR COMPUTER SOFTWARE EXPORTED OUT OF INDIA ARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE WITH IN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR WITHIN SUCH FURTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF' BY A PLAIN READING OF THE ABOVE SECTION IT IS VERY CLEAR THAT SEC.10B CONTEMPLATES ALLOWING DEDUCTION IF ONLY THE PROCEEDS PERTAINING TO EXPORT ARE RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE. IT IS FAIRLY ADMITTED BY THE ASSESSEE IN ITS WRITTEN SUBMISSIONS THAT THE ADDITIONAL INCOME OFFERED BY T HE ASSESSEE IS NOTHING BUT 'NOTIONAL ADJUSTMENT'. SINCE THE EXC ESS OF ARM'S LENGTH PRICE AS PER THE TRANSFER PRICING AUDIT REPO RT OVER THE EXPORT PRICE RECORDED IN THE BOOKS OF ACCOUNT, WAS NOT RECEIVED IN INDIA IN CONVERTIBLE FOREIGN EXCHANGE, THE ESSENTIAL REQUIREMENT OF SEC.10B IS NOT FULFILLED IN THE CASE OF THE ASSESSEE AND AS SUCH THERE IS AN ERROR ON THE PART OF THE ASSESSING OFFICER IN ALLOWING THE EXEMPTION UNDER SEC.10B IN RESPECT OF THIS AMOUNT, IN AS MUCH AS THE ASSESSING OFFICER IS NOT PERMITTED TO ADOPT ANY VIEW WHICH IS AGAINST TH E PROVISIONS OF THE INCOME TAX ACT WHILE FRAMING THE ASSESSMENT UNDER S EC. 143(3). SINCE THE VARIOUS DECISIONS CITED BY THE AS SESSEE'S A.R., IN THE WRITTEN SUBMISSIONS ARE ON THE POINT WHERE T WO VIEWS ARE PERMISSIBLE, NONE OF THOSE DECISIONS WOULD ADVANCE THE CASE OF THE ASSESSEE AS THIS IS A CASE WHERE THE ASSESSING OFFICER HAS TAKEN A VIEW WHICH IS NOT PERMISSIBLE BY THE STATUTE. ITA NO.468/VIZAG/2007 M/S. AGILISYS IT SERVICES PVT. LTD., MUMBAI 3 1.5.2 AS REGARDS THE ISSUE RELATING TO THE REFERENC E TO THE TPO, THE UNDISPUTED FACT IS THAT THE EXPORT TURNOVER OF THE UNDER TAKING IN RESPECT OF THE COMPUTER SOFTWARE OF THE ASSESSEE COMPANY IS OF RS. 6,56,81,920/-. THE CENTRAL BOARD OF DIRECT TAXES ISSUED INSTRUCTIO NS IN INSTRUCTION NO. 3 OF 2003 DATED 20-05-2003 WHERE TH E BOARD INSTRUCTED ALL THE ASSESSING OFFICERS THAT THEY SHALL REFER THE QUESTION OF DETE RMINATION OF TP OF INTERNATIONAL TRANSACTIONS TO THE TPO WHERE T HE AGGREGATE VALUE OF INTERNATIONAL TRANSACTIONS EXCEEDS RS. 5 CRORES. SI NCE, IN THE CASE OF THE ASSESSEE THE VALUE OF THE INTERNATIONAL TRANSACTION S HAS EXCEEDED RS. 5 CRORES, IT IS MANDATORY ON THE PART OF THE A.O TO F OLLOW THE BOARD INSTRUCTION AND REFER THE MATTER TO TPO WHICH HAS N OT BEEN DONE IN THIS CASE. THIS WAY ASSESSING OFFICER FAILED TO FOLLOW T HE BOARD INSTRUCTIONS, THEREFORE, HIS ACTION HAS BECOME ERRONEOUS AND PREJ UDICIAL TO THE INTEREST OF THE REVENUE. THE HON'BLE ITAT SPECIAL BENCH IN T HE CASE OF AZTECH SOFTWARE & TECH LIMITED V. ASST. CIT