Ashish Subodchandra Shah, Ahmedabad V. Pr. CIT-3, Ahmedabad

ITA 530/AHD/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0637 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 29-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SHARMA
• Assessee Lawyers: CHHAJAD
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; International transaction; Period of limitation; Question of law; Set aside
• Section: 143(3); 92D; 142(1); 10B; 13; 92CA; 263

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI RAJPAL YADAV, VICE-PRESIDENT AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA NO.530/AHD/2019 / ASSTT. YEAR: 2014-15 SHRI ASHISH SUBODCHANDRA SHAH 21, PALACIAL BUNGALOWS OPP: LANE TO STAR BAZAR JODHPUR, SATELLITE AHMEDABAD 380 015. PAN : ADRPS 5385 E VS. PR.CIT-3, AHMEDABAD. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI M.S. CHHAJAD, AR REVENUE BY : SHRI O.P. SHARMA,CIT-DR ! / DATE OF HEARING : 14/07/2021 '#$ ! / DATE OF PRONOUNCEMENT: 16/07/2021 %& / O R D E R PER RAJPAL YADAV, VICE-PRESIDENT PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF THE A SSESSEE AGAINST ORDER OF THE LD.PR.COMMISSIONER, AHMEDABAD DATED 11.03.2019 PASSED UNDER SECTION 263 OF THE INCOME T AX ACT, 1961 FOR THE ASSTT.YEAR 2014-125. 2. SOLE GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CO MMISSIONER HAS ERRED IN TAKING COGNIZANCE UNDER SECTION 263 OF THE INCOME TAX ACT AND SETTING ASIDE THE ASSESSMENT ORDER DATE D 17.11.2016 AND DIRECTING THE AO TO PASS FRESH ASSESSMENT ORDER . ITA NO.530/AHD/2019 2 3 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A N INDIVIDUAL AND RUNNING PROPRIETORSHIP CONCERN IN THE NAME AND STYLE OF G.P. TEXTILES. HE HAS FILED HIS RETURN OF INCOME FOR T HE ASSTT.YEAR 2014-15 ON 11.11.2014 DECLARING TOTAL INCOME AT RS. 33,98,080/-. THIS RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AN D ULTIMATELY, THE LD.AO HAS PASSED ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT ON 17.11.2016. THE LD.AO HAS DETERMINED TA XABLE INCOME OF THE ASSESSEE AT RS.57,75,980/-. HE MADE THE FOL LOWING ADDITIONS TO THE TOTAL INCOME OF THE ASSESSEE: I) DISALLOWANCE OF COMMISSION EXPENSES RS.13,81,400- II) DISALLOWANCE OF INTEREST EXPENSES RS.5,80,490/- III) DISALLOWANCE U/S.14A RS.32,386/- IV) DISALLOWANCE OF LABOUR EXPENSES RS.3,83,630/- 4. THE LD.COMMISSIONER WHILE GOING THROUGH THE ASSE SSMENT ORDER FORMED AN OPINION THAT IN FORM NO.3CEB THE ASS ESSEE HAS SHOWN A DOMESTIC TRANSACTION OF RS.19,44,64,576/-. ACCORDING TO HIM, IT IS A SPECIFIED DOMESTIC TRANSACTION AND ITS VALUE IS MORE THAN RS.5 CRORES. THEREFORE, THIS TRANSACTION SHOU LD HAVE BEEN REFERRED TO THE TPO BY THE AO FOR DETERMINING ARMS LENGTH PRICE, AND ONLY THEREAFTER THE ASSESSMENT ORDER SHOULD HAV E BEEN FRAMED. THIS ACTION OF THE AO IS ERRONEOUS WHICH H AS CAUSED PREJUDICE TO THE INTEREST OF THE REVENUE. ACCORDINGLY, HE IS SUED A NOTICE UNDER SECTION 263 OF THE ACT. 5. IN RESPONSE TO THE NOTICE, THE ASSESSEE HAS FILE D DETAILED SUBMISSION VIDE LETTER DATED 22.11.2018. COPY OF T HIS LETTER HAS BEEN PLACED ON PAGE NO.1 TO 11 OF THE PAPER BOOK. BROADLY THE ASSESSEE RAISED FOUR FOLD OF SUBMISSIONS. HE CONTE NDED THAT DURING COURSE OF THE ASSESSMENT PROCEEDINGS, HE HAS EXPLAINED ITA NO.530/AHD/2019 3 THAT THE ALLEGED SPECIFIED DOMESTIC