Shri Raviraj In Substance, Contended That As Held In The Case Of Principal Commissioner Of Income Tax-4, Mumbai v. M/S.s.g.asia Holdings (India) Private

IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS THE 30 DAY OF SEPTEMBER, 2020 PRESENT THE HON’BLE MR.JUSTICE P.S.DINESH KUMAR AND THE HON’BLE MR.JUSTICE S.VISHWAJITH SHETTY I.T.A.No.100005/2017 C/W I.T.A.No.100022/2017 IN I.T.A.No.100005/2017 BETWEEN: 1.THE PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), QUEENS ROAD, BENGALURU. 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, 1(3), BENGALURU. … APPELLANTS (BY SHRI Y.V.RAVIRAJ, ADVOCATE) AND M/S OBULAPURAM MINING COMPANY PVT. LIMITED, NO.6/4, RAGHAVACHARI ROAD, BALLARI-583101, PAN: . … RESPONDENT (BY SHRI K.G.RAGHAVAN, SENIOR ADVOCATE FOR SHRI SHIVARAJ S.BALLOLLI, ADV.) THIS APPEAL IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961, PRAYING TO: i) FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED ABOVE, ii) ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU BENCH 'C' IN ITA NO.545 (BANG) 2012 DATED 29.07.2016 AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 1 (3), BENGALURU AND ETC., IN I.T.A.No.100022/2017 BETWEEN 1.THE PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), QUEENS ROAD, BENGALURU. 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, 1(3), BENGALURU. ... APPELLANTS (BY SHRI Y V RAVIRAJ, ADV.) AND M/S OBULAPURAM MINING COMPANY PVT. LIMITED, NO.123, VEERANNA GOWDA COLONY, BALLARI-583103, PAN: AAAC05753D. ... RESPONDENT (BY SHRI K.G.RAGHAVAN, SENIOR ADVOCATE FOR SHRI SHIVARAJ S BALLOLI, ADV.) THIS APPEAL IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961, PRAYING TO: i) FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED ABOVE, ii) ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU BENCH 'B' IN IT (TP) A NO.135/BANG/2015, DATED 17.10.2016 AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 1 (3), BENGALURU AND ETC., THESE APPEALS COMING ON FOR ADMISSION ON 23.09.2020 AND THE SAME HAVING BEEN HEARD AND RESERVED FOR PRONOUNCEMENT OF JUDGMENT, THIS DAY, P.S.DINESH KUMAR, J., DELIVERED THE FOLLOWING: JUDGMENT These income tax appeals are presented by the Revenue raising following questions of law: i)Whether on the facts and circumstances of the case and in law, the Tribunal is right in holding that, CBDT Instruction No.3 dated 20.05.2003 is not binding on the Assessing Officer and as such the Assessing Officer himself determining the Transfer Pricing adjustment is justified and hence the order of assessment cannot be said to be erroneous in order to invoke the provisions of section 263 by the Commissioner of Income Tax? ii)Whether on the facts and circumstances of the case and in law, the Tribunal is right in holding that, the Assessing Officer himself determining the Transfer Pricing adjustment without referring the matter to the Transfer Pricing Officer is one of the possible views taken and as such the order of assessment cannot be said to be erroneous in order to invoke the provisions of section 263 by the Commissioner of Income Tax? iii)Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified in quashing the order passed by the Commissioner under section 263 which was invoked on two separate grounds and the Tribunal deciding only one ground and leaving the other issue undecided and as such the order of the Tribunal perverse? 3.We have heard Shri Y.V.Raviraj, learned Standing Counsel for the Revenue and Shri K.G.Raghavan, learned Senior Advocate for the assessee-respondent. 4.Shri Raviraj in substance, contended that as held in the case of PRINCIPAL COMMISSIONER OF INCOME TAX-4, MUMBAI VS. M/S.S.G.ASIA HOLDINGS (INDIA) PRIVATE LIMITED[1],(for short ‘S.G.ASIA’) Instruction No.3/2003 dated 20.05.2003 issued by the Central Board of Direct Taxes (for short ‘the CBDT’) is mandatory in nature and therefore, the impugned order passed by the Income Tax Appellate Tribunal (for short ‘the ITAT’) is not sustainable in law. 3.We have heard Shri Y.V.Raviraj, learned Standing Counsel for the Revenue and Shri K.G.Raghavan, learned Senior Advocate for the assessee-respondent. 