However, An Appeal Came To Be Filed Against The Above Order Before The Income Tax Appellate Tribunal. The Tribunal Placed Reliance On Its Order In The Case Of P v. Dcit In Ita

IN THE HIGH COURT OF KARNATAKA, DHARWAD BENCH DATED THIS THE 17 DAY OF MARCH, 2023 PRESENT THE HON'BLE MR JUSTICE K.SOMASHEKAR AND THE HON'BLE MR JUSTICE UMESH M ADIGA ITA NO 100012 OF 2017 BETWEEN: 1 . THE PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL) QUEENS ROAD, BENGALURU. OF INCOME TAX (CENTRAL) QUEENS ROAD, BENGALURU. 2. THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE, 1(3) BENGALURU. ... APPELLANTS (BY SRI.Y.V. RAVIRAJ, ADV.) AND: M/S OBULAPURAM MINING COMPANY PVT. LIMITED NO.6/4, RAGHAVACHARI ROAD BALLARI-583101 PAN: . … RESPONDENT (BY SRI. MAYANK JAIN, ADV.) THIS ITA IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961, PRAYING TO SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU BENCH 'C' IN IT (TP) A NO.182 (BANG) 2014 DATED 20.10.2016 AND CONFIRM THE ORDER DATED 31.12.2013 PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 1 (3), BENGALURU. THIS ITA HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 08.02.2023, COMING ON FOR PRONOUNCEMENT OF JUDGMENT THIS DAY, K.SOMASHEKAR J., DELIVERED THE FOLLOWING: JUDGMENT 1.This appeal is filed by the revenue challenging the order dated 20.10.2016 passed by the Income Tax Appellate Tribunal, Bengaluru Bench ‘C’ in IT (TP) A No.182 (BANG) 2014 and thereby seeking to confirm the order dated 28.02.2013 passed by the Deputy Commissioner of Income Tax Central Circle 1(3), Bengaluru. 2. Heard the learned Standing Counsel Sri.Y.V.Raviraj for the appellant / Revenue and the learned counsel Sri.Mayank Jain for the respondent / Assessee. Perused the order passed by the Income Tax Appellate Tribunal, Bengaluru including the order passed by the Deputy Commissioner of Income Tax, Central Circle 1(3), Bengaluru. 3. The factual matrix of the case is that the assessee e-filed its return of income for the assessment year 2009-10 declaring an income of Rs.486,38,96,690/-. The case was selected for scrutiny and the assessment was completed under Section 143(3) read with Section 144C(13) of the Income Tax Act on 31.12.2013, determining total income at Rs.10,86,34,35,052/- by making various additions, which reads as under: 4. Aggrieved by the above additions, the assessee preferred an appeal before the Tribunal against the additions made hereinabove, which came to be allowed. 5. It is stated in the appeal that during the assessment proceedings, it was observed that, M/s GLA Trading International Pvt. Ltd, is an ‘associated enterprise' (for short ‘AE’) of the assessee respondent within the meaning of section 92A based on the fact that Sri.Gali Janardhana Reddy, Director of tax payer company was appointed as Director of M/s.GLA Trading International Pvt. Ltd., on 19.12.2007. Subsequently, on 21.12.2007, issued and paid-up shares of the company (of the value of 1 Singapore dollar), which was hitherto held by Sri.Arangannal, was transferred to M/s.GJR Holdings International Ltd., another company registered in the Isle of Man of which Sri.Gali Janardhana Reddy is one of the Directors as confirmed by Sri.Gali Janardhana Reddy, in his statement recorded on 29.12.2009, before the Deputy Commissioner of Income Tax, Central Circle-1(3), Bengaluru. It was seen that the entire issued and paid-up share capital of M/s.GLA Trading International Pvt. Ltd., was held by M/s.GIR Holdings International Company (M/s.GJR Holdings International), where he had control over the activities and management of the said company. In brief, these facts clearly established that the assessee respondent company and M/s.GLA Trading Pvt. Ltd., Singapore, are AEs. within the meaning of section 92A of the income Tax Act, 1961. 6. It is further stated that the matter was referred to the Transfer Pricing Officer and subsequently an order under Section 92CA came to be passed on 23.01.2013 making the following adjustment to the admitted value of international transactions. 6. It is further stated that the matter was referred to the Transfer Pricing Officer and subsequently an order under Section 92CA came to be passed on 23.01.2013 making the following adjustment to the admitted value of international transactions. 7. It is further stated that the draft assessment order came to be passed under section 144C read with Section 143(3) of the Income Tax Act, 1961 by adopting the above adjustments to the value of the international transactions and the income of the assessee came to be upwardly revised by an amount of Rs.112,20,92,081/-. The assessee filed an appeal before the ‘Dispute Resolution Panel' (DRP) Bengaluru, which by its order dated 29.11.2013, upheld the adjustments proposed in the draft order. Accordingly, the assessment was completed by upwardly revising the income of the assessee to the extent of Rs.112,20,92,081/-. 8. However, an appeal came to be filed against the above order before the Income Tax Appellate Tribunal. The Tribunal placed reliance on its order in the case of Page Industries Ltd., vs. DCIT in ITA No.163/bang/2015. The Tribunal held that only because one of the directors of the assessee company and of GLATIPL is common, Section 93CA is not applicable. The Tribunal also held that in order to constitute a relationship of an AE, the parameters laid down in both subsections (1) and (2) should be fulfilled. As per explanation, amendment carried out in sub-section (2) of section 92A by the Finance Act, 2002 w.e.f., 01.04.2002, mere participation of one or more persons in the management or control or capital of both the enterprises shall not make them AE unless the criteria specified in sub Section (2) is fulfilled and since the parameters laid down in sub Sections (1) and (2) of Section 92A are not fulfilled, there is no relationship of AE between the Assessee Company and GLATIPL and therefore, the provisions of chapter X of the Income Tax Act, are not applicable. 