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2022 (1) TMI 1198 - AT - Income TaxRevision u/s 263 - as per CIT neither the TPO, nor the Assessing Officer had made any inquiry in respect of various models of earth moving equipments, except 3DX model - CIT was of the view that the orders passed by the TPO and the Assessing Officer are erroneous and prejudicial to the interest of Revenue - TPO determined the ALP of royalty to the AE at 2% in respect of 3DX model, however, he has not suggested any adjustment on other models, like 2DX, excavators, JCB Earth Movers, JCB Heavy Wheel loader etc - HELD THAT:- Notice issued under Section 263 of the Act as well as the order passed under the said provision would make it clear that learned PCIT has considered the assessment order to be erroneous and prejudicial to the interest of revenue, since, the TPO has not examined the arm's length nature of royalty paid to the AE in respect of other models of earth moving equipment. The show-cause notice issued under Section 263 of the Act and the order passed there under would leave no room for doubt that the shortcoming, according to the PCIT, is in the order passed by the TPO under section 92CA(3) of the Act due to non-inquiry/non-examination of certain transaction. However, section 263(1) empowers the Revisionary Authority to revise any order passed by the Assessing Officer, if in his opinion, such order is erroneous and prejudicial to the interest of Revenue. Thus, due to restriction imposed under section 263(1) of the Act, learned PCIT has no administrative power to revise the order passed by the TPO under section 92CA(3) of the Act. Therefore, the question arising for consideration is, when the PCIT has no power to revise the order passed by the TPO under section 92CA(3) of the Act, can he revise the assessment order which has been passed in conformity with the order of the TPO, as mandated under Section 92CA(4) of the Act? Our answer to the question is in the negative. When the provision contained under Section 92CA(4) of the Act makes it mandatory upon the Assessing Officer to compute the total income of the assessee in conformity with the order of the TPO and the Assessing Officer has computed the total income following the statutory mandate, the assessment order cannot be considered to be erroneous. Even, assuming that some prejudice might have been caused to the Revenue, nevertheless the twin conditions of 'erroneous' and 'prejudicial' to the interest of the revenue as provided under section 263(1) of the Act have to be fulfilled to enable the Revisionary Authority to assume jurisdiction under the said provision. Thus, once learned PCIT has no administrative power under Section 263(1) of the Act to revise the order of the TPO, he cannot revise the assessment order passed thereafter in compliance to the provision contained under Section 92CA(4) - See ESSAR STEEL LIMITED VERSUS ADDL. COMMISSIONER OF INCOME TAX, MUMBAI [2014 (4) TMI 809 - ITAT MUMBAI] Non-examination of royalty payment on other models of earth moving equipment - Facts on record clearly reveal that every details relating to the royalty paid on all models, including 3DX model was furnished before the TPO and were examined by him. The reason for him to accept the royalty paid on other models is, similar payments were accepted consistently in the preceding assessment years. Therefore, the view of the TPO in accepting the royalty paid in respect of other models is a possible view considering the past history of such payment. That being the case, the orders passed by the TPO and thereafter by the Assessing Officer in conformity thereof, cannot be considered to be erroneous and prejudicial to the interest of the Revenue. In any case of the matter, neither in the show-cause notice, nor in the order passed under Section 263 of the Act, learned PCIT has provided any valid reason to demonstrate the prejudice caused to the Revenue. He has not pointed out even a single reason how the royalty paid on other models is not at arm's length, except, saying that the TPO has not inquired into and examined the royalty paid on other models. Thus as a natural corollary, the impugned order passed under Section 263 of the Act has to be declared as invalid and quashed. Accordingly, we do so. Resultantly, assessment order is restored.- Decided in favour of assessee.
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