:1: IN HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS 30 TH DAY OF SEPTEMBER, 2020 PRESENT HON BLE MR.JUSTICE P.S.DINESH KUMAR AND 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. PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), QUEENS ROAD, BENGALURU. 2. 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: AAACO5753D. RESPONDENT (BY SHRI K.G.RAG HAVAN, SENIOR ADVOCATE FOR SHRI SHIVARA J S .BALLOLLI, ADV.) :2: THIS APPEAL IS FILED UNDER SECTION 260A OF INCOME TAX ACT, 1961, PRAYING TO: i) FORMULATE SUBSTANTIAL QUESTION OF LAW STATED ABOVE, ii) ALLOW APPEAL AND SET ASIDE ORDERS PASSED BY INCOME-TAX APPELLATE TRIBUNAL, BENGALURU BENCH 'C' IN ITA NO.545 (BANG) 2012 DATED 29.07.2016 AND CONFIRM ORDER PASSED BY DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 1 (3), BENGALURU AND ETC., IN I.T.A.No.100022/2017 BETWEEN 1. PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), QUEENS ROAD, BENGALURU. 2. 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 INCOME TAX ACT, 1961, PRAYING TO: i) FORMULATE SUBSTANTIAL QUESTION OF LAW STATED ABOVE, ii) ALLOW APPEAL AND SET ASIDE ORDERS PASSED BY INCOME-TAX APPELLATE TRIBUNAL, BENGALURU BENCH 'B' IN IT (TP) NO.135/BANG/2015, DATED 17.10.2016 AND CONFIRM ORDER PASSED BY DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 1 (3), BENGALURU AND ETC., :3: THESE APPEALS COMING ON FOR ADMISSION ON 23.09.2020 AND SAME HAVING BEEN HEARD AND RESERVED FOR PRONOUNCEMENT OF JUDGMENT, THIS DAY, P.S.DINESH KUMAR, J., DELIVERED FOLLOWING: JUDGMENT These income tax appeals are presented by Revenue raising following questions of law: i) Whether on f acts and circumstances of case and in law, Tribunal is right in holding that, CBDT Instruction No.3 dated 20.05.2003 is not binding on Assessing Off icer and as such Assessing Off icer himself determining Transf er Pricing adjustment is justif ied and hence order of assessment cannot be said to be erroneous in order to invoke provisions of section 263 by Commissioner of Income T ax? ii) Whether on f acts and circumstances of case and in law, Tribunal is right in holding that, Assessing Off icer himself determining Transf er Pricing adjustment without ref erring matter to Transf er Pricing Off icer is one of possible vie ws taken :4: and as such order of assessment cannot be said to be erroneous in order to invoke provisions of section 263 by Commissioner of Income T ax? iii) Whether on f acts and in circumstances of case and in law, Tribunal is justif ied in quashing order passed by Commissioner under section 263 which was invoked on two sep arate grounds and Tribunal deciding only one ground and leaving other issue undecided and as such order of Tribunal perverse? 3. We have heard Shri Y.V.Raviraj, learned Standing Counsel for Revenue and Shri K.G.Raghavan, learned Senior Advocate for assessee-respondent. 4. Shri Raviraj in substance, contended that as held in case of PRINCIPAL COMMISSIONER OF INCOME TAX-4, MUMBAI VS. M/S.S.G.ASIA HOLDINGS (INDIA) PRIVATE :5: LIMITED 1, (for short S.G.ASIA ) Instruction No.3/2003 dated 20.05.2003 issued by Central Board of Direct Taxes (for short CBDT ) is mandatory in nature and therefore, impugned order passed by Income Tax Appellate Tribunal (for short ITAT ) is not sustainable in law. 5. Brief facts for purpose of consideration of these appeals are, assessee returned its income for assessment year 2008-2009 and assessment was completed under Section 143 (3) read with Section 153A of Income Tax Act, (for short Act ) on 31.12.2009. 6. Commissioner of Income Tax, Karnataka (Central), Bengaluru, has passed his order under Section 263 of Act on 30.03.2012. said order was challenged before ITAT and by impugned order, 1 (2019) 13 SCC 353 :6: ITAT has allowed assessee s appeal. Hence, these Income Tax Appeals. 7. Shri Raghavan urged following contentions; judgment in S.G.ASIA is not applicable because; i) judgment did not go into question whether Instruction No.3 is mandatory? ; ii) judgment is not law declared under Article 141 of Constitution of India in view of 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, Hon ble Apex Court has considered question whether Instruction No.3 is mandatory , in facts and 2 (1991) 4 SCC 139 :7: circumstances of this case, S.G.ASIA is not applicable because assessment year is prior to amendment brought on 01.06.2007. 