Bank of India Vs JCIT (ITAT Mumbai)
Conclusion: PCIT rightly directed Bank of India’s case to TPO for determination of arm’s length price (ALP) in relation to international transactions and specified domestic transactions under revision proceedings as it was binding on AO as per the CBDT Circular in force at that point of time under Section 92CA to refer this issue to the TPO even though he might be of the opinion that the international transactions carried by assessee were within arm’s length price.
Held: During revision proceedings, PCIT came across that assessee had made large international transactions during this year and AO failed to refer this case to TPO even though it was a fit case to be referred to the TPO as per the CBDT Circular in force at that point of time under Section 92CA for computation of arm’s length price in relation to the said international transactions. PCIT issued show cause notice wherein it was brought to the notice of assessee that AO failed to refer the case to the TPO in accordance with the CBDT Circular which was mandatory for AO and non-reference to the TPO amounted to making assessment without proper inquiry and investigation as required by law. It was held that the transactions undertaken by assessee were domestic as well as international transactions and AO should have referred the international transactions to the TPO to verify the international transactions whether the transaction were at arm’s length. Since AO failed to follow the due procedure, and the fact that the Revenue Department created specialized cell to deal with the complicated and complex issues arising out of transfer pricing mechanism, the assessment by this special officer (TPO) was an additional assessment of ‘ALP’ of international transactions and it could be assessed separately without disturbing the regular assessment carried out by AO under Section 143(3). Therefore, AO was directed to refer the case to TPO and any adjustment recommended by the TPO alone may be assessed separately and merge the same in the draft assessment order if there was any adjustment to be made, it may be assessed to tax as per law.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal is filed by the assessee against the order passed by Principal Commissioner of Income Tax -2 (in short ‘PCIT’) under Section 263 of the Income Tax Act, 1961 (in short ‘the Act’)for assessment year 2014-15 dated 27.03.2018.
2. At the time of hearing, the ld. DR submitted that the appeal filed by the assessee involves transfer pricing issue and he requested that this matter be transferred to transfer pricing bench and he filed a letter in this regard on 12.02.2020, which is placed on record. However, we noted that this appeal is filed by the assessee against the order of ld. PCIT passed under Section 263 of the Act, which is on jurisdiction issue and not on transfer pricing issue, therefore, we rejected the submissions of ld. DR and proceeded to hear the appeal.
3. The brief facts of the case are that assessee filed its return of income for assessment year 2014-15 dated 27.03.2018, declaring total loss of Rs.2187,39,64,977/- and book profit of Rs.2673,16,90,715/-. The assessee filed revised return of income on 29.03.2016, revising the total income to Rs.(-) 2167,65,72,076/- and book profit to Rs.3082,62,82,624/-. The assessment under Section 143(3) of the Act was completed on 29.03.2016.
4. On examination of records by ld. PCIT, he observed that the order passed by the Assessing Officer was erroneous insofar as it is prejudicial to the interests of the Revenue and required revision. Accordingly, a show cause notice was issued on 09.03.2018 and the reasons recorded for revision was sent along with the show cause notice, which for the sake of clarity is reproduced below.
“(i) It is observed that while computing book profit, the reduction of Rs. 813,47,01,960/-has been claimed towards ‘Profit of foreign Branches’. It is further observed that in the P & L A/c, the assessee has debited an amount of Rs.5693,63,27,000/- towards various provisions and contingencies, out of which Rs.1232,08,78,207/- was only added back and the balance was allowed while computing book profit, though the above were provisions and contingencies which were duly disallowed in the computation of income under the normal provisions. The Explanation 1 to section 115JB prescribes certain adjustments to be carried out for computing books profit and further as per amendment brought out by the Finance Act, 2009, one of the specified adjustments to be carried to book profits is towards the ‘Provision for Diminution in the value of any Asset’ debited to P & L A/c. Accordingly, the following adjustments were required to be made to Net Profit as per P & L A/c.