9. It is further stated as regards the issue of claim of bogus transportation expenses of iron ore at Rs.86,43,47,335/- that during the assessment proceedings, the assessing authority made enquiries with regard to the genuineness of the claim of transportation expenses of Rs.648,41,29,000/- made by the assessee which was far in excess compared to the immediate previous year. The assessee respondent also could not furnish any evidence in support of its claim of expenditure in the form of invoices, goods carriage number or details of transport permit issued by the Director of Mines and Geology and Forest authorities. The enquiries made with the transporters to whom the assessee respondent is claimed to have paid transportation charges and deducted TDS, stated that they have not rendered any services to the assessee. It was found that some of them never owned any transportation vehicles and some of them did not have any means. Further, some of the vehicles were not transport vehicles but were autos, scooters, ambulances and school buses etc. However, on an examination of the bank accounts of the alleged transporters, it was also found that the amounts deposited in their accounts had been immediately withdrawn in cash. And finally, the expenditure claimed against the name of the parties, wherein enquiries had been done came to be disallowed by the assessing authority while completing the assessment. However, the Tribunal granted relief to the assessee by deleting the additions made on this issue by following its earlier order in the case of assessee for the assessment year 2010-11 on the ground that the assessing authority had not made available the persons for cross examination of the assessee despite its request. The Tribunal while granting relief had relied upon the judgment of the Delhi High Court in the case of CIT Vs. SMC Share brokers Ltd, (288 ITR 345 (DEL), wherein the revenue had not made available the persons for cross-examination of the assessee despite of his request. revenue had not made available the persons for cross-examination of the assessee despite of his request. 10. It is further stated regarding disallowance of claim of expenses attributable towards illegal mining Rs.387,76,69,992/- that during the assessment proceedings, the Assessing Authority noticed that the respondent was carrying on illegal mining activities by carrying out mining activities in areas other than those permitted by the Government. In this regard, the CBI, Hyderabad had also conducted an investigation and had filed a charge-sheet. The assessee company had incurred expenses towards shifting the permanent boundary pillars in order to encroach upon un-allotted area for illegal mining and formed illegal roads to transport the ore extracted illegally and during the year the assessee respondent had shown a total production of 57,10,000 Mts., out of which 22,81,141 Mts, was held to be illegal and the illegal production worked out to 40% of the total production. While completing the assessment, for the reasons given in detail, the assessing authority disallowed 40% of the total expenditure claimed towards transportation expenses at Rs.387,76,69,992/- under Section 37(1) of the Act. However, the Tribunal granted relief to the Assessee by deleting the additions made on this issue by following its earlier order in the case of assessee for the assessment year 2010-11. The tax effect in the present case is Rs.273,39,03,77,056/- and fulfills the criteria of monetary limits prescribed by the Board. Aggrieved by the same, the appellant / revenue has filed this appeal by challenging the order dated 20.10.2016 passed by the Income Tax Appellate Tribunal, Bengaluru Bench ‘C’ in IT (TP) A No.182 (BANG) 2014 and to confirm the order dated 31.12.2013 passed by the Deputy Commissioner of Income Tax Central Circle 1(3), Bengaluru. 11. Learned standing counsel Sri.Y.V.Raviraj for the appellants/revenue contends that with regard to the issue of transfer pricing adjustment, the Tribunal has grossly erred in not appreciating the categorical finding of facts made out by the revenue authorities that M/s. GLAT International P. Ltd., is an 'associated enterprise' of the assessee company. The Tribunal has erred in not considering the detailed finding of fact made out by the Commissioner of Income Tax in his order dated 30.03.2012 passed under u/s 263 of the Act in the case of the respondent assessee for the assessment year 2008-09 identical to the facts of the present year, wherein it was clearly established that M/s. GLAT International Pvt. Ltd., is an associated enterprise of the assessee company. 12. The Tribunal ought to have appreciated that, in order to determine whether an entity is an associate enterprise, control is not merely in terms of shareholding but participation in management and decision making, as held in the following decisions: i) 52 Taxmann.Com 520(Delhi) (2015) - First American securities (P) Ltd., Vs. Addl.CIT. ii) 57 Taxmann.Com 62 (Mumbai Trib) (2015) - Kaybee (P) Ltd., V. ITO. iii) 13 Taxmann.Com 62 (Mumbai) (2011) - Diageo India (P) Ltd. V.DCIT. 13. It is further contended that on the issue of claim of bogus transportation expenses, the Tribunal has grossly erred in rejecting various findings of fact gathered by the assessing authority before arriving at the conclusion to disallow a portion of the claim of transportation expenses as bogus. 