TRANSACTION TO THE AO VIDE LETTER DATED 3.8.2016 AND 10.8.2016. COPIES OF THE SE LETTERS HAVE ALSO BEEN PLACED ON PAPER BOOK ON PAGE NO.20 TO 26; (B) THE AO GONE THROUGH THESE TRANSACTIONS AND ARRIVED AT A CO NCLUSION THAT NO REFERENCE TO THE TPO IS REQUIRED UNDER SECTION 9 2BA. THIS SECTION PROVIDES DEFINITION OF SPECIFIED DOMESTIC TRANSACTION. AT THE MOST IN THE CASE OF THE ASSESSEE ONLY DEFINITIO N PROVIDED UNDER SUB-CLAUSE (1) COULD BE ATTRACTED, AND THIS C LAUSE HAS BEEN DELETED W.E.F 1-4-2017, THEREFORE, THE LD.COMMISSIO NER CANNOT TAKE COGNIZANCE UNDER SECTION 263 OF THE ACT ON THE STRENGTH OF OMITTED PROVISION OF LAW. THE ASSESSEE HAS RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF GE NERAL FINANCE COMPANY VS.ITO, 257 ITR 338 (SC); IN THE CASE OF KO LHAPUR CANE SUGAR WORKS LTD. UOI AS WELL AS ORDERS OF ITAT, BANG ALORE AND THE JUDGMENTS OF HONBLE KARNATAKA HIGH COURTS. THE LD.COMMISSIONER WAS NOT SATISFIED WITH THE CONTENTI ONS OF THE ASSESSEE AND SET ASIDE THE ASSESSMENT ORDER. THE L D.COUNSEL FOR THE ASSESSEE WHILE IMPUGNING THE ORDER OF THE CIT H AS PLACED BEFORE US THE BIFURCATION OF THE TRANSACTION, WHICH COULD BE REQUIRED TO BE REFERRED TO THE TPO AT THE MOST. SU CH BIFURCATION RED AS UNDER: SR. NO. DATE PARTICULARS AMOUNT REMARKS 1 AY 2014-15 TRANSACTIONS ENTERED WITH RELATED PARTIES IS AS UNDER: TRANSACTION WITH RELATED PARTIES ARE DULY DISCLOSED IN FORM 3CEB PARTICULARS NATURE 1. GLOBAL ENTERPRISE (PROP. ASHISH S SHAH HUF) PURCHA SE 19,36,86,462/- 2. AMIBEN P SHAH INTEREST 2,063/- 3. DIPTIBEN D SHAH INTEREST 3,095/- 4.SWATIBENSSHAH INTEREST 3,095/- ITA NO.530/AHD/2019 4 5. NEENBEN KSHAH INTEREST 3,095/- 6. SUBHODCHANDRA K SHAH INTEREST 4,03,135/- 7. SUBHOCHANDRA K SHAH HUF INTEREST 3,63,631/- 6. HE THEREAFTER REITERATED SUBMISSIONS AS WERE RAI SED BEFORE THE LD.CIT. ON THE OTHER HAND, THE LD.CIT-DR RELIE D UPON THE ORDER OF THE LD.COMMISSIONER. 7. WE HAVE DULY CONSIDERED RIVAL SUBMISSIONS AND GO NE THROUGH THE RECORD CAREFULLY. SECTION 263 OF THE INCOME TAX ACT HAS DIRECT BEARING ON THE CONTROVERSY, THEREFORE, IT IS PERTIN ENT TO TAKE NOTE OF THIS SECTION. IT READS AS UNDER: 263(1) THE COMMISSIONER MAY CALL FOR AND EXAMINE T HE RECORD OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ASSESSING OFFICER IS ERRONEOU S IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTER MA KING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, I NCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT, OR CANCELLIN G THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. [EXPLANATION.- FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT, FOR THE PURPOSES OF THIS SUB-SECTION,- (A) AN ORDER PASSED ON OR BEFORE OR AFTER THE 1 ST DAY OF JUNE, 1988 BY THE ASSESSING OFFICER SHALL INCLUDE- (I) AN ORDER OF ASSESSMENT MADE BY THE ASSISTANT COMMISSIONER OR DEPUTY COMMISSIONER OR THE INCOME-T AX OFFICER ON THE BASIS OF THE DIRECTIONS ISSUED BY TH E JOINT COMMISSIONER UNDER SECTION 144A; (II) AN ORDER MADE BY THE JOINT COMMISSIONER IN EXE RCISE OF THE POWERS OR IN THE PERFORMANCE OF THE FUNCTIONS O F AN ASSESSING OFFICER CONFERRED ON, OR ASSIGNED TO, HIM UNDER THE ORDERS OR DIRECTIONS ISSUED BY THE BOARD OR BY THE CHIEF COMMISSIONER OR DIRECTOR GENERAL OR COMMISSIONER AUTHORIZED BY THE BOARD IN THIS BEHALF UNDER SECTIO