ACIT Vs Viney Corporation Limited (ITAT Delhi)
The Delhi ITAT considered Revenue’s appeal for Assessment Year 2016-17 against the CIT(A)’s order dated 10.08.2020, arising from the assessment order dated 31.12.2018 under Section 143(3) of the Income Tax Act, 1961. The assessee, engaged in manufacturing auto components, had filed its return on 28.11.2016 declaring income of Rs.25,10,98,150.
The principal dispute concerned specified domestic transactions. For the preceding Assessment Year 2015-16, the TPO had proposed an adjustment of Rs.1,38,52,861, representing 3.6% of specified domestic transactions of Rs.38,27,41,152. For AY 2016-17, the assessee reported specified domestic transactions of Rs.41,52,40,079. Instead of referring the transactions to the TPO under Section 92CA(1), the Assessing Officer adopted the preceding year’s 3.6% adjustment and made a transfer-pricing adjustment of Rs.1,49,48,643.
Before the CIT(A), the assessee contended that the AO could not determine the ALP without a TPO reference and that, because the adjustment was made without such reference, no draft assessment order under Section 144C(1) had been issued. The CIT(A) accepted the contention and quashed the assessment order. Reliance was placed on CBDT Instruction No. 3/2016 dated 10.03.2016 and Control Risk India Private Limited v. DCIT, among other decisions.
The ITAT observed that the AO ought to have referred the specified domestic transactions to the TPO for determination of ALP instead of computing the ALP himself by adopting the preceding year’s adjustment. It noted that clause 3.3 of the CBDT Instruction contained circumstances for TPO references, while clause 3.7 stated that ALP determination should not be carried out by the AO where no TPO reference was made. The Tribunal found the two provisions amenable to different interpretations.
However, the Tribunal held that the AO’s failure to make the TPO reference constituted a procedural irregularity rather than an incurable illegality warranting quashing of the assessment. Relying on the Supreme Court’s decision in PCIT v. S G Asia Holdings India Private Limited, CA No. 6144 of 2019 dated 13.08.2018, it restored the matter to the AO so that an appropriate reference could be made to the TPO under Section 92CA(1). The Tribunal noted that the specified domestic transactions exceeded the Rs.20 crore threshold.
The Tribunal also considered the assessee’s reliance on Control Risk India Private Limited. It held that the Supreme Court’s dismissal of the SLP in that matter was in limine and without a decision on merits, and therefore the High Court judgment had not merged with the Supreme Court order. The Tribunal referred to Kunhayammed v. State of Kerala for this conclusion.
Accordingly, the CIT(A)’s order dated 10.08.2020 and the assessment order dated 31.12.2018 were set aside, and the matter was restored to the AO for de novo assessment. The other additions of Rs.2,94,39,817 under Section 35(2AB), Rs.20,18,64,525 under Section 41, Rs.10,31,638 under Section 14A read with Rule 8D, and Rs.5,22,72,321 under Sections 80IB and 80IC were not adjudicated on merits and were also restored for fresh consideration. The assessee was to receive adequate opportunity of hearing and to submit evidence and contentions before the AO/TPO.
Grounds 1 to 5 were allowed for statistical purposes, while the general Ground 6 was dismissed. The Revenue’s appeal was accordingly partly allowed for statistical purposes.
Cases Discussed
- New Delhi Television Limited v. ACIT (Delhi High Court), (2025) 171 taxmann.com 425(Delhi)
- DCIT v. Arkadin Confer India Private Limited (Delhi Tribunal), ITA no. 6037/Del/2015
- PCIT v. S G Asia Holdings India Private Limited (Supreme Court), CA no. 6144 of 2019 dated 13th August, 2018
- Kunhayammed v. State of Kerala (Supreme Court), (2000) 6 SCC 359(SC)
- Control Risk India Private Limited v. DCIT (Delhi High Court), (2019) 107 taxmann.com 82(Delhi)
- DCIT v. Control Risk India Private Limited (Supreme Court), (2019) 107 taxmann.com 83(SC)
- Turner International India Private Limited and JCB India Limited v. DCIT (Delhi High Court), (2017) TII-71-HC-DEL-TP
- Radhasoami Satsang v. CIT (Supreme Court), (1992) 193 ITR 321(SC)
FULL TEXT OF THE ORDER OF ITAT DELHI
The appeal in ITA No.16/Del/2022 for assessment year: 2016-17 has been filed by the Revenue against the appellate order dated 10.08.2020 passed by the learned Commissioner of Income-tax(Appeals)-44, New Delhi u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) (Appeal No. 194/2019-20/CIT(A)-44) , which appeals has arisen from assessment order dated 31.12.2018 passed by the learned Assessing Officer u/s 143(3) of the 1961 Act (Order No. ITBA/AST/S/143(3)/2018-19/1014678824(1)) .