14. Further, the Tribunal has grossly erred in relying upon the judgment of the High Court of Delhi in the case of M/s. SMC Share Brokers Ltd., the facts of which are clearly distinguishable as in the said case, the assessee had made multiple requests with the assessing officer for cross-examination of the party. Whereas in the present case, a request had been made only a week before the completion of assessment proceedings and when the assessment was getting barred by limitation. 13. It is further contended that on the issue of claim of bogus transportation expenses, the Tribunal has grossly erred in rejecting various findings of fact gathered by the assessing authority before arriving at the conclusion to disallow a portion of the claim of transportation expenses as bogus. 14. Further, the Tribunal has grossly erred in relying upon the judgment of the High Court of Delhi in the case of M/s. SMC Share Brokers Ltd., the facts of which are clearly distinguishable as in the said case, the assessee had made multiple requests with the assessing officer for cross-examination of the party. Whereas in the present case, a request had been made only a week before the completion of assessment proceedings and when the assessment was getting barred by limitation. 15. The Tribunal has grossly erred in relying upon the judgment of the High Court in the case of CIT Vs. Pradeep Kumar as the facts of the case are distinguishable and the addition made by the assessing officer amounting to Rs.4,34,000/- related to agricultural income shown by the assessee. The above said case was also decided by the Hon'ble High Court by considering the monetary limits for the purpose of filing the appeal and decided in favor of the assessee. Whereas in the present case, the Tribunal ought to have appreciated that the additions have been made in well reasoned order. 16. It is further contended that the Tribunal ought to have appreciated the addition towards disallowance of claim of transportation expenses which has been made by the Assessing Officer relying upon the independent evidence collected from the Transport Department and the banks and not merely on the basis of the transporters from whom statement under Section 131 was recorded and as such the additions made are sustainable even without the reliance on the statements recorded under Section 131. The Tribunal has grossly erred in not considering the judgment of the Hon'ble Apex Court in the case of ITO vs. M.Pirai Choodi (20 Taxmann.com 733 (2012) (SC), wherein it was held that the order of assessment passed without granting an opportunity to the assessee to cross-examine, should have been set aside by the High Court, and consequently the Tribunal should have remanded the matter directing the Assessing Officer to grant an opportunity to the assessee to cross-examine the concerned party and re-do the assessment. 17. However, in the present case, the Tribunal has grossly erred in deleting the additions made instead of remanding the matter back to the Assessing Officer to grant an opportunity to the assessee to cross-examine the party concerned in order to meet the ends of justice. 18. It is further contended that the Tribunal ought to have taken into consideration the judgment of the Hon’ble High Court of Delhi in the case of Nath International Sales vs. UOI, JAIR (1992 (Del) 295) HC) wherein the Hon'ble Court has clearly held that right of cross-examination is not an absolute right. Further, in the case of State of J & K vs. Bakshi Gula Mahammad the Hon'ble Apex Court has held that the right of hearing does not necessarily include right of cross- examination. 19. It is further contended that on the issue of Disallowance under Section 37(1), the Tribunal has grossly erred in deleting the addition made by the Assessing Authority under section 37(1) of the Act towards the expenses claimed on its illegal mining activity. The Tribunal has grossly erred in rejecting the finding of facts on record relied upon by the Assessing Authority while making this addition. 20. Based upon the facts and the order passed by the Income Tax Appellate Tribunal, Bengaluru including the order passed by the Deputy Commissioner of Income Tax Central Circle 1(3), Bengaluru, this appeal was admitted on 15.03.2019 to consider following substantial question of law: “1. Whether on the facts and circumstances of 19. It is further contended that on the issue of Disallowance under Section 37(1), the Tribunal has grossly erred in deleting the addition made by the Assessing Authority under section 37(1) of the Act towards the expenses claimed on its illegal mining activity. The Tribunal has grossly erred in rejecting the finding of facts on record relied upon by the Assessing Authority while making this addition. 20. Based upon the facts and the order passed by the Income Tax Appellate Tribunal, Bengaluru including the order passed by the Deputy Commissioner of Income Tax Central Circle 1(3), Bengaluru, this appeal was admitted on 15.03.2019 to consider following substantial question of law: “1. Whether on the facts and circumstances of the case and in law, the Tribunal is correct in holding that there is no relationship of 'associated enterprise' between the assessee respondent company and GLAT International P Ltd and provisions of Chapter X of Income Tax are not applicable as parameters laid down in sub section (1) and (2) of section 92A are not fulfilled? 