N 120; ITA NO.530/AHD/2019 5 (B) RECORD SHALL INCLUDE AND SHALL BE DEEMED ALWAY S TO HAVE INCLUDED ALL RECORDS RELATING TO ANY PROCEEDING UND ER THIS ACT AVAILABLE AT THE TIME OF EXAMINATION BY THE COMMISSIONER; (C) WHERE ANY ORDER REFERRED TO IN THIS SUB-SECTION AND PASSED BY THE ASSESSING OFFICER HAD BEEN THE SUBJECT MATTE R OF ANY APPEAL FILED ON OR BEFORE OR AFTER THE 1 ST DAY OF JUNE, 1988, THE POWERS OF THE COMMISSIONER UNDER THIS SUB-SECTI ON SHALL EXTEND AND SHALL BE DEEMED ALWAYS TO HAVE EXT ENDED TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECI DED IN SUCH APPEAL. (2) NO ORDER SHALL BE MADE UNDER SUB-SECTION (1) AF TER THE EXPIRY OF TWO YEARS FROM THE END OF THE FINANCIAL Y EAR IN WHICH THE ORDER SOUGHT TO BE REVISED WAS PASSED. (3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTI ON (2), AN ORDER IN REVISION UNDER THIS SECTION MAY BE PASSED AT ANY TIME IN THE CASE OF AN ORDER WHICH HAS BEEN PASSED IN CO NSEQUENCE OF, OR TO GIVE EFFECT TO, ANY FINDING OR DIRECTION CONTAINED IN AN ORDER OF THE APPELLATE TRIBUNAL, NATIONAL TAX TRIBU NAL, THE HIGH COURT OR THE SUPREME COURT. EXPLANATION.- IN COMPUTING THE PERIOD OF LIMITATION FOR THE PURPOSES OF SUB-SECTION (2), THE TIME TAKEN IN GIVI NG AN OPPORTUNITY TO THE ASSESSEE TO BE REHEARD UNDER THE PROVISO TO SECTION 129 AND ANY PERIOD DURING WHICH ANY PROCEED ING UNDER THIS SECTION IS STAYED BY AN ORDER OR INJUNCTION OF ANY COURT SHALL BE EXCLUDED. 8. ON A BARE PERUSAL OF THE SUB SECTION-1 WOULD REV EAL THAT POWERS OF REVISION GRANTED BY SECTION 263 TO THE LE ARNED COMMISSIONER HAVE FOUR COMPARTMENTS. IN THE FIRST P LACE, THE LEARNED COMMISSIONER MAY CALL FOR AND EXAMINE THE R ECORDS OF ANY PROCEEDINGS UNDER THIS ACT. FOR CALLING OF THE RECORD AND EXAMINATION, THE LEARNED COMMISSIONER WAS NOT REQUI RED TO SHOW ANY REASON. IT IS A PART OF HIS ADMINISTRATIVE CONT ROL TO CALL FOR THE ITA NO.530/AHD/2019 6 RECORDS AND EXAMINE THEM. THE SECOND FEATURE WOULD COME WHEN HE WILL JUDGE AN ORDER PASSED BY AN ASSESSING OFFIC ER ON CULMINATION OF ANY PROCEEDINGS OR DURING THE PENDEN CY OF THOSE PROCEEDINGS. ON AN ANALYSIS OF THE RECORD AND OF TH E ORDER PASSED BY THE ASSESSING OFFICER, HE FORMED AN OPINION THAT SUCH AN ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. BY THIS STAGE THE LEARNED COMMISSIONER WAS NOT REQUIRED THE ASSISTANCE OF THE ASSESSEE. THEREAFTER THE THIRD STAGE WOULD COME. THE LEARNED COMMISSIONER WOULD ISSUE A SHOW CAUSE NOTICE POINTING OUT THE REASONS FOR THE FORMATION O F HIS BELIEF THAT ACTION U/S 263 IS REQUIRED ON A PARTICULAR ORDER OF THE ASSESSING OFFICER. AT THIS STAGE THE OPPORTUNITY TO THE ASSES SEE WOULD BE GIVEN. THE LEARNED COMMISSIONER HAS TO CONDUCT AN I NQUIRY AS HE MAY DEEM FIT. AFTER HEARING THE ASSESSEE, HE WILL P ASS THE ORDER. THIS IS THE 4TH COMPARTMENT OF THIS SECTION. THE LE ARNED COMMISSIONER MAY ANNUL THE ORDER OF THE ASSESSING O FFICER. HE MAY ENHANCE THE ASSESSED INCOME BY MODIFYING THE OR DER. AT THIS STAGE, BEFORE CONSIDERING THE MULTI-FOLD CONTENTION S OF THE LD. REPRESENTATIVES, WE DEEM IT PERTINENT TO TAKE NOTE OF THE FUNDAMENTAL TESTS PROPOUNDED IN VARIOUS JUDGMENTS R ELEVANT FOR JUDGING THE ACTION OF THE CIT TAKEN U/S 263. THE IT AT IN THE CASE OF MRS. KHATIZA S. OOMERBHOY VS. ITO, MUMBAI, 101 T TJ 1095, ANALYZED