REPORTED IN (2007) 107 ITD 141 (BANG) (SB) IN RENDERING THE JUDGMENT IN CONTEXT OF S. 92C A (1) VIS-A- VIS BOARD CIRCULAR (INSTRUCTION NO. 3 OF 2003) DATE D 20-05-2003 OBSERVED 'THE ASSESSING OFFICER HAS ONLY TO LOOK AT THE AGGR EGATE VALUE OF INTERNATIONAL TRANSACTIONS DISCLOSED BY TH E ASSESSEE IN THE AUDIT REPORT AND THEN FOLLOW THE DIRECTIONS OF THE CBDT. THE ASSESSING OFFICER, THEREFORE, IS LEFT WIT H A VERY LIMITED ROLE U/S 92CA(1)'. THIS WAY THE HON'BLE SPECIAL BENCH HAS GIVEN A FINDING OF THE MANDATORY NATURE OF REFERENC E TO THE TPO VIS-A-VIS THE PROVISIONS OF S.92CA OF THE I.T.ACT. THE CONTENTION OF THE ASSESSEE THAT ANY DIRECTION IN THIS REGARD BY CIT WOULD AMOU NT TO INTERFERENCE WITH THE JURISDICTION OF THE A.O IS ILL FOUNDED. THE CASE LAWS RELIED UPON DOES NOT FIT INTO FACTS OF THE CASE. HERE IS A CASE WHERE TH E A.O FAILED TO FOLLOW BOARD CIRCULAR AND JUDICIAL VIEW IN SEVERAL CASES IS THAT BOARD CIRCULAR IS BINDING ON A.O. AS THERE IS A FAILURE ON THE PART OF THE A.O. IN NOT FOLLOWING TH E BOARD INSTRUCTIONS AND THE PROVISIONS OF THE STATUTE IN T HE MATTER OF REFERENCE TO THE TPO FOR DETERMINING THE ARMS LENGTH PRICE ARE V ERY CLEAR, THE ORDERS OF THE A.O ARE ERRONEOUS AND PREJUDICIAL IN THE INTERE ST OF REVENUE. 1.5.3 THE ABOVE VIEW FINDS SUPPORT FROM THE HON'BLE GUJARAT HIGH COURT DECISION IN CWT V. SHMATILAL POPATLAL (HUF) (1997) 225 ITR 242, WHEREIN, IT WAS HELD AS UNDER: 'SEC.25(2) OF THE ACT EMPOWERS THE CWT TO CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDING UNDER THE ACT AND ON SUCH EXAMINATION IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE A O IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE , HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTE R MAKING OR CAUSING TO BE MADE SUCH ENQUIRY AS HE DEEMS NECE SSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUST IFY, INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT OR CANCELING IT AND DIRECTING A FRESH ASSESSMENT. IT WILL BE NOTICED TH AT THE REVISIONAL POWERS OF THE CWT UNDER THE SAID PROVISION ARE OF A WIDE AMPLITUDE AND THEY ENABLE THE CWT TO MAKE ANY ORDER AS THE CIRCUMSTANCES OF THE CASE JUSTIFY INCLUDING MODIFICATION OF THE ITA NO.468/VIZAG/2007 M/S. AGILISYS IT SERVICES PVT. LTD., MUMBAI 4 ASSESSMENT OR CANCELLATION OF THE ASSESSMENT ORDER AND TO DIRECT A FRESH ASSESSMENT. THE CWT REFERRED TO CERTAIN GUIDELINES GIVEN BY THE BOARD WHICH HAD A DIRECT BEARING ON THE EXERCISE OF POWERS BY THE AO IN CONSIDERING THE VALUATION OF AN ASSET. THE AREA OF LAND WAS 4.471 SQ. YARDS WITH THE BUILT UP AREA OF ONLY 371 SQ. YARDS THEREON. THEREFORE, THE