2. Whether on the facts and circumstances of the case and in law, the Tribunal is correct in holding that there is no relationship of 'associated enterprise' between the assessee respondent company and GLA International P Ltd when the said GLA International P Ltd is a one dollar company with a single share and there is evidence of participation, management and control by the common director, holding more than 26% share in the assessee company and as such the findings of the Tribunal perverse? 3. Whether on the facts and circumstances of the case and in law, the Tribunal is correct in deleting the additions of Rs.86,43,47,335/- made by the Assessing Officer on account of bogus claim of expenditure on transportation made by the assessee, particularly when the Assessing Officer has arrived at the additions based on independent enquiries and evidence collected from the transport department, the banks and not merely on the statements recorded from the transporters? 4. Whether on the facts and circumstances of the case and in law, the Tribunal is correct in deleting the additions of Rs.86,43,47,335/- made by the Assessing Officer on account of bogus claim of expenditure on transportation made by the assessee by relying on the decisions of the Hon'ble Delhi high Court in the case of CIT VS. SMC Share Brokers Ltd, and in the case of CIT Vs. Pradeep Kumar Gupta, the facts and circumstances of the cases are distinguishable? 5. Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified in deleting the additions made by the Assessing Officer u/s 37(1) on account of illegal mining by disallowing the expenditure of Rs.387,76,69,992/-, wherein such disallowance has been made by the Assessing Officer on the basis of evidence from CBI, Hyderabad, Special Committee set up by the Andhra Pradesh Government and through investigation, thereby holding that there is illegal production of 22,81,141 mts i.e., @ 40% of admitted production of 57,10,000 Mts and accordingly disallowing @40%, the expenses on the same?” 21. Learned Standing Counsel Sri.Y.V.Raviraj has facilitated the order of the ITAT in IT(TP) A No.182 (Bang) 2014 of the assessment year 2009-10, wherein the ITAT has held that the assessee’s appeal directed against the assessment order passed by the A.O. under Section 144C (13) as per the directions of the DRP for the assessment year 2008-09. Before the ITAT, learned AR of the assessee submitted that even if the allegation of the A.O. is accepted that this company i.e. M/s (GLAITPL) is an AE of the assessee company for this reason that entire share capital i.e. one Share of M/s (GLAITPL) was transferred by Shri Arangannal to 21. Learned Standing Counsel Sri.Y.V.Raviraj has facilitated the order of the ITAT in IT(TP) A No.182 (Bang) 2014 of the assessment year 2009-10, wherein the ITAT has held that the assessee’s appeal directed against the assessment order passed by the A.O. under Section 144C (13) as per the directions of the DRP for the assessment year 2008-09. Before the ITAT, learned AR of the assessee submitted that even if the allegation of the A.O. is accepted that this company i.e. M/s (GLAITPL) is an AE of the assessee company for this reason that entire share capital i.e. one Share of M/s (GLAITPL) was transferred by Shri Arangannal to M/s (GJRHIL) on 21.12.2007, then also it is an AE of the assessee company for two days only because the said one share of GLATIPL was transferred by GJRHIL to Inter Link Services Group Ltd. ILSGL on 22.12.2007 and with this company or its directors, the assessee company or its directors has no relationship. It was submitted by the learned AR of the assessee that regarding TP issues, this is the submission that TP provisions cannot be applied in the present case because the parameters specified u/s 92A (2) of the I.T. Act are not attracted, where reliance was placed on the tribunal order rendered in the case of Page Industries Limited vs. DCIT in ITA No. 163/Bang/2015, copy of which is available on pages 15 to 38 of the paper book. It was also submitted that on pages 5 to 14 of the same paper book is a copy of Notarial certificate issued to Inter Link Services Group Limited and in particular, where the attention of the ITAT was drawn to page 11 as per which, on the date 12.05.2011, the current director of Inter Link Services Group Limited was Arangannal S/o Kathamuthu and he was appointed on 24.04.2001 and the current shareholder on that date was Iyer Corporate Services Pvt. Ltd. (Formerly known as Crest Services Pvt. Ltd.,). Thereafter, it was submitted that as per the assessment order, the A.O. has held that M/s GLA Trading International Pte Ltd. (GLATIPL) is an AE of the assessee company as per section 92A of the I.T. Act and his decision is on this basis that Sri G. J. Reddy, a director of the assessee company was appointed as a director of (GLATIPL) on 19.12.2007 and thereafter, on 21.12.2007, the entire share capital of (GLATIPL) being only one share of the value of 1 Singapore Dollar was transferred to GJR Holdings International Ltd. (GJRHIL) registered in the isle of MAN and Shri G. J. Reddy is one of the directors of that co. also i.e. (GJRHIL). Thereafter, it was submitted that the said one share of (GLATIPL) was transferred by GJRHIL to Inter Link Services Group Ltd. (ILSGL) on 22.12.2007 and the necessary evidence in this regard is available on page 169 of the paper book. It was submitted that in the present year i.e. during 01.04.2008 to 31.03.2009, the only one share of GLATIPL was held by ILSGL and neither the assessee company nor its directors are holding any share of that co. i.e. ILSGL and the directors of the assessee company are not a director in that co. i.e. ILSGL and hence, provisions of section 92A are not applicable under these facts and in view of the order rendered by the tribunal in the case of Page Industries Limited vs. DCIT (Supra). As against this, learned DR of the revenue supported the assessment order, TPO's order and the order of DRP. On consideration of the rival submissions, the ITAT reproduced the provisions of Section 92A of the I.T. Act as it contains the definition of the Term "Associated Enterprise" i.e., AE. These are as under:- "92A.