Itat/85/2022 Ia No. Ga/1/2022 Indian Explosives Pvt. Ltd v. Principal Commissioner Of Income Tax-4, Kolkata

OD – 14 IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE ITAT/85/2022IA NO. GA/1/2022INDIAN EXPLOSIVES PVT. LTD.VsPRINCIPAL COMMISSIONER OF INCOME TAX-4, KOLKATA BEFORE :THE HON’BLE JUSTICE T.S. SIVAGNANAMAndTHE HON’BLE JUSTICE HIRANMAY BHATTACHARYYADate : NOVEMBER 03, 2022. Appearance: Mr. J.P. Khaitan, Sr. Adv.Mr. Pratyush Jhunjhunwala, Adv.Mr. Mrigank Kejriwal, Adv.…for appellantMr. Om Narayan Rai, Adv.…for respondent The Court :- This appeal filed by the assessee under Section 260A of the IncomeTax Act, 1961 (the Act) is directed against the order dated September 17, 2021 passedby the Income Tax Appellate Tribunal “A” Bench, Kolkata in ITAT No. 1265/Kol/2019for the assessment years 2014-15. The assessee has raised the following substantialquestions of law for consideration :- i)Whether the Tribunal was justified in law in holding that the order datedDecember 26, 2016 passed by the Assessing Officer is erroneous in so far asit is prejudicial to interests of the revenue and its observations and findingsin this regard are erroneous, contrary to law and perverse ? ii) iii) iv) v) vi) vii) Whether the order dated February 7, 2019 passed by the PrincipalCommissioner of Income Tax under section 263 of the Income Tax Act, 1961is erroneous, contrary to law, perverse and/or without jurisdiction ?Whether the CIT was justified in merely setting aside the assessment orderto the file of the Assessing Officer for fresh adjudication without giving anyfindings or observations on the merits of the issues involved ? Whether the CIT was justified in applying explanation 2 to section 263 of theAct without appreciating the fact that Explanation 2 to section 263 insertedby Finance Act 2015 w.e.f. 01-06-2015 is applicable prospectively and is notapplicable for AY 2014-15? Whether the Principal Commissioner of Income Tax needs to consider thematerial submitted by the appellant on the issues raised by him in the courseof the proceedings under section 263 of the Act before arriving at the findingthat the assessment order passed by the Assessing Officer is prejudicial tothe interests of the revenue ? Whether in cases where issues and discrepancies are raised on the basis ofForm 26AS and books of accounts which had been submitted by theappellant during the course of assessment and examined by the AssessingOfficer, the Principal Commissioner of Income Tax can form the opinion thatthe assessment was completed without making inquiries or verifications orlacked inquiries only after reviewing the submissions and reconciliationssubmitted by the appellant and coming at a prima facie finding that theinterests of the revenue have been prejudiced ? Whether the circular no. 3 of 2016 dated March 10, 2016 issued by theCentral Board of Direct Taxes renders the power bestowed upon the Assessing Officer under section 92C(3) of the Act to determine the arm’slength price otiose and impinges upon the discretion given to the AssessingOfficer under section 92CA of the Act to refer cases to the Transfer PricingOfficer in cases which he considers it to be necessary or expedient ? viii) Whether the assessment order dated December 26, 2016 can be said to beerroneous in so far as it is prejudicial to the interests of the revenue for notreferring the case to the Transfer Pricing Officer when the Assessing Officerhimself had examined Form 3CEB and the appellant’s transactions withassociated enterprises ? Whether the circular no. 3 of 2016 dated March 10, 2016 issued by theCentral Board of Direct Taxes renders the power bestowed upon the Assessing Officer under section 92C(3) of the Act to determine the arm’slength price otiose and impinges upon the discretion given to the AssessingOfficer under section 92CA of the Act to refer cases to the Transfer PricingOfficer in cases which he considers it to be necessary or expedient ? viii) Whether the assessment order dated December 26, 2016 can be said to beerroneous in so far as it is prejudicial to the interests of the revenue for notreferring the case to the Transfer Pricing Officer when the Assessing Officerhimself had examined Form 3CEB and the appellant’s transactions withassociated enterprises ? We have heard Mr. J.P. Khaitan, learned Senior Counsel duly assisted by Mr.Jhunjhunwala, learned counsel for the appellant/revenue and Mr. Om Narayan Rai,learned standing Counsel for the respondent. The order impugned before us in thisCourt below is that of the Tribunal forming the order passed by the PrincipalCommissioner of Income Tax, Kolkata-4 (PCIT) dated 7[th] February, 2019 passed inexercise of powers conferred under Section 263 of the Act. Before we examine the meritsof the matter the first hurdle which the revenue has to cross is as to whether the PCIThad passed a speaking order on the various queries raised and the reply submitted bythe assessee. To satisfy ourselves we have carefully gone through the order passed bythe PCIT dated 7[th] February, 2019. From the said order it is seen that the authority hasclassified the queries under five heads on give grounds which are as follows :- A)It is seen that as per 26AS statement total interest income of the assessee wasRs.8,10,93,121/-. However, as per accounts and computation of income totalinterest income was to the tune of Rs.8,00,14,210/-. Hence, the A.O. failed toreconcile or add the difference during the course of assessment proceedings. B)It further appears from 26AS statement that there were other incomes in thenature of contractual, commission, technical etc. Though no separate heads ofincomes are available in the P&L accounts, it appears that all such incomeswere