QUESTION WHETHER THE HOUSE WOULD INC LUDE THE ENTIRE AREA OF 4471 SQ. YARDS SURROUNDING THAT HOUSE AND O WNED BY THE ASSESSEE OR WHETHER IT SHOULD BE CONSTRUED AS TO IN CLUDE ONLY THE APPURTENANT LAND SURROUNDING THE HOUSE WHICH WAS RE QUIRED UNDER THE LAW TO BE LEFT OPEN OR COULD BE CONSIDERED TO BE AS A PART OF THE HOUSE OR A DWELLING UNIT, WAS REQUIRED TO BE GONE I NTO BY THE WTO. EVEN APART FROM THE CIRCULAR OF THE BOARD THIS WAS A VITAL QUESTION WHICH WAS REQUIRED TO BE EXAMINED WHILE CONSIDERING THE VALUE OF THE ASSET. THE QUESTION WHETHER A LARGE PORTION OF LAND CAN BE SEPARATELY DEVELOPED WITHOUT EFFECTING THE OWNER'S RIGHT TO RETAIN THE HOUSE WOULD HAVE BEARING ON THE QUESTION OF THE VALUE OF THE ASSET. THEREFORE, WHEN THE CWT NOTED THAT THE RELEV ANT ASPECTS WERE NOT GONE INTO BY THE WTO AND HE SET ASIDE THE ORDER OF THE WTO DIRECTING HIM TO REFER THE QUESTION OF VALUATIO N TO THE VALUATION OFFICER, IT CAN NEVER BE SAID THAT THE CWT HAD COMM ITTED ANY ERROR IN EXERCISE OF HIS POWERS WHICH COULD HAVE WARRANTED INTERFERENCE BY THE TRIBUNAL.' 1.6 IN THE LIGHT OF THE ABOVE, I AM OF THE VIEW THA T THE ASSESSMENT MADE BY THE A.O. IS NOT ONLY ERRONEOUS BUT ALSO PRE JUDICIAL TO THE INTEREST OF THE REVENUE AND THEREFORE, I DIRECT THE ASSESSIN G OFFICER TO REFER THE QUESTION OF DETERMINATION OF TRANSFER PRICE TO THE TPO IN TERMS OF THE BOARD CIRCULAR (INSTRUCTION NO.3) DATED 20.5.2003 A ND FINALISE THE ASSESSMENT DENOVO KEEPING IN VIEW THE ISSUES CONSID ERED HEREIN ABOVE. 3. ACCORDINGLY, THE LD. CIT CONSIDERED THE ORDER AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THER EFORE DIRECTED THE ASSESSING OFFICER TO REFER THE QUESTION OF DETERMIN ATION OF TRANSFER PRICE TO THE TRANSFER PRICING OFFICER IN TERMS OF THE BOA RD INSTRUCTION NO.3 DATED 20.5.2003 AND FINALIZED THE ASSESSMENT DENOVO KEEPING IN VIEW THE ISSUES CONSIDERED THEREIN THE ORDER. THE ASSESSEE IS AGGRIEVED ON THE ABOVE ORDER OF THE CIT QUESTIONING THE JURISDICTIO N IN SETTING ASIDE THE ORDER U/S 263 OF THE ACT. 4. THE LD. A.R. REFERRING TO THE SHOW CAUSE NOTICES ISSUED IN THIS REGARD HOWEVER, FAIRLY ADMITTED THAT ON THE SECOND ISSUE OF NON- REFERENCE TO TPO IN VIOLATION OF BOARD CIRCULAR NO. 3 BY THE A.O., THE ISSUE IS CONSIDERED BY THE HONBLE DELHI HIGH COURT IN TH E CASE OF RANBAXY LABORATORIES LTD. VS. CIT 345 ITR 193, WHEREIN IT W AS HELD THAT IN VIEW ITA NO.468/VIZAG/2007 M/S. AGILISYS IT SERVICES PVT. LTD., MUMBAI 5 OF THE INSTRUCTION NO.3 DATED 25.5.2003 ISSUED BY T HE CBDT, IT IS MANDATORY ON THE PART OF ASSESSING OFFICER TO MAKE REFERENCE TO TPO FOR DETERMINATION OF