4.Shri Raviraj in substance, contended that as held in the case of PRINCIPAL COMMISSIONER OF INCOME TAX-4, MUMBAI VS. M/S.S.G.ASIA HOLDINGS (INDIA) PRIVATE LIMITED[1],(for short ‘S.G.ASIA’) Instruction No.3/2003 dated 20.05.2003 issued by the Central Board of Direct Taxes (for short ‘the CBDT’) is mandatory in nature and therefore, the impugned order passed by the Income Tax Appellate Tribunal (for short ‘the ITAT’) is not sustainable in law. 5.Brief facts for the purpose of consideration of these appeals are, assessee returned its income for the assessment year 2008-2009 and the assessment was completed under Section 143 (3) read with Section 153A of the Income Tax Act, (for short ‘the Act’) on 31.12.2009. 6.The Commissioner of Income Tax, Karnataka (Central), Bengaluru, has passed his order under Section 263 of the Act on 30.03.2012. The said order was challenged before the ITAT and by the impugned order, the 1(2019) 13 SCC 353 ITAT has allowed assessee’s appeal. Hence, these Income Tax Appeals. 7.Shri Raghavan urged following contentions; the judgment in S.G.ASIAis not applicable because; i)the judgment did not go into the question ‘whether Instruction No.3 is mandatory?’; question ‘whether Instruction No.3 is mandatory?’; ii)the judgment is not ’law declared’ under Article 141 of the Constitution of India in view of the STATE OF U.P. AND ANOTHER VS. SYNTHETICS AND CHEMICALS LTD., AND ANOTHER[2];under Article 141 of the Constitution of India in view of the STATE OF U.P. AND ANOTHER VS. SYNTHETICS AND CHEMICALS LTD., AND ANOTHER[2]; iii)even if it is construed that in S.G.ASIA, the Hon’ble Apex Court has considered the question ‘whether Instruction No.3 is mandatory’, in the facts and S.G.ASIA, the Hon’ble Apex Court has considered the question ‘whether Instruction No.3 is mandatory’, in the facts and circumstances of this case, S.G.ASIAis not applicable because the assessment year is prior to the amendment brought on 01.06.2007. 8.Shri Raghavan relied upon following authorities: i)COMMISSIONER OF INCOME TAX VS. MAX INDIA LTD.,[3]; VS. MAX INDIA LTD.,[3]; ii)MALABAR INDUSTRIAL CO., LTD., VS. COMMISSIONER OF INCOME TAX[4]LTD., VS. COMMISSIONER OF INCOME TAX[4] iii)VODAFONE INDIA SERVICES PVT. LTD., VS. UNION OF INDIA AND OTHERS[5]; PVT. LTD., VS. UNION OF INDIA AND OTHERS[5]; iv)COMMISSIONER OF INCOME TAX VS. TATA CONSULTANCY SERVICES LTD., (decision of SERVICES LTD., (decision of 3( 2 0 0 7 ( 1 5 ) S C C 4 0 1 ) 4(2000) 2 SCC 718 5(20 13 SC C ON L IN E B OM . 1 5 34 )(20 13 SC C ON L IN E B OM . 1 5 34 ) Income Tax Appellate Tribunal, Mumbai Bench “E” Mumbai, in I.T.A.No.7513/M/2010), 9.The assessee is engaged in the business of mining and export of iron ore. During the assessment year, it has sold iron ore to M/s. GLA Trading International PTE Ltd., Singapore, at a much lower price when compared with the export of iron, in other overseas transactions. The Assessing Officer has recorded that between December 2007 and March 2008, assessee has sold iron ore to various overseas buyers at the price between USD 144.25 and USD 165.22 per metric tonne. However, assessee has sold iron ore having the same Fe content to M/s. GLA Trading International PTE., Ltd., between USD 76.14 and USD 98.24. The Assessing Officer did not make any reference for determination of Arm’s Length Price (for short ‘the ALP’) in respect of international transactions, though the transactions had exceeded Rs.15 crores. The Instruction No.3/2003 issued by the CBDT mandates that wherever the aggregate value of international transaction exceeds Rs.5 crores (amended to Rs.15 crores), the case must be picked up for scrutiny under Section 92CA and sent to Transfer Pricing Officer (for short ‘the TPO’) for determination of ALP. international transactions, though the transactions had exceeded Rs.15 crores. The Instruction No.3/2003 issued by the CBDT mandates that wherever the aggregate value of international transaction exceeds Rs.5 crores (amended to Rs.15 crores), the case must be picked up for scrutiny under Section 92CA and sent to Transfer Pricing Officer (for short ‘the TPO’) for determination of ALP. 10.The Tribunal has recorded in paragraph No.8 of its order that Instruction No.3 is not binding on the Assessing Officer. Tribunal has further recorded that the Assessing Officer himself has made his own assessment without referring the matter to the TPO and it is one of the possible views and therefore, it cannot be held as erroneous. 