IN DETAIL VARIOUS AUTHORITATIVE PRONOUNCEM ENTS INCLUDING THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F MALABAR INDUSTRIES 243 ITR 83 AND HAS PROPOUNDED THE FOLLOW ING BROADER PRINCIPLE TO JUDGE THE ACTION OF CIT TAKEN UNDER SE CTION 263. (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. BOTH THE CONDITIONS MUST BE FULFILLED. ITA NO.530/AHD/2019 7 (II) SEC. 263 CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE AO AND IT WAS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF ORDER BEING ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND IF THE AO HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS ARE POSSIBLE AND THE AO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE. IF CANNOT BE TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE UNDER LAW (VI) IF WHILE MAKING THE ASSESSMENT, THE AO EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINE THE INCOME, THE CIT, WHILE EXERCISING HIS POWER UNDER S 263 IS NOT PERMITTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIMATED BY THE AO. (VII) THE AO EXERCISES QUASI-JUDICIAL POWER VESTED IN HIS AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH LAW AND ARRIVE AT A CONCLUSION, SUCH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEE STRATIFIED WITH THE CONCLUSION. (VIII) THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER S . 263 MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. (IX) IF THE AO HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANATION BY A LETTER IN WRITING AND THE AO ALLOWS THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION OF THE ITA NO.530/AHD/2019 8 ASSESSEE, THE DECISION OF THE AO CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. 9. IN THE LIGHT OF THE ABOVE, LET US EXAMINE THE FA CTS OF THE PRESENT CASE. A PERUSAL OF THE TRANSACTIONS ENTERE D WITH THE RELATED PARTIES WHOSE VALUE AT THE MOST COULD BE DE TERMINED AT ARMS LENGTH, ARE THE TRANSACTIONS WITH RELATED PAR TIES. WE HAVE NOTICED THE BREAK-UP OF SUCH TRANSACTIONS (SUPRA) A ND AT THE COST OF REPETITION, WE TAKE THIS TRANSACTION AGAIN BELOW : SR. NO. DATE PARTICULARS AMOUNT REMARKS 1 AY 2014-15 TRANSACTIONS ENTERED WITH RELATED PARTIES IS AS UNDER: TRANSACTION WITH RELATED PARTIES ARE DULY DISCLOSED IN FORM 3CEB PARTICULARS NATURE 1. GLOBAL ENTERPRISE (PROP. ASHISH S SHAH HUF) PURCHA SE 19,36,86,462/- 2. AMIBEN P SHAH INTEREST 2,063/- 3. DIPTIBEN D SHAH INTEREST 3,095/- 4.SWATIBENSSHAH INTEREST 3,095/- 5. NEENBEN KSHAH INTEREST 3,095/- 6. SUBHODCHANDRA K SHAH INTEREST 4,03,135/- 7. SUBHOCHANDRA K SHAH HUF INTEREST 3,63,631/- 10. AT THIS STAGE, WE WOULD LIKE TO TAKE NOTE OF TH E DEFINITION OF EXPRESSION SPECIFIED DOMESTIC TRANSACTION PROVIDE D UNDER SECTION 92BA, WHICH READS AS UNDER: 92BA. FOR THE PURPOSES OF THIS SECTION AND SECTIONS 92, 92C, 92D AND 92E, 'SPECIFIED DOMESTIC TRANSACTI ON' IN CASE OF AN ASSESSEE MEANS ANY OF THE FOLLOWING TRANSACTIONS, N OT BEING AN INTERNATIONAL TRANSACTION, NAMELY: (I) ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT H AS BEEN MADE OR IS TO BE MADE TO A PERSON REFERRED TO IN CLAUSE (B) OF SUB- SECTION (2) OF SECTION 40A; ITA NO.530/AHD/2019 9 (II) ANY TRANSACTION REFERRED TO IN SECTION 80A; (III) ANY TRANSFER OF GOODS OR SERVICES REFERRED T O IN SUB-SECTION (8) OF SECTION 