ALP, WHEREIN CORRECT VALUE OF INTE RNATIONAL TRANSACTIONS EXCEEDS ` .5 CRORES. THE FACTS IN THE ABOVE RANBAXY CASE ARE SIMILAR TO THE ASSESSEES CASE, WHEREIN ALSO THE CIT IN EXERCI SE OF THE POWER U/S 263 OF THE ACT SET ASIDE THE ASSESSMENT ORDER MAINL Y ON THE GROUND THAT NON-REFERENCE OF THE CASE TO TPO MADE THE ASSESSMEN T ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. IN VIE W OF THE DECISION OF THE HONBLE HIGH COURT OF DELHI ON SIMILAR FACTS, IT WA S FAIRLY ADMITTED THAT ON THE SECOND ISSUE CONSIDERED BY THE CIT, THE GROUND IS AGAINST THE ASSESSEE. 5. HOWEVER, LD. A.R. VEHEMENTLY ARGUED WITH REFEREN CE TO THE ISSUE IN GROUND NO.2 I.E. RESTRICTION OF DEDUCTION U/S 10 B OF THE ACT ON ACCOUNT OF SUO MOTTO ADJUSTMENT ON THE BASIS OF TRANSFER PR ICING REPORT OF ` .4,09,45,804/-. IT WAS SUBMITTED THAT THE ASSESSEE MADE SUOMOTTO ADDITION AS PER TRANSFER PRICING REPORT OF ` .4,09,45,804/- IN THE COMPUTATION OF INCOME AND CLAIMED THE DEDUCTION U/S 10B OF THE ACT. IT WAS FURTHER SUBMITTED THAT THE ASSESSING OFFICER EX AMINED THE CLAIM OF DEDUCTION U/S 10B OF THE ACT IN DETAIL AND REFERRED TO THE SHOW CAUSE NOTICES ISSUED IN THE COURSE OF ASSESSMENT. IT WAS FURTHER SUBMITTED THAT VIDE ANNEXURE-4 TO THE DETAILS FURNISHED, THE ASSES SEE HAS ADMITTED THE EXPORT TURNOVER AT ` .6,22,61,941/- AND IN THE TRANSFER PRICING REPORT MADE THE ALP ON TNMM METHOD AT ` .10,32,07,545/- THEREBY MAKING SUOMOTO ADJUSTMENT OF ` .4,09,45,804/- TO THE TOTAL INCOME IN THE COMPUTATION OF INCOME. IT WAS FURTHER SUBMITTED TH AT THIS ENTIRE WORKING AS REPORTED IN THE FORM NO.3CEB AND OTHER FORMS WER E IN FACT EXAMINED BY THE A.O. AND OPINION EXPRESSED BY THE CIT IS C HANGE OF OPINION. THEREFORE, THE CIT IS NOT PERMITTED TO DIFFER FROM THE OPINION EXPRESSED FROM THE A.O. WHILE ALLOWING THE DEDUCTION. IT WAS FURTHER SUBMITTED THAT THERE IS ONLY ONE VIEW TAKEN BY THE ITAT IN TH E CASE OF I GATE GLOBAL SOLUTIONS LTD. VS. ACIT 24 SOT 3, WHEREIN CONSIDERI NG THE USE OF WORDS ENHANCEMENT OF INCOME DUE TO DETERMINATION OF ARM S LENGTH PRICE BY THE TRANSFER PRICING OFFICER, THE ITAT HELD THAT WH ERE ASSESSEE ITSELF ITA NO.468/VIZAG/2007 M/S. AGILISYS IT SERVICES PVT. LTD., MUMBAI 6 COMPUTED ARMS LENGTH PRICE AND DISCLOSED INCOME ON THE BASIS OF SAID REPORT ASSESSEE WAS ENTITLED TO DEDUCTION U/S 10A O F THE ACT IN RESPECT OF INCOME DECLARED IN RETURN. IT WAS SUBMITTED THAT T HERE IS NO CONTRARY VIEW AVAILABLE SO FAR ON THIS ISSUE AND SINCE THE A SSESSING OFFICER HAS CORRECTLY ALLOWED THE DEDUCTION ON THE INCOME INCLU DING THE SUOMOTO ADDITION MADE BY THE A.O., THE OPINION OF THE CIT(A ) IS PERSE