2. The Revised Grounds of appeal raised by Revenue before the Delhi Tribunal, reads as under:-
“1. Whether on the facts and circumstances of the case and in the law, the Ld. CIT(A) is justified allowing the ground number 3 of the assessee where the assessment order dated 31.12.2018 passed u/s 143(3) of the Act has been rendered invalid ab-initio despite the fact that assessment order has been passed within the normal security limitation i.e. 31.12.2018 as no reference was made to the Transfer Pricing Officer by Assessing Officer.
2. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 2,94,39,817/- u/s 35(2AB) towards R&D expenditure. No reconciliation was provided by the assessee on the capital expenses wherein deduction claimed u/s 35(2AB) of the Act is not considered for computing depreciation u/s 32 of the Act.
3. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 20,18,64,525/- u/s 41 on account of sundry creditors where the assessee failed to produce correct and complete list of creditors and other supporting documents.
4. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.10,31,638/- made u/s 14A read with Rule 8D. The provision of Section 14A are applicable with vide CBDT Circular No. 5/2014 dated 11.02.2014 , and disallowance of expenditure for earning exempt income under section 14A would be attracted even if the corresponding exempt income has not been earned during the financial year.
5. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 5,22,72,321/- on account of deduction claimed u/s 80IB and 80IC of the Act without providing any supporting documents.
6. The appellant craves leave to add, alter, amend, append or delete any of the above grounds of appeal.”
3. The brief facts of the case are that the assessee is engaged in the business of manufacturing of auto components. The assessee filed its return of income on 28.11.2016 u/s 139 , declaring income of Rs. 25,10,98,150/- . The case of the assessee was selected by Revenue for framing complete scrutiny assessment under CASS. Statutory notices u/s 143(2) and 142(1) were issued by the AO to the asssessee, from time to time during the course of assessment proceedings, as per details recorded in the assessment order. The assessee participated in assessment proceedings. The assessment was framed by the AO u/s 143(3) , vide assessment order dated 31.12.2018.
4.1 The AO received the Transfer Pricing Order passed by Transfer Pricing Officer u/s 92CA(3) of the 1961 Act , dated 31.10.2018 for the assessment year 2015-16, wherein ld. TPO stated that “the assessing officer shall enhance the income of the assessee company by an amount of Rs. 1,38,52,861/- being the ALP adjustment wrt international transactions and interest on outstanding receivables by the assessee company to its AE’s ”, which was added by the AO to the total income of the assessee while passing draft assessment order for assessment year 2015-16. The aforesaid enhancement of Rs. 1,38,52,861/- was made by the AO based on TPO order which was 3.6% of specified domestic transactions of Rs. 38,27,41,152/- as shown by the assessee company i.e. for previous year corresponding to immediately preceding assessment year viz. 2015-16. During the year under consideration i.e. previous year relevant to the assessment year 2016-17, the assessee has shown aggregate value of specified domestic transactions as per books of accounts of Rs. 41,52,40,079/- , and the AO instead of referring the matter to TPO to compute Arm’s Length Price(ALP) of the specified domestic transactions, followed the TPO order for immediately preceding assessment year i.e. 2015-16, and made enhancement by way of TP adjustment to ALP wrt specified domestic transactions proportionately, wherein ALP adjustment to specified domestic transactions were added by the AO to the income of the assessee to the tune of Rs. 1,49,48,643/-, being 3.6% of domestic transactions of Rs. 41,52,40,079/- as shown by the assessee company in its books of accounts. Thus, there was no TP reference made by the AO u/s 92CA(1) of the 1961 Act to the TPO to determine ALP of the specified domestic transactions.