80-IA; (IV) ANY BUSINESS TRANSACTED BETWEEN THE ASSESSEE AND OTHER PERSON AS REFERRED TO IN SUB-SECTION (10) OF SECTIO N 80-IA; (V) ANY TRANSACTION, REFERRED TO IN ANY OTHER SECT ION UNDER CHAPTER VI-A OR SECTION 10AA, TO WHICH PROVISIONS O F SUB- SECTION (8) OR SUB-SECTION (10) OF SECTION 80-IA AR E APPLICABLE; OR (VI) ANY OTHER TRANSACTION AS MAY BE PRESCRIBED, AND WHERE THE AGGREGATE OF SUCH TRANSACTIONS ENTERE D INTO BY THE ASSESSEE IN THE PREVIOUS YEAR EXCEEDS A SUM OF FIVE CRORE RUPEES.] 11. SUB-CLAUSE (I) OF THE ABOVE PROVISION HAS BEEN OMITTED FROM THE ACT W.E.F. 1.4.2017. IF THIS CLAUSE IS TAKEN O UT, THEN THE REMAINING CLAUSES ARE CLAUSE (II) TO (VI). LET US EVALUATE THE TRANSACTION WHICH AT THE MOST SHOULD BE REFERRED TO TPO FOR DETERMINATION OF ARMS LENGTH PRICE IN THE PRESENT CASE. WE HAVE TAKEN NOTE OF BIFURCATION OF THE TRANSACTION, AND O UT OF ALL SEVEN TRANSACTIONS ONLY TRANSACTION NO.1 I.E. PURCHASE FR OM GLOBAL ENTERPRISES AT THE MOST COULD BE REFERRED FOR DETER MINATION OF ALP UNDER SUB-CLAUSE (I) OF SECTION 92BA. THIS ASPECT HAS BEEN GONE INTO BY THE LD.AO AND THE ASSESSEE HAS EXPLAINED QU A THIS TRANSACTION. THE RELEVANT PART OF THE SAME READS A S UNDER: RE.: YOUR NOTICE U/S 142(1) DTD. 30TH JUNE, 2016 WITH REFERENCE TO ABOVE AND ON BEHALF OF AND UPON R EQUEST FROM AFORESAID ASSESSEE, WE WOULD LIKE TO STATE THA T YOUR NOTICE DTD. ABOVE HAS BEEN RECEIVED BY ASSESSEE ON 8TH JUL Y 2016 ONLY AND HENCE, WE COULD GET VERY LITTLE TIME TO PREPARE DOCUMENTS REQUIRED BY YOU. WE HAVE HOWEVER, ATTEMPTED TO PREPARE AND SUBMIT AS MUCH DETAILS AND NOW WE ARE SUBMITTING THOSE AS BELOW: 1. POINT NO.1 OF NOTICE IT SEEMS THAT SCRUTINY IS ATTRACTED DUE TO FOLLOWIN G 3 BROAD POINTS ON WHICH YOU SOUGHT TO FILE A. LARGE COMMISSION EXPENSE AND LOW NET PROFIT ITA NO.530/AHD/2019 10 KINDLY NOTE THAT ASSESSEE DEALS IN KNITTED FABRICS AND MUCH OF THE SALES IS DONE THROUGH COMMISSION AGENTS AND BROKERS AND HENCE, COMMISSION EXPENSES IS FOUND TO BE HIGH. FOR THE SAKE OF COMFORT, WE ATTEMPT TO GIVE COMPARA TIVE LIST OF PAST 2 YEARS ALSO WHICH WILL CLARIFY THAT DURING TH E YEAR UNDER ASSESSMENT, COMMISSION AS % OF SALES HAS REDUCED BU T SALES IS MUCH DEPENDENT UPON COMMISSION AGENTS. FINANCIAL YEAR COMMISSION EXPENSES (AMOUNT RS.) SALES AS PER AUDIT REPORT (AMOUNT RS.) NET PROFIT AS PER AUDIT REPORT (AMOUNT RS.) COMMISSION AS A % OF SALES 2013-14 23,46,917/- 22,34,96,914/- 32,43,340/- 1.05% 2012-13 26,21,040/- 16,64,70,249/- 26,24,854/- 1.57% 2011-12 18,35,747/- 11,70,91,114/- 22,15,512/- 1.57% B. JUSTIFICATION OF LARGE SPECIFIED DOMESTIC TRA NSACTION (FORM 3CEB) IN THIS CONNECTION, WE WOULD LIKE TO BRIEF YOU ABOU T BACKGROUND OF BUSINESS WHICH IS RELEVANT TO EXPLAIN THIS POINT. EARLIER IN 1996 WHEN THE ASSESSEE STARTED THE BUSIN ESS IN THE NAME OF G.N. TEXTILES OF TRADING IN KNITTED FABRICS , IT USED TO SOURCE READY FABRICS FROM LUDHIANA AND TIRUPUR. THE REAFTER, SLOWLY HE REALIZED THAT IT IS BENEFICIAL TO GET THE FABRIC MANUFACTURED AND SELL IT. HENCE, NEW UNIT VIZ. GLOB AL ENTERPRISE IN PROPRIETORSHIP OF HUF OF ASSESSEE WAS STARTED IN 20 06 WITH ITS BRANCH LOCATED AT LUDHIANA. IT STARTED TO PURCHASE YARN THERE, GET IT PROCESSED LIKE DYEING, KNITTING, FINISHING ETC. AT PREMISES OF JOBWORKERS AND SELL READY FABRIC TO G.N. TEXTILES. GLOBAL