NOT CORRECT AND THEREFORE RELYING ON THE FOLLOWING LAW, IT WAS SUBMITTED THAT THE ORDER IS BAD IN LAW. 1) MALABAR INDUSTRIAL CO. LTD. VS. CIT [2000] 243 ITR 83 2) CIT VS. MAX INDIA LTD. 295 ITR 282 (SC) 3) SPECTRA SHARES & SCRIPS (P) LTD. 36 TAXMAN 348 (AP) 6. THE LD. D.R. HOWEVER SUBMITTED THAT THERE IS NO ISSUE ON MERITS AS THE LD. CIT CONSIDERED ONLY THE ORDER TO BE ERRO NEOUS AND PREJUDICIAL ON THE TWO ISSUES AND AS THE ASSESSEE ADMITTED THAT ON THE SECOND ISSUE IE NON REFERENCE TO TPO THERE IS JURISDICTION, THER E IS NO NEED TO ADJUDICATE THE ISSUE ON MERITS NOW, AS THE ORDER WA S ONLY SET ASIDE AND RESTORED TO THE FILE OF THE A.O. FOR FRESH CONSIDER ATION. IN VIEW OF THIS LD. CIT(DR) SUBMITTED THAT ORDER U/S 263 OF THE ACT IS TO BE UPHELD AND ISSUE ON MERITS NEED NOT BE DECIDED AS SUCH. 7. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE RE CORD. AS SEEN FROM THE ORDER OF THE LD. CIT, HE HAS CONSIDERED TW O ISSUES; (1) ALLOWANCE OF DEDUCTION U/S 10B(3) OF THE ACT ON SUO MOTO ADJUSTMENT MADE BY THE ASSESSEE UNDER TRANSFER PRICING PROVISI ONS AND (2) ON NON- REFERENCE TO THE TPO WHEN THE TURNOVER EXCEED ` .5 CRORES ON INTERNATIONAL TRANSACTIONS. IT WAS FAIRLY ADMITTED THAT ON THE ISSUE OF NON-REFERENCE TO THE TPO AS PER THE BOARD CIRCULAR, THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E IN VIEW OF THE DECISION OF THE HONBLE HIGH COURT OF DELHI ON SIMI LAR FACTS IN THE CASE OF RANBAXY LABORATORIES LTD. VS. CIT (SUPRA). IN THAT CASE IT WAS HELD AS UNDER: ITA NO.468/VIZAG/2007 M/S. AGILISYS IT SERVICES PVT. LTD., MUMBAI 7 HELD IT IS NOT IN DISPUTE THAT SECTION 92CA ENABLES THE ASSESSING OFFICER TO REFER COMPUTATION OF ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION, UNDER SECTION 92C, WHEN THE ASSESSING OFFICER CONSIDERS IT NECESSARY OR EXPEDIE NT TO DO SO. THUS, DISCRETION LIES WITH THE ASSESSING OFFICE R. HAVING REGARD TO THE CIRCUMSTANCES OF A PARTICULAR CASE RE FERENCE TO THE TPO IS NOT MANDATORY. IN MARUTI SUZUKI INDIA LT D. V. ADDL. CIT [2010] 192 TAXMAN 317 (DELHI) THIS COURT OBSERVED THAT ORDINARILY THE ASSESSING OFFICER WOUL D MAKE REFERENCE TO THE TPOS IN THOSE CASES WHERE HE IS NO T IN AGREEMENT WITH THE PARTICULAR PRICE DISCLOSED BY TH E ASSESSEE OR WHERE, ON ACCOUNT OF COMPLEX NATURE OF THE TRANSACTION, HE FEELS THAT THE ARMS LENGTH PRICE NE EDS TO BE DETERMINED BY THE TPO. SO FAR SO GOOD. HOWEVER, FUR THER QUESTION (HAT HAS ARISEN FOR CONSIDERATION IS AS TO WHETHER IT BECOMES MANDATORY ON THE PART OF THE ASSESSING OFFI CER TO MAKE REFERENCE TO TPO FOR DETERMINATION OF ALP WHER EVER THE AGGREGATE VALUE OF INTERNATIONAL