(1) For the purposes of this section and Sections 92, 92B, 92C, 92D, 92E and 92F, "associated enterprise", in relation to another enterprise, means an enterprise- (a) which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise; or the I.T. Act as it contains the definition of the Term "Associated Enterprise" i.e., AE. These are as under:- "92A.(1) For the purposes of this section and Sections 92, 92B, 92C, 92D, 92E and 92F, "associated enterprise", in relation to another enterprise, means an enterprise- (a) which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise; or (b) in respect of which one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise. 22. The ITAT took note of the objections of the A.O., assessee's explanations and relevant facts in this regard. The objections of the A.O. as reproduced above are these that Shri GJR, one of the directors of the assessee company was appointed a director of (GLATIPL) also on 19.12.2007 and on 21.12.2007, the entire share capital of (GLATIPL) being one equity share was transferred to (GJRHIL) in which, Shri GJR is one of the directors. Hence, as per the objections of the A.O., the entire share capital of (GLATIPL) is held by (GJRHIL) on 21.12.2007 and on that date, Shri GJR, one of the directors of the assessee company is director of (GJRHIL) also being a company holding entire share capital of (GLATIPL). It is further submitted that whether these facts make (GLATIPL) an AE of the assessee company and see that whether during the period from 01.04.2008 to 31.03.2009 also, the facts were same or not because if the facts are not same in this later period, then even if it is held that (GLATIPL) is AE of the assessee company on 21.12.2007, it will not help the revenue in the present year. As per the subsequent developments for which evidence is also available on record, the said one share of (GLATIPL) was transferred by (GJRHIL) to Inter Link Services Group Ltd. (ILSGL) on 22.12.2007 and the necessary evidence in this regard is available on page 169 of the paper book. Hence, on and from 22.12.2007, (ILSGL) is the shareholder of (GLATIPL) holding its entire share capital and the only director of (ILSGL) as per Notarial certificate issued to (ILSGL) on 12.05.2011, the current director of Inter Link Services Group Limited was Arangannal S/o Kathamuthu and he was appointed on 24.04.2001 and the current shareholder on that date was Iyer Corporate Services Pte Ltd. (Formerly known as Crest Services Pte Ltd.). Hence, it is seen that from 22.12.2007 till 12.05.2001 at least, the entire share capital of (GLATIPL) was held by (ILSGL) and with this company, the assessee company or its directors has no relationship. 23. On considering the rival submissions, the ITAT held that since the learned DR of the revenue could not point out any difference in facts, we find no reason to take a contrary view in the present year. Hence in line with the Tribunal order in A.Y. 2010-11 in assessee's own case, ITAT deleted first two disallowances i.e., 1) Disallowance of Transportation charges, and 2) Disallowance of Expenses under Explanation to section 37(1) and in respect of third issue i.e., addition made on account of sale of Land, the ITAT set-aside the order of CIT (A) on that issue and restored the matter to A.O. for a fresh decision with the same directions as were given by the tribunal in A.Y. 2010-11 and ground No.6 was allowed and the appeal of the assessee was allowed. 24. Learned Standing Counsel Sri.Y.V.Raviraj for the appellant / revenue has also produced the proceedings of the Dispute Resolution Panel dated 29.11.2013 under Section 144C(5) read with Section 144C(8) of the I.T. Act for the assessment year 24. Learned Standing Counsel Sri.Y.V.Raviraj for the appellant / revenue has also produced the proceedings of the Dispute Resolution Panel dated 29.11.2013 under Section 144C(5) read with Section 144C(8) of the I.T. Act for the assessment year 2009-10, wherein the grounds of objections raised where the A.O. ought not to have made the reference to the TPO under Section 92CA of the Act since the assessee has not entered into any international transactions defined under Section 92B of the Act and the A.O. and also the TPO ought to have appreciated that the assessee company is not an associated enterprise of M/s. GLA Trading International Pvt. Ltd., as defined in Section 92A of the Act. The Dispute Resolution Panel accordingly held that, “the assessee has entered into a complicated arrangement whereby a helicopter owned by an AE at Singapore is shown to be leased out to two Indian charter companies which in turn hire out the same helicopter to the assessee itself. By this mechanism, the hire charges, though apparently paid to the charter companies actually and practically benefitted to the AE which owned the helicopter. It is a kind of circular transaction wherein the veil of obfuscation of the actual transactors has been lifted by the TPO who has rightly treated the transaction as an international transaction and benchmarked the same. Here too, the ratio of the Mcdowell case referred to earlier has a bearing. The tax authority does retain the prerogative to go behind the form of a transaction to determine its actual nature Therefore, the action of the TPO is justified and duly upheld by this panel. Based on the above discussion, the directions of the Panel as per the provisions of Section 144C(5) of the IT Act hereby are communicated to the assessee and the Departmental authorities concerned.” 