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2017 (4) TMI 1437 - AT - Income TaxRevision u/s 263 - Royalty Payment to its Associated Enterprise (AE) (DIC Asia Pacific PTE Ltd of Singapore and DIC Corporation of Japan) as revenue expenditure for using technical knowhow and upgrading manufacturing technology and right to use the trade names and brand names and reported in Form 3CEB as required u/s 92E - HELD THAT:- We find that the AO had simply adopted the upward adjustment to ALP contemplated by the TPO in his order which admittedly included an adjustment towards royalty in the sum. That does not automatically mean that the entire issue of payment of royalty on propriety basis had been duly examined by the subordinate authorities precluding the ld. CIT from exercising his revisionary jurisdiction on the same. We are also not in agreement with the argument advanced by the AR that the AO had made a reference to TPO on the international transactions carried out by the assessee and hence the ld. AO had applied his mind that the royalty payment was in the revenue field and addition had been made thereon by the TPO and AO. Hence it amounts to application of mind by the AO. We find that the international transactions carried out by the assessee would. be both on capital as well as on revenue account. The entire international transactions would have to be referred by the ld. AO to the ld. TPO u/s 92CA. As we had already stated that the scope of enquiry of the ld. TPO is merely restricted to determination of ALP of international transactions which would. be both on capital and on revenue account. Hence the order of ld. TPO on royalty payment and addition made thereon would. not come to the rescue of the assessee. We find that the CIT considered the order of the AO to be erroneous at the show cause notice stage by stating the royalty payment should be construed as capital expenditure and hence should. be disallowed, he later on in the order passed u/s 263 of the Act changed the track and considered the order to be erroneous for “lack of enquiry‟ on the part of the ld. AO. This finding of the ld. CIT recorded on altogether new footing without giving opportunity of being heard to the assessee, itself rendered the revision order u/s 263 of the Act as invalid and bad in law. CIT erred in invoking revisionary jurisdiction u/s 263 in the instant case. Hence the order passed by the CIT u/s 263 of the Act is hereby quashed and grounds raised by the assessee are allowed.
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