TRANSACTION EX CEEDS RS. 5 CRORES? INSTRUCTION NO.3 OF THE CBDT DATED 25-5-2 003 MAKES A STIPULATION TO THIS EFFECT. THE CENTRAL BOA RD OF DIRECT TAXES, THEREFORE, HAVE DECIDED THAT WHEREVER THE AGGREGATE VALUE OF INTERNATIONAL TRANSACTION EXCEED S RS. 5 CRORES, THE CASE SHOULD BE PICKED UP FOR SCRUTINY A ND REFERENCE UNDER SECTION 92CA BE MADE TO THE TPO. [P ARA 11] IT WAS A COMMON CASE THAT THE CBDT HAS ISSUED THIS INSTRUCTION IN EXERCISE OF ITS POWERS UNDER SECTION 119. SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AZTEC SOFTWARE & TECHNOLOGY V. ASSTT. CIT [IT. APPEAL NO. 826 OF 200 7, DATED 21-10-2008] HAS UPHELD THE VALIDITY OF THIS INSTRUC TION. WHILE DOING SO, THE SPECIAL BENCH HAS RELIED UPON THE JUD GMENT OF THIS COURT IN SONY INDIA (P.) LTD. V. CBDT [2007] 1 57 TAXMAN 125 (DELHI). THE CONTENTION OF THE REVENUE BEFORE T HE TRIBUNAL WAS THAT THE AFORESAID VIEW OF THE SPECIAL BENCH WA S ERRONEOUS AND RATHER CONTRARY TO THE DECISION OF TH IS COURT IN SONY INDIA (P.) LTD. ('SUPRA/ [PARA 12] THE TRIBUNAL HAVING DISMISSED THE ASSESSEE'S SUBMIS SION, CONCLUDED THAT ONCE VALIDITY OF CBDT CIRCULAR WAS U PHELD, AS PER THE SAID CIRCULAR THE ASSESSING OFFICER WAS DUT Y BOUND TO REFER THE MATTER TO THE TPO HAVING REGARD TO THE PU RPOSE OF SPECIALIZED CELL CREATED BY THE DEPARTMENT TO DEAL WITH COMPLICATED AND COMPLEX ISSUES AND SINCE THIS CHANN EL WAS NOT RESORTED TO BY THE ASSESSING OFFICER IN THE INS TANT CASE, THE COMMISSIONER WAS RIGHT IN PASSING THE ORDER UND ER SECTION 263. [PARA 13] ITA NO.468/VIZAG/2007 M/S. AGILISYS IT SERVICES PVT. LTD., MUMBAI 8 NO DOUBT, THE VALIDITY OF THE SAID INSTRUCTION WAS UPHELD ON THE TOUCH STONE OF ARTICLE 14 OF THE CONSTITUTION H OLDING THAT IT WAS BASED ON REASONABLE CLASSIFICATION AND (HERE WAS RATIONALE NEXUS WITH THE OBJECTIVES SOUGHT TO BE AC HIEVED. AT THE SAME TIME, WHILE DOING SO THIS COURT HAD ALSO L AID DOWN THE RIGOURS OF THE SAID CIRCULAR NO. DOUBT, THIS CO URT OBSERVED, IN THE PROCESS THAT THE SAID INSTRUCTION ACTED AS A GUIDELINE TO THE ASSESSING OFFICER. HOWEVER, MUCH M ILEAGE CANNOT BE DRAWN BY THE ASSESSEE FROM THOSE OBSERVAT IONS AS THESE OBSERVATIONS WERE MADE WHILE DEALING WITH THE CONTENTION OF THE PETITIONER IN THE SAID PETITION. THAT INSTRUCTION COMPLETELY TAKES AWAY THE DISCRETION OF THE ASSESSING OFFICER IN RELATION TO AN INTERNATIONAL T RANSACTION IF THE AGGREGATE VALUE THEREOF EXCEEDED RS. 5 CRORES. [PARA 14] THUS, THE TRIBUNAL RIGHTLY HELD THAT THE JUDGMENT O F SPECIAL BENCH IN AZTEC SOFTWARE & TECHNOLOGY (SUPRA,) IS NO T IN CONFLICT WITH SONY INDIA (P.) LTD. (SUPRA) ONCE THE VALIDITY