ENTERPRISE HAS ITS OWN OFFICE CUM GODOWN AT LUDHIANA AND HAS A LSO STAFF STRENGTH THERE TO LOOK AFTER ACTIVITIES THERE. M/S. G.N. TEXTILES TRADITIONALLY SOURCES MOST OF THE MATERIAL FROM GLO BAL ENTERPRISE ONLY SINCE LONG. THIS IS TO REDUCE OVERALL COST OF THE PRODUCT PROCURED. WE HEREBY MAKE AN ATTEMPT TO SUBMIT PURCHASES MADE BY ASSESSEE FROM GLOBAL ENTERPRISE FOR LAST 3 ASSESSME NT YEARS TO PROVE THAT THIS PRACTICE IS FOLLOWED BY ASSESSEE SI NCE LONG NOT TO SAVE TAXES BUT TO CUT COSTS AND GET GOOD MARGINS. ITA NO.530/AHD/2019 11 ASST.YEAR PURCHASES FROM GLOBAL ENTERPRISE IN RS. TOTAL PURCHASES OF ASSESSEE % OF PURCHASE FROM GLOBAL ENTERPRISE TO TOTAL PURCHASE 2014-15 19,85,73,366 21,42,00,058 92.70 2013-14 13,55,31,646 15,19,70,944 89.18 2012-13 9,72,84,771 10,91,47,309 89.13 2011-12 7,47,94,066 8,50,09,432 87.98 FURTHER THERE IS NO ATTEMPT TO REDUCE TAXES BUT JUS T TO EARN GOOD MARGINS BY SELF ENGAGING IN THE SAME LINE RATHER TH AN PROCURING MATERIAL DIRECTLY FROM OUTSIDE PARTIES. THIS IS FUR THER DONE IN THE NAME OF ASSOCIATE CONCERN TO DISTINGUISH IDENTITY O F BOTH THE UNITS IN LUDHIANA LOCAL MARKET SO THAT ADEQUATE BENEFITS OF LOWEST PURCHASE PRICES AND LOWEST PROCESSING CHARGES CAN B E ENJOYED. IT IS ALSO IMPERATIVE TO NOTE THAT THE ASSESSEE HAS GOT TRANSFER PRICING AUDIT FOR THE YEAR AND IS GETTING IT DONE S INCE INTRODUCED. THE COPY OF FORM NO.3CEB DULY UPLOADED WITHIN TIME HAS BEEN SUBMITTED TO YOU DURING OUR EARLIER SUBMISSION DTD. 23RD OCTOBER 2015. *** **** **** *** WITH REFERENCE TO THE ABOVE WE WOULD LIKE TO SUBMIT THE FOLLOWING DETAILS REGARDING ONGOING SCRUTINY AS REQUIRED BY Y OU. 1. WORKING OF DOMESTIC ARM LENGTH TRANSACTION AL ONG WITH COPY OF PURCHASE INVOICES: WITH REGARD TO OUR MAJOR PURCHASE FROM RELATED PART Y VIZ. GLOBAL ENTERPRISE, YOU HAVE ASKED TO JUSTIFY PURCHASE PRIC ES WITH THOSE OF OTHER UNRELATED SUPPLIERS. IN THIS REGARD, PLEASE FIND HE REWITH ENCLOSED DETAILED WORKING OF PURCHASE PRICE COMPARISON IN RE SPECT OF MATERIAL PURCHASED FROM GLOBAL ENTERPRISE WITH OTHER UNRELAT ED PARTY EITHER ON SAME DAY OR NEARBY DATE ALONG WITH FEW SAMPLE PURCH ASE BILLS OF GLOBAL ENTERPRISE I.E. RELATED PARTY AS WELL AS OF OTHER U NRELATED PARTIES. LIST OF UNRELATED SUPPLIERS OF WHICH COPIES OF BILL ARE PRODUCED: A) DEWAN KNITWEAR B) SWEETY FABRICS PVT. LTD C) AMIT ENTERPRISE ITA NO.530/AHD/2019 12 KINDLY NOTE THAT THERE IS DIFFERENCE IN PRICES ON A CCOUNT OF DIFFERENT MATERIAL ALSO. 12. ON THE BASIS OF THE EXPLANATION GIVEN BY THE AS SESSEE DURING THE COURSE OF SCRUTINY ASSESSMENT, THE LD.AO DID NO T REFER THIS TRANSACTION TO THE TPO FOR DETERMINATION OF ALP. N OW REVERTING BACK TO SECTION 92BA, IT REVEALS THAT TRANSACTION ME NTIONED AT SR.NO.2 TO 6 ARE NOT ATTRACTED IN THE CASE OF THE A SSESSEE; BECAUSE HE HAS NOT UNDERTAKEN ANY OF THE TRANSACTIO N MENTIONED IN SERIAL NOS.2 TO 6. ONLY TRANSACTION, WHICH COUL D BE FALLEN IN THE DEFINITION OF SPECIFIED DOMESTIC TRANSACTION IS TRA NSACTION MENTIONED AT SERIAL NO.1, AND IN THE CASE OF THE AS SESSEE, THAT TRANSACTION COULD BE PURCHASE FROM THE RELATED PART IES. NOW AT THE TIME OF ASSESSMENT PROCEEDINGS, THE LD.AO DID N OT MAKE REFERENCE TO THE TPO, BUT BY THE TIME, THE LD.COMMI SSIONER TOOK COGNIZANCE OF THE RECORD FOR RE-INITIATION OF ASSES SMENT ORDER BY