clubbed under ‘Miscellaneous income’ under Sch.16. However, as per26AS total receipts were of Rs.1,32,40,556/- as against the disclosed income ofRs.78L (approx). Hence, the A.O. failed to reconcile or add the difference duringthe course of assessment proceedings.nature of contractual, commission, technical etc. Though no separate heads ofincomes are available in the P&L accounts, it appears that all such incomeswere clubbed under ‘Miscellaneous income’ under Sch.16. However, as per26AS total receipts were of Rs.1,32,40,556/- as against the disclosed income ofRs.78L (approx). Hence, the A.O. failed to reconcile or add the difference duringthe course of assessment proceedings. C)Deduction of TDS u/s 194IA of the Act in the Form 26AS suggests sale of anyimmovable property other than agricultural land. However, no capital gain/losswas booked on account of such sale. Neither fixed asset statement of theassessee indicates any such sale.immovable property other than agricultural land. However, no capital gain/losswas booked on account of such sale. Neither fixed asset statement of theassessee indicates any such sale. C)Deduction of TDS u/s 194IA of the Act in the Form 26AS suggests sale of anyimmovable property other than agricultural land. However, no capital gain/losswas booked on account of such sale. Neither fixed asset statement of theassessee indicates any such sale.immovable property other than agricultural land. However, no capital gain/losswas booked on account of such sale. Neither fixed asset statement of theassessee indicates any such sale. D)It is seen that the assessee made adjustments on account of arms length markup. However, the case was not referred to TPO. As per Para 3.2 of CBDT’sInstruction No. 3 of 2016, the instant case had to be mandatorily referred to theTPO (the Transfer Pricing Officer) by the A.O after obtaining the approval ofPrincipal CIT. However, the A.O has completed assessment u/s. 143(3) of theAct on 26-12-2016 without referring the matter to Transfer Pricing officer.up. However, the case was not referred to TPO. As per Para 3.2 of CBDT’sInstruction No. 3 of 2016, the instant case had to be mandatorily referred to theTPO (the Transfer Pricing Officer) by the A.O after obtaining the approval ofPrincipal CIT. However, the A.O has completed assessment u/s. 143(3) of theAct on 26-12-2016 without referring the matter to Transfer Pricing officer. E)One of the reasons for selection of the case in scrutiny was verification ofCommission payment. However, the same was not verified by the A.O during thecourse of assessment proceedings.Commission payment. However, the same was not verified by the A.O during thecourse of assessment proceedings. The assessee had submitted reply to the show cause notice issued under Section263 of the Act along with annexures and also has filed the written submission duringthe course of personal hearing. On perusal of the order passed by the PCIT we find thatthe order is bereft of reasons. We say so, because the discussion starts from paragraph 4of the order and the findings rendered by the PCIT is in the last five lines of paragraph 4. The remaining part of the order deals with the power of revision under Section 262 of theAct and the various decisions rendered by the Court and the other high Courts in thecountry. When the PCIT has formal five queries and the assessee has submitted reply tothose queries along with annexures it is expected that the authority should deal with thesubmission made by the assessee and passed a speaking order. However, the onlyreason which appears to have been well played in the mind of the PCIT the details werenot furnished before assessing officer. The learned Senior Advocate appearing for theappellant points out that such finding is factually incorrect and has drawn our attentionto the letter of the assessee dated 20[th] December, 2016, from which we find not only theassessee has submitted on the merits of the matter but pointed out the legal positionand the letter contains as many as seventeen annexures. Therefore, we can safelyconclude that the order passed by the PCIT is a non speaking order. The assesee being aggrieved carried the matter up to the appeal before theTribunal. On perusal of the order passed by the Tribunal we have no hesitation to holdthat the order passed by the Tribunal is also a non speaking order of course the learnedTribunal could not be faulty because it was testing the correctness of the order whichwas without reasons. This conclusion would be sufficient for us to interfere with theorder passed by the Tribunal. However, we note after the order was passed by the PCIT itgiving effect to an order passed by the assessing officer dated 28[th] November, 2019 inwhich the assessing officer has accepted the stand taken by the assessee except forqueries (A) and (E). So far as queries, (B), (C) & (D) the assessing officer has acceptedthe stand taken by the assessee. Therefore, in our considered view the matter has to beremanded back to the PCIT for a fresh consideration and to pass a speaking order onlywith regard to queries (A) and (E). For the above reasons the appeal is allowed. Theorder passed by the Tribunal is set aside and the order passed by the PCIT dated 7[th] February, 2019 is also set aside and the matter stands remanded to the PCIT for freshconsideration of queries (A) and (E) alone. The appellant assessee is permitted to fileadditional submissions before the PCIT after considering the same and affording thepersonal hearing to the assessee. Fresh order be passed on merits and in accordancewith law assigning reasons. Consequently, the substantial questions of law are left open. (T.S. SIVAGNANAM, J.) Pkd/GH (HIRANMAY BHATTACHARYYA, J.)