OF SAID INSTRUCTION IS UPHELD BY THIS COURT, THE FOLLO W UP THEREOF IS THAT THE ASSESSING OFFICER WAS SUPPOSED TO REFER TH E MATTER TO THE TPO HAVING REGARD TO THE FACT THAT SPECIALIZED CELL WAS CREATED BY THE DEPARTMENT TO DEAL WITH THE COMPLICA TED AND COMPLEX ISSUES ARISING OUT OF I HE TRANSFER MECHANI SM. THE TRIBUNAL WAS RIGHT IN HOLDING THAT EVEN (HE INSTANT CASE ITSELF PROVIDES A GOOD EXAMPLE FOR NEED TO REFER THE MATTE R TO TPO IN SUCH CASES. WHEN CIRCULAR IS ISSUED UNDER SECTIO N 119 AND ITS VALIDITY IS UPHELD IT IS BINDING ON THE ASSESSI NG OFFICER. NOT TAKING RECOURSE THERETO AND PASSING THE ORDER AMOUN TED TO MAKING ASSESSMENT WITHOUT CONDUCTING PROPER INQUIRY AND INVESTIGATION AS ENJOYED BY LAW WHICH WAS ALSO WARR ANTED IN THE FACTS OF THIS CASE AND, THEREFORE, THE COMMISSI ONER WAS RIGHT IN HOLDING THAT SUCH ASSESSMENT WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. [PARA 1 6]. 8. CONSEQUENTLY, SINCE THE ASSESSING OFFICERS ORDE R IS ERRONEOUS AND PREJUDICIAL ON THE ABOVE, ON THAT REASON ALONE, TH E JURISDICTION OF THE CIT CAN BE UPHELD. 9. WITH REFERENCE TO THE ISSUE OF CLAIM U/S 10B(3) OF THE ACT, IT IS A FACT THAT THE ASSESSING OFFICER ENQUIRED ABOUT THE EXPORT TURNOVER AND TOTAL TURNOVER AND CALLED FOR DETAILS U/S 10B(3) OF THE ACT. HOWEVER, IT IS NOT ON RECORD NOR IT CAN BE DEDUCED FROM THE RECORD WHETHER HE HAS FORMED ANY OPINION IN ALLOWING THE DEDUCTION OF SEC TION 10B ON THE SUOMOTO INCOME/ADJUSTMENT MADE BY THE ASSESSEE AS S EEN FROM THE ITA NO.468/VIZAG/2007 M/S. AGILISYS IT SERVICES PVT. LTD., MUMBAI 9 COMPUTATION OF INCOME. THIS AMOUNT WAS ADDED IN TH E COMPUTATION OF INCOME ONLY WHILE ARRIVING AT THE INCOME ON THE STP I UNIT. OBVIOUSLY, THIS WORKING IS BEFORE THE A.O. HOWEVER, THERE IS NOTHING ON RECORD THAT A.O. HAS APPLIED HIS MIND TO THE ISSUE AS AT THE P OINT OF TIME THERE WAS DISPUTE ABOUT THE ALLOWANCE AND NON-ALLOWANCE OF DE DUCTION UNDER SECTION 10B OF THE ACT ON THE SUOMOTO ADJUSTMENT. BE THAT AS IT MAY AS RIGHTLY POINTED OUT BY THE LD. CIT D.R., THIS ISSUE WAS NOT DECIDED ON MERITS BY THE CIT AT ALL. THERE IS NO DIRECTION GI VEN TO THE A.O. TO DO IN A PARTICULAR MANNER. THE ISSUE WAS ANALYSED ONLY IN A RRIVING AT THE REASONING TO ESTABLISH THAT THE ORDER IS ERRONEOUS AND PREJUDICIAL. HE SIMPLY SET ASIDE THE ORDER WITH A DIRECTION TO REFE R THE MATTER TO THE TPO FIRST AND THEN COMPLETE THE ASSESSMENT KEEPING IN M IND THE ABOVE ISSUES. IT CAN NOT BE STATED THAT THE LD. CIT HAS DECIDED T HE ISSUE ON MERITS. THEREFORE, WE NEED NOT CONSIDER THE CONTENTIONS OF THE ASSESSEE TO DECIDE THE ISSUE ON MERITS AS WELL. SINCE