25. On controvert to the arguments advanced by the learned Standing counsel Sri.Y.V.Raviraj for the appellants / revenue, learned counsel Sri.Mayank Jain has taken us through various contentions by urging the reliance of the Patna High Court in the case of Kanak Kumari vs. Commissioner of Income Taxreported in (1955) 28 ITR 462, relating to the scope of Section 133(4) of the Income Tax Act, wherein it is held that Section 133(4) has granted a very wide statutory discretion to the Income Tax Appellate Tribunal in disposing of an appeal but the discretion given under this section to the Income Tax Appellate Tribunal is a judicial discretion which must be exercised in accordance with legal principles, and not in an arbitrary or capricious manner. Discretion means when it is said that something is to be done within the discretion of the authorities that something is to be done according to the rules of reason and justice, not according to private opinion. It is to be, not arbitrary, vague and fanciful, but legal and regular. It must be exercised within the limit, to which an honest man competent to the discharge of his office ought to confine himself. 26. Learned counsel Sri.Mayank Jain for the respondent / assessee further placed reliance on a decision in the case of Rajesh Babubhai Damania vs. Commissioner of Income Taxreported in (2001) 251 ITR 541, wherein at para 7 it is held as under: 26. Learned counsel Sri.Mayank Jain for the respondent / assessee further placed reliance on a decision in the case of Rajesh Babubhai Damania vs. Commissioner of Income Taxreported in (2001) 251 ITR 541, wherein at para 7 it is held as under: “7. The Tribunal totally overlooked the assessment of evidence done by the Commissioner of Income-tax (Appeals) and dealt with the matter as if it was entertaining an appeal against the order of the Assessing Officer. There was no question of giving "one more innings" to the Assessing Officer. The appeals are not to be decided for giving "one more innings", to the lower authorities. In the appellate jurisdiction the appellate court has to consider whether there is justification for upsetting the order against which the appeal is filed. In this case, where the assessee had repeatedly produced the creditors before the Income-tax Officer and had filed affidavits in support of the credit entries and also filed confirmations and given names and addresses of the concerned parties as well as proved repayment of the amounts by account payee cheques and done all that was within his power to prove the genuineness of the loans, the finding arrived at by the appellate authority on the basis of such reliable material could not have been so cursorily dealt with by the Tribunal for the purpose of giving "one more innings" to the Assessing Officer. It was the duty of the Tribunal to ascertain the reasons which were given by the Commissioner of Income-tax (Appeals) in whose order the order of the Assessing Officer had merged and not to base its decision merely on "a bit of negligence" of the Assessing Officer in not cross-examining the parties who were produced before him four to five times. In our opinion, the Tribunal has reached the conclusion which cannot reasonably be reached by anyone, and there is no warrant for restoring the matter to the Assessing Officer on such specious grounds as are given by the Tribunal. 27. Learned counsel Sri.Mayank Jain for the respondent / assessee contended that it is the case of the revenue that protective assessments have been passed in the hands of transporters, where it is quantified that no transportation has taken place. Therefore, it is deemed that assessee has not transported iron ore during the current assessment year. In order to substantiate this claim, revenue produced three orders i.e., i) the provisional assessment order dated 28.03.2012, where provisional/protective assessment passed in the hands of Rageni Gangadhar, under Section 143(3) of the Income Tax Act, ii) the order passed by the Commissioner (Appeals) (Karnool) dated 12.07.2012 which upheld the order of assessment. However, held that the assessment is on substantive basis and iii) the order of the Tribunal (Hyderabad) dated 14.12.2012 wherein it set aside both the orders of the assessment and appellate Commissioner. 28. It is further contended that under the Old Income Tax Act, 1922, provisional / protective assessments were provided for u/s. 23-B of the IT Act, 1922. This provisional assessment was a prelude to an advance tax or to regular assessments. In other words, if an Assessing Officer desires to pass a provisional assessment he had to do it u/s. 23-B of the IT Act, 1922. The Hon'ble Supreme Court had an occasion to deal with this provision in two judgments which are as under: a. Lalji Haridas Vs. ITO & Ors., (1961) 43 ITR 387 (SC) b. ITO Vs. Bachu Lal Kapoor (1966) 60 ITR 74 (SC) “15. Some argument was advanced on the question of the validity of what are called protective or precautional assessments" Reference was made to Jagannath Hanumanbux us TO (1957) 31 ITR 603 (Cal) and to the decision of this Court in Lals Haridas us. ITO (1961) 43 ITR 387 (SC) In the former, the validity of protective assessment was approved and in the latter, this Court though the question of assessment was raised, did not express its final opinion thereon. This Court held