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Pursuit of Procedural Precision: ITAT Confirms CIT’s Revisional Jurisdiction in TPO Referral Case

Introduction

Navigating through the complex maze of legal procedures, income tax appeals represent a critical intersection where the detailed aspects of tax legislation meet the rigorous examination of judicial processes. At this crossroads, the Income Tax Appellate Tribunal (‘ITAT’) emerges as a crucial arbiter, tasked with the resolution of disputes between taxpayers and the revenue authorities. It ensures that tax laws are interpreted and applied with equity and justice. In the case of JP Morgan Chase Bank NA v. Commissioner of Income Tax (IT), Mumbai[i], deliberated by the Mumbai Bench, a nuanced exploration of appellate proceedings was encountered. This case specifically illuminates the exercise of revisional jurisdiction under s. 263 of the Income-tax Act, 1961 (‘Act’), highlighting the procedural and substantive considerations that underscore such judicial inquiries.

Brief Facts

  • The Appellant challenged the order of the Commissioner of Income Tax (‘CIT’) passed under s. 236 of the Act for the assessment year 2018-19, noting the Assessing Officer’s (‘AO’) failure to comply with the Central Board of Direct Taxes’ (‘CBDT’) instructions No. 3/2016 dated 10.03.2016, which required a referral of transfer pricing issues to the Transfer Pricing Officer (‘TPO’).

  • While the AO initially requested approval to refer the case to the TPO, received approval and made the reference which was evidenced by documented correspondence, the AO’s attempt was thwarted when the TPO deemed such reference time-barred and invalid and returned the reference.

  • The CIT maintained that the AO’s reference was indeed invalid due to the lapse of the statutory timeframe. The CIT’s stance was that the invocation of revisional jurisdiction was justified, based on an independent review of the case files, which led to the conclusion that the initial assessment order was flawed. However, the Appellant argued that the CIT’s reasons for invoking revisional jurisdiction under s. 263 of the Act were contrary to the facts on record.

Held

  • The ITAT upheld the CIT’s order and set aside the assessment order, finding it erroneous and prejudicial to the interest of the Revenue Department due to procedural non-compliance.

  • It was held that a reference made by the AO to the TPO was invalidated because it exceeded the statutory time limit And that the assessment order’s validity was contingent upon adherence to s. 92CA of the Act and CBDT Instructions No. 3/2016. Hence, failure to comply with these legal provisions rendered the assessment order invalid.

  • The ITAT observed that the CIT had examined the records of the case and then formed an opinion before invoking the revisional jurisdiction and hence, the Appellant’s argument that the CIT acted solely on the AO’s proposal was rejected. It was further held that the limitation for completion of the assessment should be determined strictly according to the provisions of the Act, not the dates mentioned in the Income-tax Business Application (‘ITBA’) portal.

Analysis

This ruling accentuates the criticality of procedural adherence to ensure the validity of assessment orders within the framework of income tax assessments, with the limelight on transfer pricing scenarios. It underlines the paramount importance of complying with statutory deadlines and following the directives issued by the CBDT. Through this decision, the ITAT has reminded AOs of the importance of timely actions and adherence to statutory guidelines to avoid rendering assessment orders vulnerable to revision and thereby ensure fair tax administration.

Moreover, the case provides a comprehensive insight into the ambit of revisional jurisdiction as conferred by s. 263 of the Act. It delineates a clear mandate that the CIT is required to conduct an independent assessment of the records. This assessment must culminate in a substantiated opinion regarding any inaccuracies or the erroneous nature of the assessment order prior to the exercise of revisional powers. The ruling, therefore, highlights the necessity for a meticulous and independent review process, reinforcing the foundational principle that the integrity of tax assessment proceedings is contingent upon strict compliance with prescribed procedural norms and legal mandates.


End Note:

[i] [2024] 159 taxmann.com 209 (Mumbai – Trib.)



Authored by Nitish Solanki, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.



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