4.2.1 The assessee being aggrieved filed first appeal with ld. CIT(A), and main bone of contention of the assessee was that the AO could not have made TP additions by way of ALP adjustment to specified domestic transactions without referring the matter to TPO as is mandated u/s 92CA(1). The assessee contended before the ld. CIT(A) that the final assessment order dated 31.12.2018 passed by the AO u/s 143(3) is void ab-intio and invalid in law , as it is contrary to the provisions of Section 92C(3) if the 1961 Act, which necessitates passing of draft assessment order u/s 144C(1) of the 1961 Act, if any variation in income returned on account of transfer pricing adjustment wrt computation of ALP of the specified domestic transaction , is made by the AO. It was submitted that if any variation is made to ALP of the specified domestic transactions by way of TP adjustment, the assessee being eligible assessee, the assessee could have filed objections before ld. DRP. Since, no reference is made by the AO to TPO for computing ALP of the specified domestic transactions, and no draft assessment order was passed by the AO, the whole proceedings are vitiated, and the assessment order passed by the AO is bad in law liable to be quashed. The assessee relied upon the judgment and order of Hon’ble Delhi High Court in the case of Control Risk India Private Limited v. DCIT (2019) 107 taxmann.com 82(Delhi) to support its contentions that the assessment order passed by the ld. AO is bad in law liable to be quashed . It was submitted by the assessee that the SLP filed against the aforesaid judgment and order of Hon’ble Delhi High Court has been dismissed by Hon’ble Supreme Court in DCIT v. Control Risk India Private Limited (2019) 107 taxmann.com 83(SC). The ld. CIT(A) after considering the contentions of the assessee, quashed the assessment order. The ld. CIT(A) while quashing the assessment order relied upon CBDT Instruction No. 3/2016 dated 10th March, 2016 , and provisions of Section 92CA(1) of the 1961 Act. The ld. CIT(A) observed that the case of the assessee was not selected for scrutiny assessment on the basis of any TP risk adjustment(page 64-65 of ld. CIT(A) order). The ld. CIT(A) referred to clause 3.3 and 3.7 of the aforesaid instructions dated 10th March , 2016, which reads as under:
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3.3 Cases selected for scrutiny on non-transfer pricing risk parameters but also having international transactions or specified domestic transactions shall be referred to TPO’s only in the following circumstances:
A. Where the AO comes to know that the taxpayer has entered into transactions or specified domestic transactions or both but the taxpayer has either not filed the Accountant’s report under Section 92E at all or has not disclosed the said transactions in the Accountant’s report filed;
B. where there has been a transfer pricing adjustment of Rs. 10 Crores or more in an earlier assessment year and such adjustment has been upheld by the judicial authorities or pending in appeal ; and
C. where search and seizure or survey operations have been carried out under the provisions of the Income-tax Act and findings regarding transfer pricing issues in respect of international transactions or specified domestic transactions or both have been recorded by the Investigation Wing or the AO.
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3.7 For administering the transfer pricing regime in an efficient manner , it is clarified that though AO has the power under section 92C to determine the ALP of international transactions or specified domestic transactions , determination of ALP should not be carried out at all by the AO in a case where reference is not made to the TPO. However, in such cases , the AO must record in the body of the assessment order that due to the Board’s instruction on this matter , the transfer pricing issue has not been examined at all.
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4.2.2.The ld. CIT(A) observed that the instant case is not covered by clause 3.3 of the aforesaid CBDT instructions as none of the stipulated conditions therein stood fulfilled, and as a result ld. AO did not referred the specified domestic transactions to the TPO for determination of ALP. But, the AO nevertheless proceeded to determine ALP of the specified domestic transactions, and made TP adjustment wrt said transactions himself ignoring the provisions of clause 3.7 of the aforesaid CBDT instructions dated 10.03.2016. The ld. CIT(A) further observed that the AO after undertaking TP adjustments by computing ALP of the specified domestic transactions, proceeded on to complete assessment without issuing draft assessment order as contemplated u/s 144C(1) of the 1961 Act. The ld. CIT(A), therefore, quashed the assessment order dated 31.12.2018 by relying upon the judgment and order of Hon’ble Delhi High Court in the case of Control Risk India Private Limited(supra), wherein SLP filed against above order stood dismissed by Hon’ble Supreme Court. The ld. CIT(A) also relied upon order(s) of Hon’ble Delhi High Court in the case of Turner International India Private Limited and JCB India Limited v. DCIT (2017) TII-71-HC-DEL-TP, wherein Hon’ble Delhi High Court has quashed the final assessment order issued by the AO without first issuing draft assessment order. Thus, the ld. CIT(A) held that the assessment order passed by ld. AO in the instant case is invalid, not sustainable in the eyes of law and is liable to be quashed.