that when there was a. Lalji Haridas Vs. ITO & Ors., (1961) 43 ITR 387 (SC) b. ITO Vs. Bachu Lal Kapoor (1966) 60 ITR 74 (SC) “15. Some argument was advanced on the question of the validity of what are called protective or precautional assessments" Reference was made to Jagannath Hanumanbux us TO (1957) 31 ITR 603 (Cal) and to the decision of this Court in Lals Haridas us. ITO (1961) 43 ITR 387 (SC) In the former, the validity of protective assessment was approved and in the latter, this Court though the question of assessment was raised, did not express its final opinion thereon. This Court held that when there was a doubt as to which person among two was liable to be assessed, parallel proceedings might be started against both; and it also laid down an equitable procedure to be followed in that situation. In this case, the question of protective assessment does not call for our decision and we do not express our opinion thereon.” 29. It is further contended that in the New Income Tax Act, 1961, provisional / protective assessments were provided u/s 141 of the IT Act, 1961, which contemplated provisional assessment for the purpose of computing advance tax. This provision came up for interpretation before the Hon'ble Supreme Court, in the case of Jaipur Udyog Ltd., & Anr., Vs. CIT & Anr., reported in (1969) 71 ITR 799 (SC) wherein it was held as under: “10. We are unable to accept the opinion of the High Court if it be assumed that provisional assessment has to be made in accordance with and subject to the provisions of the Act, distinction between a provisional assessment and a regular assessment gets completely blurred. The scheme of s. 141 is to call upon the assessee to pay tax provisionally at the appropriate rate on what he admits is his taxable income, subject to the benefit of the ounces under subs (2) The section by the assessee exceeds the amount admitted by him, nor whether the allowances or deductions claimed are admissible. If there be a discrepancy between the return made and the accounts and documents accompanying the return, the ITO may ask the assessee to explain the discrepancy. but he must make a professional assessment on the basis of the return initially made or clarified and the accounts and documents filed. He cannot make a provisional assessment by holding that certain claims made by the assessee are in law unjustified. It is transpired that the assessee has without reasonable cause concealed particulars of his income or has furnished inaccurate particulars of his income, it may be open to the ITO to impose penalty upon him after the regular assessment is completed. But it is not open to him to determine whether there has been any concealment of particulars of income or to decide whether claims which have been made are unwarranted. In the view we have expressed, the ITO was not justified in holding that the claim made by the company for carrying forward and seeking to debit against Rs.74 lakhs odd an amount of Rs.103 lakhs odd was liable to be rejected. 30. Learned counsel for the respondent / assessee contended that therefore, the provisional / protective assessment order passed by the Assessing Officer (Ananthpur), which was confirmed by the Appellate Commissioner is without jurisdiction and has no legs to stand on and cannot be enforced. It is without “authority of law” as contemplated under Article 265 of the Constitution of India. Hence, the order of the Assessing Officer (Ananthpur), Appellate Commissioner’s order (Karnool), Tribunal’s order (Hyderabad) is without jurisdiction and cannot be looked into. 30. Learned counsel for the respondent / assessee contended that therefore, the provisional / protective assessment order passed by the Assessing Officer (Ananthpur), which was confirmed by the Appellate Commissioner is without jurisdiction and has no legs to stand on and cannot be enforced. It is without “authority of law” as contemplated under Article 265 of the Constitution of India. Hence, the order of the Assessing Officer (Ananthpur), Appellate Commissioner’s order (Karnool), Tribunal’s order (Hyderabad) is without jurisdiction and cannot be looked into. 31. Learned counsel for the respondent / assessee facilitated the assessment order dated 31.12.2009 for the assessment year 2008-09 and contended that the assessee has filed e-return of income for the assessment year 2008-09 under Section 139 on 30.09.2008 under ack. No.44479161300908 with digital signature declaring income of Rs.764,53,84,970/-. The financial year 2007-08 is the year of search in the case of the assessee. Consequent to the material gathered in the case of the assessee searched, action under Section 153A of the Act was initiated in the assessee’s case for earlier years. In view of this, in the case of assessee the assessment year 2008-09 falls under Section 153B(1)(b) of the Act. Accordingly, the case was posted for hearing by issuance of notice under Section 143(2) on 15.09.2009. 