8. Shri Raghavan relied upon following authorities: i) COMMISSIONER OF INCOME TAX VS. MAX INDIA LTD., 3; ii) MALABAR INDUSTRIAL CO., LTD., VS. COMMISSIONER OF INCOME TAX 4 iii) VODAFONE INDIA SERVICES PVT. LTD., VS. UNION OF INDIA AND OTHERS 5; iv) COMMISSIONER OF INCOME TAX VS. TATA CONSULTANCY SERVICES LTD., (decision of 3 (2007 (15) SCC 401) 4 (2000) 2 SCC 718 5 (2013 SCC ONLINE BOM. 1534) :8: Income Tax Appellate Tribunal, Mumbai Bench E Mumbai, in I.T.A.No.7513/M/2010), 9. assessee is engaged in business of mining and export of iron ore. During assessment year, it has sold iron ore to M/s. GLA Trading International PTE Ltd., Singapore, at much lower price when compared with export of iron, in other overseas transactions. Assessing Officer has recorded that between December 2007 and March 2008, assessee has sold iron ore to various overseas buyers at price between USD 144.25 and USD 165.22 per metric tonne. However, assessee has sold iron ore having same Fe content to M/s. GLA Trading International PTE., Ltd., between USD 76.14 and USD 98.24. Assessing Officer did not make any reference for determination of Arm s Length Price (for short ALP ) in respect of :9: international transactions, though transactions had exceeded Rs.15 crores. Instruction No.3/2003 issued by CBDT mandates that wherever aggregate value of international transaction exceeds Rs.5 crores (amended to Rs.15 crores), case must be picked up for scrutiny under Section 92CA and sent to Transfer Pricing Officer (for short TPO ) for determination of ALP. 10. Tribunal has recorded in paragraph No.8 of its order that Instruction No.3 is not binding on Assessing Officer. Tribunal has further recorded that Assessing Officer himself has made his own assessment without referring matter to TPO and it is one of 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 : 10 : Finance Act, 2007, with effect from 01.06.2007. Prior to amendment, Assessing Officer was required to compute income of assessee having regard to ALP determined by 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 arm s length price determined by TPO . Thus, after amendment, 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 Constitution of India. : 11 : 13. In S.G.ASIA, Hon ble Supreme Court has held as follows: 7. In v ie w of guide lines issued by CBDT in Ins tructio n No.3/2003 Tribunal was righ t in obse rv ing that by no t making ref erence to TPO, assess ing of f icer had breached mandatory ins truc tions issued by CBDT. We do no t f ind conclus ion so arrived at by Tribunal to be incorre ct. 14. judgment in case of S.G.ASIA is delivered on 13 t h August, 2019. reference to TPO is required to be made under Sub section (1) of Section 92CA. There is no amendment to said Section. Shri Raghavan is right in his submission to extent that sub section (4) of Section 92CA has been substituted with effect from 01.06.2007. No authority of Supreme Court of India is cited to show that position of law stated in S.G.ASIA has been altered. Therefore, in view of unambiguous language employed in paragraph No.7 of S.G.ASIA extracted hereinabove, we are of : 12 : considered view that Instruction No.3/2003 issued by 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 Assessing Officer has taken 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 said case, writ petition was filed under Article 226 of Constitution challenging order passed by Transfer Pricing Officer in terms of Section 92CA. grounds urged by petitioner : 13 : therein are extracted in paragraph No.31 of judgment and issue whether Instruction No.3 is mandatory is not decided in that judgment. 18. Shri Raghavan also cited order passed by Income Tax Appellate Tribunal in COMMISSIONER OF INCOME TAX VS. M/S.TATA CONSULTANCY SERVICES LTD., It is judgment rendered by Tribunal on facts of that case and not authority for consideration. 19. Thus, authorities relied upon by Shri Raghavan do not support respondent s case. 20. In view of above discussion, impugned order passed by ITAT is clearly unsustainable in law as it runs counter to S.G.ASIA. Hence, we have considered first question raised by Revenue as substantial : 14 : question of law and answer same in favour of Revenue. Resultantly, this appeal merits consideration. 21. Hence, 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 CBDT is binding on Assessing Officer; ii) order dated 29.07.2016 in I.T.A.No.545 (Bang) 2012, passed by ITAT, Bengaluru Bench C and order dated 17.10.2016 in IT (TP) No.135/Bang/2015 passed by ITAT, Bengaluru Bench, are set aside, iii) Order passed under Section 263 of Act dated 30.03.2012 in : 15 : F.No.1/263/CIT/(C)/2011-12 passed by Commissioner of Income Tax is restored. No costs. Sd/- JUDGE Sd/- JUDGE Jm/ - Principal Commissioner of Income-tax (Central), Bengaluru / Deputy Commissioner of Income-tax, Central Circle, 1(3), Bengaluru v. Obulapuram Mining Company Pvt. Limited