EXERCISING POWER UNDER SECTION 263. THIS CLAUSE HA S BEEN OMITTED FROM THE STATUTE BOOK. THEREFORE, THE QUESTION BEF ORE US IS, WHETHER IN THE ABSENCE OF SUB-CLAUSE (I) OF SECTION 92BA IN THE PROVISION CAN STILL BE TRANSACTION OF THE ASSESSEE REGARDING PURCHASE MADE FROM THE RELATED PARTY DESERVES TO BE REFERRED TO THE TPO. REPLY TO THIS QUESTION HAS BEEN GIVEN BY THE HONBLE KARNATAKA HIGH COURT IN THE JUDGMENT OF PR.CIT VS. TEXPORT OVERSEAS P.LTD. 114 TAXMANN.COM 568. THE FACTS BEF ORE THE HONBLE KARNATAKA HIGH COURT WAS THAT THERE WAS A D OMESTIC TRANSACTION WHICH FALL WITHIN THE DEFINITION OF SP ECIFIED DOMESTIC TRANSACTION WITH HELP OF SECTION 92BA(I). A REFERE NCE WAS MADE TO THE TPO AND OBJECTIONS WERE FILED BEFORE THE DRP ALSO. BUT ULTIMATELY WHEN THE ASSESSMENT ORDER WAS PASSED UND ER SECTION 144(3) OF THE ACT, READ WITH SECTION 143(3) OF THE ACT, THIS CLAUSE ITA NO.530/AHD/2019 13 HAS BEEN OMITTED FROM THE ACT. IN OTHER WORDS, THE ASSESSMENT ORDER WAS PASSED ON 30.6.2017, AND THIS CLAUSE, ON THE STRENGTH OF WHICH THIS REFERENCE WAS MADE TO THE TPO, STAND OMITTED W.E.F. 1.4.2017. THE CASE OF THE ASSESSEE WAS THAT AFTER APRIL, 2017 THIS PROCEEDING WOULD LAPSE, WHICH WAS NOT ACCEPTED BY T HE AO AS WELL AS TPO, BUT THE TRIBUNAL ACCEPTED THE STAND OF THE ASSESSEE. DEPARTMENT TOOK THE MATTER IN APPEAL BEFORE THE HON BLE KARNATAKA HIGH COURT, AND THE HONBLE HIGH COURT AN SWERED THE QUESTION IN FAVOUR OF THE ASSESSEE, AND AGAINST THE REVENUE. THE DISCUSSION MADE BY THE HONBLE HIGH COURT READS AS UNDER: 5. HAVING HEARD LEARNED ADVOCATES APPEARING FOR PA RTIES AND ON PERUSAL OF RECORDS IN GENERAL AND ORDER PASS ED BY TRIBUNAL IN PARTICULAR IT IS CLEARLY NOTICEABLE THA T CLAUSE (I) OF SECTION 92BA OF THE ACT CAME TO BE OMITTED W.E.F. 01.04.2019 BY FINANCE ACT, 2014. AS TO WHETHER OMIS SION WOULD SAVE THE ACTS IS AN ISSUE WHICH IS NO MORE RE S INTIGRA IN THE LIGHT OF AUTHORITATIVE PRONOUNCEMENT OF HON'BLE APEX COURT IN THE MATTER OF KOLHAPUR CANESUGAR WORK S LTD. V. UNION OF INDIA AIR 2000 SC 811 WHEREUNDER AP EX COURT HAS EXAMINED THE EFFECT OF REPEAL OF A STATUT E VIS-A- VIS DELETION/ADDITION OF A PROVISION IN AN ENACTMEN T AND ITS EFFECT THEREOF. THE IMPORT OF SECTION 6 OF GENERAL CLAUSES ACT HAS ALSO BEEN EXAMINED AND IT CAME TO BE HELD: '37. THE POSITION IS WELL KNOWN THAT AT COMMON LAW, THE NORMAL EFFECT OF REPEALING A STATUTE OR DELETIN G A PROVISION IS TO OBLITERATE IT FROM THE STATUTE-BOOK AS COMPLETELY AS IF IT HAD NEVER BEEN PASSED, AND THE STATUTE MUST BE CONSIDERED AS A LAW THAT NEVER EXIS TED. TO THIS RULE, AN EXCEPTION IS ENGRAFTED BY THE PROV ISIONS OF SECTION 6(1). IF A PROVISION OF A STATUTE IS UNCONDITIONALLY OMITTED WITHOUT A SAVING CLAUSE IN FAVOUR OF PENDING PROCEEDINGS, ALL ACTIONS MUST STO P WHERE THE OMISSION FINDS THEM, AND IF FINAL RELIEF HAS NOT BEEN GRANTED BEFORE THE OMISSION GOES INTO EFFE CT, IT CANNOT BE GRANTED AFTERWARDS. SAVINGS OF THE NAT URE CONTAINED IN SECTION 6 OR IN SPECIAL ACTS MAY MODIF Y THE POSITION. THUS THE OPERATION OF REPEAL OR DELETION AS TO ITA NO.530/AHD/2019 14 THE FUTURE AND THE PAST LARGELY DEPENDS ON THE SAVI NGS APPLICABLE. IN A CASE WHERE A PARTICULAR PROVISION IN A STATUTE IS OMITTED AND IN ITS PLACE ANOTHER PROVISI ON DEALING WITH THE SAME CONTINGENCY IS INTRODUCED WITHOUT A SAVING CLAUSE IN FAVOUR OF PENDING PROCEEDINGS THEN IT CAN BE REASONABLY INFERRED THAT THE INTENTION OF THE LEGISLATURE IS THAT THE PENDING PROCEEDINGS SHALL NOT CONTINUE BUT FRESH PROCEEDING S FOR THE SAME PURPOSE MAY BE INITIATED UNDER THE NEW PROVISION.' 