32. It is further contended that GLA Trading International PTE Ltd., formerly known as MAN-GO PUB PTE Ltd., is a registered company in Singapore with Register No. 200414580K. On the basis of the Annual Report and other reports filed by GLA Trading International PTE Ltd. with Accounting and Corporate Regulatory Authority (ACRA), Singapore, it is seen that Shri Gali Janardhan Reddy is a Director of the said company with effect from 19.12.2007. At this point, it may not be out of place to explain a little about ACRA. ACRA is the International Regulator of Business Entities and Public Accountants in Singapore. ACRA also plays the role of a facilitator for the development of business entities and the public accountancy profession. ACRA was formed as a Statutory Board on 1 April, 2004, following the merger of the then Registry of Companies and Business (RCB) and the Public Accountants Board (PAB). This authority is responsible to administer various Acts of Singapore including Accounting and Corporate Regulatory Authority (ACRA) Act, Accountants Act, the Companies Act, the Business Registration Act etc. The companies registered in Singapore are required to lodge/file reports regarding the changed particulars regarding Company's Directors, Managers, regarding change of name, change of registered office etc., to the ACRA. It is seen from one of such reports lodged with ACRA on 01.02.2008 by GLA Trading International PTE Ltd., regarding change of particulars of company's directors that Shri Gali Janardhan Reddy was appointed as a Director in the company w.e.f. 19.12.2007. It was further observed that Shri Gali Janardhan Reddy who is the Director in the assessee company is also a Director in GLA Trading International PTE Ltd., Singapore. The assessee company has sold/exported iron ore as mentioned in the above chart to GLA International Trading PTE Limited after Shri Gali Janardhan Reddy became a Director. Thus it is a case of an international transaction of sale/export of iron ore between two associate entities with Shri Gali Janardhan Reddy as a Director in both the companies. Further, as seen from the chart above, it is very clear that there is gross under-invoicing in respect of sales/exports made by the assessee company to the associate company (GLA Trading International PTE Ltd). 33. The assessee company was issued with a showcause notice requesting them to explain why the difference in price/rate representing under invoiced portion should not be added to the income of the assessee company for the Asst. Year 2008-09 under the provisions of Income Tax Act. 33. The assessee company was issued with a showcause notice requesting them to explain why the difference in price/rate representing under invoiced portion should not be added to the income of the assessee company for the Asst. Year 2008-09 under the provisions of Income Tax Act. 34. It is further contended that in view of non-reference by the assessing officer to the TPO for determining Arm's Length Price (ALP) is erroneous and also prejudicial to the interest of revenue inasmuch as the matter could not be examined by the TPO as per the Instructions of the CBDT in Instruction No 3, as mentioned above, having regard to the fact that the international transaction was more than the specified amount. 35. However, the submissions made by the assessee company before the Commissioner of Income Tax were as under: (a) In this case, the assessment has been completed under section 143(3) of the Act on 31/12/2009 by the Deputy Commissioner of Income Tax, Central Circle-1(3), Bangalore. During the course of assessment proceedings the Assessing Officer vide para No.4.1 to 7, considered the transactions done by the assessee company with GLA Trading Pvt. Ltd., and added a sum of Rs.86,42,88,802/- to the returned income on the ground of under-invoiced sale price. The assessee has filed appeal against the assessment order to the CIT(Appeals) which is pending for disposal. Now the IT Commissioner is of the opinion that the assessment order is erroneous on the ground that C.B.D.T's Instruction No.3 of 2003, dated 20/5/2003 has not been followed. As per Ld. C.I.T. wherever the aggregate value of international transaction exceeds Rs.5 crore (now raised to 15 crore), the case should be selected for scrutiny and reference under section 92CA be made to the transfer pricing officer for determination of arms- length price(ALP). The copy of above instruction has not been provided to the assessee. (b) Referring to Section 92CA(1), the assessee's representative contends that nowhere in the Act it is stated that the matter has to be referred to the Transfer Pricing officer mandatorily. The Assessing officer in his wisdom has applied provisions of Sec.40A(2) of the Act. Thus the AO has followed the law both in letter and spirit. (c) As per the Act the CBDT can issue instructions under section 119 of the Act. Subsection (1) of Section 119 of the Act provides that the Board may, from time to time, issue such orders, instructions and directions to other income tax authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such others, instructions and directions of the Board. So, the instruction can be issued by the CBDT for the proper administration of the Act and instruction cannot overrule the Act itself. As per the section 119, the subordinate Authority shall observe and follow instructions. The instructions are not binding on the assessee. CIT Vs. Hero Cycle Pvt. Ltd. 228 ITR 463(SC). (d) Without prejudice to the above, the case does not fall under section 92CA of the Act. Section 92CA is applicable in the cases where arm length price has to be computed under section 92C of the Act, in the cases relating to an international transaction. The term international transaction has been defined in section 92B of the Act. Subsection (1) section 92B eads as under" for the purpose of this Act and section 92, 92C, 92D and 92E, International transaction" means a transaction between two or more associated enterprises, either or both of whom are non residents. The term associated enterprises have been defined in section 92A of this Act. (d) Without prejudice to the above, the case does not fall under section 92CA of the Act. Section 92CA is applicable in the cases where arm length price has to be computed under section 92C of the Ac