5. The Revenue being aggrieved has now filed an appeal with the Tribunal.Heard both the parties on this issue and perused the material on record. We have observed that the AO has made TP adjustment by computing ALP wrt specified domestic transactions , which were based on the TP additions as were proposed by TPO for immediately preceding year i.e. assessment year 2015-16. The TPO proposed TP additions to the tune of Rs. 1,38,52,861/- i.e. 3.6% of domestic transactions of Rs. 38,27,41,152/- as shown by the assessee company in its books of accounts for preceding assessment year viz. 2015-16. During the year under consideration, the assessee has shown aggregate value of specified domestic transactions as per books of accounts to the tune of Rs. 41,52,40,079/- , and the AO instead of referring the matter to TPO to compute ALP of the specified domestic transactions, followed the TPO order for immediately preceding assessment year i.e. 2015-16, and made enhancement by way of TP adjustment to the specified domestic transactions proportionately , wherein TP adjustment to specified domestic transactions were added to the income of the assessee to the tune of Rs. 1,49,48,643/- by computing ALP of specified domestic transactions. In our considered view, the AO ought and should have made reference to TPO to compute ALP wrt specified domestic transactions, instead of computing ALP and consequently making TP adjustment himself , albeit it was made by the AO based on TPO order for immediately preceding assessment year i.e. assessment year 2015-16. Reference is drawn to provisions of Section 92CA(1). However, it could not be said that the AO acted without any basis as clause 3.3 of the CBDT instructions dated 10.03.2016 supports the stand of the AO , which reads as under:
“3.3 Cases selected for scrutiny on non-transfer pricing risk parameters but also having international transactions or specified domestic transactions shall be referred to TPO’s only in the following circumstances:
a. Where the AO comes to know that the taxpayer has entered into transactions or specified domestic transactions or both but the taxpayer has either not filed the Accountant’s report under Section 92E at all or has not disclosed the said transactions in the Accountant’s report filed;
b. where there has been a transfer pricing adjustment of Rs. 10 Crores or more in an earlier assessment year and such adjustment has been upheld by the judicial authorities or pending in appeal ; and
c) where search and seizure or survey operations have been carried out under the provisions of the Income-tax Act and findings regarding transfer pricing issues in respect of international transactions or specified domestic transactions or both have been recorded by the Investigation Wing or the AO.”
5.2.The stand of the AO is further supported by provisions of Section 92C(3) which is backed by computation of ALP of the specified domestic transactions which led to TP adjustments as were proposed by TPO for immediately preceding assessment year,
5.3 But, however, clause 3.7 of the same CBDT instructions dated 10.03.2016 stipulates otherwise than what is stated in clause 3.3 of the same CBDT instructions . The Clause 3.7 reads as under:-
“3.7 For administering the transfer pricing regime in an efficient manner , it is clarified that though AO has the power under section 92C to determine the ALP of international transactions or specified domestic transactions , determination of ALP should not be carried out at all by the AO in a case where reference is not made to the TPO. However, in such cases , the AO must record in the body of the assessment order that due to the Board’s instruction on this matter , the transfer pricing issue has not been examined at all.”