11.Shri Raghavan urged that sub Section (4) of Section 92CA has been substituted by Finance Act, 2007, with effect from 01.06.2007. Prior to amendment, the Assessing Officer was required to compute the income of the assessee having regard to the ALP determined by the TPO. Therefore, Assessing Officer could exercise his power of assessment. However, post amendment, assessee has no option but to compute assessee’s income ‘in conformity with the arm’s length price determined by the TPO’. Thus, after the amendment, the Assessing Officer has no power of independent assessment in cases referred to TPO. Therefore, Instruction No.3 cannot be held mandatory, at least, post amendment which came into effect from 01.06.2007. 12.Thus, according to Shri Raghavan, Instruction No.3 is not mandatory at all. Even prior to amendment, S.G.ASIA could not be considered as law declared under Article 141 of the Constitution of India. 13.In S.G.ASIA, the Hon’ble Supreme Court has held as follows: “7. In view of the guidelines issued by CBDT in Instruction No.3/2003 the Tribunal was right in observing that by not making reference to TPO, the assessing officer had breached the mandatory instructions issued by CBDT. We do not find the conclusion so arrived at by the Tribunal to be incorrect.” 14.The judgment in the case of S.G.ASIAis delivered on 13[th] August, 2019. A reference to the TPO is required to be made under Sub section (1) of Section 92CA. There is no amendment to the said Section. Shri Raghavan is right in his submission to the extent that sub section (4) of Section 92CA has been substituted with effect from 01.06.2007. No authority of the Supreme Court of India is cited to show that the position of law stated in S.G.ASIA has been altered. Therefore, in view of the unambiguous language employed in paragraph No.7 of S.G.ASIA extracted hereinabove, we are of the considered view that Instruction No.3/2003 issued by the CBDT is mandatory. 15.Shri Raghavan has relied upon COMMISSIONER OF INCOME TAX VS. MAX INDIA to contend that where two views are possible and if the Assessing Officer has taken a particular view, it cannot be treated as erroneous. 16.Placing reliance on MALABAR INDUSTRIAL CO., LTD., VS. COMMISSIONER OF INCOME TAX, Shri Raghavan urged that power under Section 263 cannot be invoked to correct each and every type of error. 17.Shri Raghavan strongly relied upon VODAFONE INDIA. In the said case, a writ petition was filed under Article 226 of the Constitution challenging an order passed by the Transfer Pricing Officer in terms of Section 92CA. The grounds urged by the petitioner therein are extracted in paragraph No.31 of the judgment and the issue whether Instruction No.3 is mandatory is not decided in that judgment. 18.Shri Raghavan also cited an order passed by Income Tax Appellate Tribunal in COMMISSIONER OF INCOME TAX VS. M/S.TATA CONSULTANCY SERVICES LTD., It is a judgment rendered by the Tribunal on the facts of that case and not an authority for consideration. 19.Thus, the authorities relied upon by Shri Raghavan do not support respondent’s case. 17.Shri Raghavan strongly relied upon VODAFONE INDIA. In the said case, a writ petition was filed under Article 226 of the Constitution challenging an order passed by the Transfer Pricing Officer in terms of Section 92CA. The grounds urged by the petitioner therein are extracted in paragraph No.31 of the judgment and the issue whether Instruction No.3 is mandatory is not decided in that judgment. 18.Shri Raghavan also cited an order passed by Income Tax Appellate Tribunal in COMMISSIONER OF INCOME TAX VS. M/S.TATA CONSULTANCY SERVICES LTD., It is a judgment rendered by the Tribunal on the facts of that case and not an authority for consideration. 19.Thus, the authorities relied upon by Shri Raghavan do not support respondent’s case. 20.In view of the above discussion, the impugned order passed by the ITAT is clearly unsustainable in law as it runs counter to S.G.ASIA. Hence, we have considered the first question raised by the Revenue as a substantial question of law and answer the same in favour of the Revenue. Resultantly, this appeal merits consideration. 21. Hence, the following; ORDER i)I.T.A.No.100005/2017 and I.T.A.No. 100022/2017 are allowed holding that Instruction No.3/2003 issued by the CBDT is binding on the Assessing Officer; ii)the order dated 29.07.2016 in I.T.A.No.545 (Bang) 2012, passed by the ITAT, Bengaluru Bench ‘C’ and the order dated 17.10.2016 in IT (TP) A No.135/Bang/2015 passed by the ITAT, Bengaluru Bench, are set aside, iii)Order passed under Section 263 of the Act dated 30.03.2012 in Jm/- F.No.1/263/CIT/(C)/2011-12 passed by the Commissioner of Income Tax is restored. No costs. Sd/- JUDGE Sd/- JUDGE