6. IN FACT, CO-ORDINATE BENCH UNDER SIMILAR CIRCUMST ANCES HAD EXAMINED THE EFFECT OF OMISSION OF SUB-SECTION (9) TO SECTION 10B OF THE ACT W.E.F. 01.04.2004 BY FINANCE ACT, 2003 AND HELD THAT THERE WAS NO SAVING CLAUSE OR PR OVISION INTRODUCED BY WAY OF AMENDMENT BY OMITTING SUB-SECT ION (9) OF SECTION 10B. IN THE MATTER OF GENERAL FINANCE CO. V. ACIT, WHICH JUDGMENT HAS ALSO BEEN TAKEN NOT E OF BY THE TRIBUNAL WHILE REPELLING THE CONTENTION RAISED BY REVENUE WITH REGARD TO RETROSPECTIVITY OF SECTION 92BA(I) O F THE ACT. THUS, WHEN CLAUSE (I) OF SECTION 92BA HAVING BEEN O MITTED BY THE FINANCE ACT, 2017, WITH EFFECT FROM 01.07.20 17 FROM THE STATUTE THE RESULTANT EFFECT IS THAT IT HAD NEV ER BEEN PASSED AND TO BE CONSIDERED AS A LAW NEVER BEEN EXI STED. HENCE, DECISION TAKEN BY THE ASSESSING OFFICER UNDE R THE EFFECT OF SECTION 92BI AND REFERENCE MADE TO THE ORD ER OF TRANSFER PRICING OFFICER-TPO UNDER SECTION 92CA COU LD BE INVALID AND BAD IN LAW. 7. IT IS FOR THIS PRECISE REASON, TRIBUNAL HAS RIGH TLY HELD THAT ORDER PASSED BY THE TPO AND DRP IS UNSUSTAINABLE IN THE EYES OF LAW. THE SAID FINDING IS BASED ON THE AUTHO RITATIVE PRINCIPLES ENUNCIATED BY THE HON'BLE SUPREME COURT IN KOLHAPUR CANESUGAR WORKS LTD. REFERRED TO HEREIN SUPRA WHICH HAS BEEN FOLLOWED BY CO-ORDINATE BENCH OF THIS COURT IN THE MATTER OF M/S. GE THERMOMETRIA S INDIA PRIVATE LTD., STATED SUPRA. AS SUCH WE ARE OF THE C ONSIDERED VIEW THAT FIRST SUBSTANTIAL QUESTION OF LAW RAISED IN THE APPEAL BY THE REVENUE IN RESPECTIVE APPEAL MEMORAND UM COULD NOT ARISE FOR CONSIDERATION PARTICULARLY WHEN THE SAID ISSUE BEING NO MORE RES INTEGRA. 8. INSOFAR AS QUESTION NO. 2 IS CONCERNED, WE FIND FROM THE ORDER OF THE TRIBUNAL THAT ISSUE RELATING TO THE DE LETION OF ITA NO.530/AHD/2019 15 DISALLOWANCE MADE BY THE ASSESSING OFFICER HAS BEEN REMITTED BACK TO THE ASSESSING OFFICER WHICH FINDIN G IS BASED ON FACTUAL ASPECTS WHICH WOULD NOT CALL FOR INTERFE RENCE BY US, THAT TOO, BY FORMULATING SUBSTANTIAL QUESTION O F LAW. THE ASSESSING OFFICER HAS TO UNDERTAKE THE EXERCISE OF FACTUAL DETERMINATION. AS SUCH, WITHOUT EXPRESSING ANY OPIN ION ON MERITS WITH REGARD TO QUESTION NO. 2 FORMULATED BY THE REVENUE IN THE RESPECTIVE APPEALS, WE PROCEED TO PA SS THE FOLLOWING 13. THE ABOVE DISCUSSION IS CLEARLY APPLICABLE ON T HE FACTS OF THE PRESENT CASE, WHEN THE LD.COMMISSIONER ISSUED A SHO W CAUSE NOTICE UNDER SECTION 263 AND ULTIMATELY PASSED IMPU GNED ORDER; BY THAT TIME THE ALLEGED DOMESTIC TRANSACTION OF PU RCHASE FROM RELATED PARTY WAS NOT REQUIRED TO BE CONSIDERED AS A SPECIFIED DOMESTIC TRANSACTION UNDER SECTION 92BA OF THE ACT. IT HAS BEEN OMITTED, AND THEREFORE, NO PROCEEDINGS UNDER SECTIO N 263 SHOULD HAVE BEEN UNDERTAKEN BY THE LD.COMMISSIONER. 14. IN VIEW OF THE ABOVE DISCUSSION, WE ALLOW THIS APPEAL, AND QUASH THE IMPUGNED ORDER. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE COURT ON 16 TH JULY, 2021. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) VICE-PRESIDENT AHMEDABAD; DATED 16/07/2021