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2022 (10) TMI 151 - AT - Income TaxRevision u/s 263 by CIT - profit attribution of a fixed place PE and the DAPE - Erroneous but not prejudicial to revenue order - AO accepted the computation of profits attributable to the dependent agent permanent establishment, and, accordingly, proceeded to finalize the assessment - HELD THAT:- In the present case, there does not appear to be any dispute with respect to the ascertainment of the arm’s length price of the services rendered by the dependent agent to the assessee, as no ALP adjustment is made in the remuneration paid by the assessee to the MFE-India, i.e. the dependent agent. There are also several indications to suggest that DA and DAPE are being treated as distinct taxpayers, inasmuch as while the arm’s length payment to the agent is not being questioned, the FAR analysis for the PE has been called into question. The two taxpayer approach adopted by the assessee has been accepted, and, taking it further, the profit attribution on the basis of the two taxpayer approach is enhanced. Even if that computation of profit attribution, on the basis of the two taxpayer approach, is erroneous, in view of Hon’ble jurisdictional High Court decision, it cannot be said to be prejudicial to the interest of the revenue unless there is a categorical finding that the payment to the dependent agent is not an arm’s length price vis-à-vis functions performed, assets employed and risks assumed by the dependent agent. While doing so, one also has to bear in mind that DAPE is not anything distinct from the DA, in the light of the binding judicial precedents holding the field as of now, and the taxability of the dependent agent’s remuneration in the hands of the DA brings an end to the taxability of the DAPE also. There is no such finding about the payment to the dependent agent being less than the arm’s length price of services rendered by the dependent agent, in the present case, even though there is a finding about questioning the DAPE’s FAR analysis. The Commissioner ought to have examined the arm’s length price determination in respect of the services rendered by the dependent agent, in this context. That exercise has also not been done. We are of the considered view that unless the order sought to be revised cannot be said to be prejudicial to the interest of the revenue, its being erroneous, even if that be so, cannot be said to reason enough to invoke section 263 of the Act, and the order cannot be said to be prejudicial to the interests of the revenue unless there is a categorical finding that the dependent agent has not been paid arm’s length remuneration for the functions performed, assets employed and risks assumed by the dependent agent. The order being prejudicial to the interest of the revenue, inasmuch as the payment to the dependent agent not being at an arm’s length, is a sine qua non for holding that the order is prejudicial to the interest of the revenue. This exercise has clearly not been done on the facts of this case. For this short reason alone, we must set aside the impugned revision order. Assessee appeal allowed.
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