5.4 When both the clauses of the aforesaid CBDT instructions are read together, it could be seen that they are amenable to different interpretation. Thus, in our considered view, there is a procedural irregularity on the part of the AO as the AO ought and should have referred the matter to TPO for computing ALP of the specified domestic transactions , and accordingly could have made TP adjustment, but it could not be said that this aforesaid irregularity committed by the AO stretches to the extent of the level of an illegality warranting quashing of the assessment order in not referring the matter to TPO for determination of ALP of specified domestic transactions . Thus, it is not an incurable defect but is merely a procedural irregularity . Our above decision is supported by the judgment and order of Hon’ble Supreme Court in the case of PCIT v. S G Asia Holdings India Private Limited in CA no. 6144 of 2019 dated 13th August, 2018, which was infact rightly relied upon by ld. CIT-DR, wherein Hon’ble Supreme Court has restored the matter to the file of the AO so that appropriate reference could be made to the TPO, and therefore it would be upto the authorities and the Commissioner concerned to consider the matter in terms of Sub-section (1) of Section 92CA of the 1961 Act. The specified domestic transactions entered into by the assessee in the instant case before us were to the tune of Rs. 41,52,40,079/- , which are above threshold limit of Rs. 20 crores. We , therefore, following the judgment and order of the Hon’ble Supreme Court in the case of SG Asia Holdings (India) Private Limited(supra) , set aside the issue of computing ALP of the specified domestic transactions as well international transactions(if any) as were entered into by the assessee, to the file of the AO so that appropriate reference could be made to the TPO, and therefore it would be upto the authorities and the ld. PCIT (or ld. Commissioner) concerned to consider the matter in terms of Sub-section (1) of Section 92CA of the 1961 Act. The ld. CIT-DR also rightly relied upon judgment and order of Hon’ble Delhi High Court in the case New Delhi Television Limited v. ACIT, reported in (2025) 171 taxmann.com 425(Delhi). Similar view has been taken by Delhi Tribunal in the case of DCIT v. Arkadin Confer India Private Limited in ITA no. 6037/Del/2015 for assessment year 2011-12, vide orders dated 18th March, 2026. So far as the contention of the assessee that the judgment and order of Hon’ble Delhi High Court in the case of Control Risk India Private Limited(supra) has attained finality as the SLP filed by Revenue against the said judgment and order has been dismissed by Hon’ble Supreme Court vide orders dated 16th March, 2018 is concerned , we have observed that SLP was dismissed by Hon’ble Supreme Court in limine without deciding the issue arising in SLP on merits , and hence aforesaid Hon’ble Delhi High Court judgment in the case of Control Risk(supra) had not merged with the aforesaid order of Hon’ble Supreme Court dismissing aforesaid SLP. Reference is drawn to judgment and Order of Hon’ble Supreme Court in the case of Kunhayammed v. State of Kerala. (2000) 6 SCC 359(SC). Thus, judgment and order of Hon’ble Supreme Court in the case of S G Asia Holdings India Private Limited(supra) is a binding precedent. Thus, the appellate order passed by ld. CIT(A) dated 10.08.2020 as well assessment order dated 31.12.2018 passed by ld. AO are set aside, and matter stood restored to the file of the AO for denovo assessment as directed above, in light of Hon’ble Supreme Court judgment and order in the case of S G Asia Holdings(supra). Since, we have restored the matter to the file of the AO by reversing the order of the ld. CIT(A) who quashed the assessment order on the ground of non reference of the computation of ALP of the specified domestic transactions by the AO to the TPO and consequently non issuance of draft assessment order, it would not be appropriate for us to comment on the other corporate additions to the income of the assessee as were made by the AO challenge to which has been made by Revenue vide grounds of appeal nos. 2 to 5, which are kept open and are also restored back to the file of AO for denovo consideration, albeit ld. CIT(A) adjudicated the same on ‘without prejudice’ basis. Suffice , to say that such other additions to the income of the assessee , if any to be made by the AO in the set aside remand denovo assessment proceedings as directed by us as above, shall be made on merits in accordance with law , after affording proper and adequate opportunity of being heard to the assessee. All contentions are kept open. The assessee shall be allowed to file necessary evidences/documents / contentions in its support before AO/TPO in set aside remand denovo proceedings. The assessee is directed to co-operate and submit all required information/documents/evidences as may be called by the AO/TPO in set aside proceedings. Needless to say that principles of res-judicata are not applicable to income-tax proceedings as every year is a separate assessment unit, but , however, principles of consistency are applicable to income-tax proceedings . Reference is made to judgment and order of Hon’ble Supreme Court in the case of Radhasoami Satsang v. CIT (1992) 193 ITR 321(SC). We order accordingly. Thus, Ground no. 1 raised by Revenue is allowed for statistical purposes in the manner as indicated above. We order accordingly.
6. Since, we have set aside the appellate order passed by ld. CIT(A) dated 10.08.2020 as well the assessment order dated 31.12.2018 passed by the AO keeping in view ratio of judgment and order of Hon’ble Supreme Court in the case of S G Asia Holdings India Private Limited(supra) , issues arising in the other Ground Nos. 2 to 5 raised by the Revenue are not adjudicated by us at this stage as discussed in the preceding para’s of this order but, however, the same are restored to the file of AO to be adjudicated on merits in accordance with law in denovo assessment proceedings, and consequently allowed for statistical purposes. Ground No. 6 raised by Revenue being general in nature stand dismissed. We order accordingly.
7. In the result, the appeal of the Revenue in ITA No. 16/Del/2022 for assessment year 2016-17 is partly allowed for statistical purposes in the manner as indicated above.
Order pronounced in the open court on 08.07.2026.