THE ORDE R IS TO BE UPHELD ON THE ISSUE OF NON-REFERENCE TO THE TPO IN VIOLATION OF T HE BOARD CIRCULAR, WE UPHOLD THE ORDER OF CIT U/S 263 OF THE ACT. ACCORD INGLY, GROUND NO.1 IS TO BE HELD AGAINST THE ASSESSEE. AS THE CIT HAS NOT DECIDED THE FIRST ISSUE ON MERITS AND LEFT IT TO THE ASSESSING OFFICER FOR HIS CONSIDERATION IN RE- ASSESSMENT PROCEEDINGS, WE DO NOT INTEND TO ADJUDIC ATE ON THE MERITS AND DEMERITS OF THE ASSESSEES CLAIM OF DEDUCTION U /S 10B OF THE ACT. THIS CAN BE EXAMINED AFRESH IN THE CONSEQUENTIAL PR OCEEDINGS, WHICH WE WERE INFORMED ARE PENDING WITH THE ITAT AT MUMBAI. THEREFORE, WE ARE OF THE OPINION THAT THERE IS NO NEED TO ADJUDICATE THE GROUNDS 2 AND 3, WHICH ARE RAISED WITHOUT PREJUDICE TO GROUND NO.1. TO THE EXTENT OF UPHOLDING THE PROCEEDINGS U/S 263 OF THE ACT ON THE JURISDICTIONAL ISSUE, WE UPHOLD THE ORDER U/S 263 OF THE ACT AND ASSESSEE S GROUND 1 IS REJECTED. 10. BEFORE PARTING WITH THE ORDER WE INTEND TO PLAC E OUR OBSERVATION ON THE WAY ASSESSING OFFICERS ARE CONSIDERING THE A SSESSMENT PROCEEDINGS. IN THE COURSE OF ARGUMENTS, LD. COUNSE L PLACED THE CONSEQUENTIAL ASSESSMENT ORDER PASSED BY THE A.O. I N SUPPORT OF THE SUBMISSIONS MADE WITH REFERENCE TO THE MERITS OF CL AIM U/S 10B OF THE ITA NO.468/VIZAG/2007 M/S. AGILISYS IT SERVICES PVT. LTD., MUMBAI 10 ACT. IN THAT ORDER, EVEN THOUGH THE ASSESSEES EXPO RT TURNOVER RECEIVED IN FOREIGN EXCHANGE WAS AT ` .6,27,75,153/- WHICH THE LD. CIT ALSO ACCEPTS IN THE ORDER U/S 263 OF THE ACT, ASSESSING OFFICER WR ONGLY REDUCED THE SUOMOTO ADJUSTMENT MADE BY THE ASSESSEE AS FOREIGN EXCHANGE NOT REALIZED AND REDUCED THE ACTUAL SALES TURNOVER TO ` .2,18,29,348/-. WE ARE OF THE OPINION THAT THIS IS MORE ERRONEOUS THAN THE ORIGINAL ORDER PASSED BY THE A.O. THIS INDICATES NON APPLICATION OF MIND BY AO EVEN IN REASSESSMENT PROCEEDINGS, EVEN AFTER INVOCATION OF JURISDICTION BY CIT U/S 263. THIS ORDER HOWEVER SUPPORT OUR OPINION THAT LD .CIT DID NOT DECIDE ANY ISSUE ON MERITS AND ONLY SET ASIDE THE ORDER FO R DOING IT DENOVO BY AO. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. PRONOUNCED IN THE OPEN COURT ON 11 TH DEC13 SD/ - SD/ - ( SAKTIJIT DEY ) ( B. RAMAKOTAIAH ) JUDICIAL MEMBER ACCOUNTANT MEMBER VG/SPS VISAKHAPATNAM, DATED 11 TH DECEMBER, 2013 COPY TO 1 AGILISYS IT SERVICES INDIA PVT. LT D ( FORMERLY KNOWN AS NET DECISIONS PVT. LTD.), MUMBAI EDUCATIONAL TRUST, 6 TH FLOOR, GEN. A.K. VAIDYA CHOWK, BANDRA RECLAMATION, MUMBAI-400 050. 2 CIT - 1, VISAKHAPATNAM 3 THE CIT (A) , VISAKHAP A TNAM 4 THE DR, ITAT, VISAKHAPATNAM. 5 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM