2023 (5) TMI 696 - AT - Income Tax

Revision u/s 263 by CIT - TPA of loan given to AE - PCIT directing AO to refer the international transaction of loan given to the Associated Enterprises, Mauritius which came into existence on conversion of assessee’s investment in redeemable preference share and to incorporate the Arm's Length Price determined by the learned Transfer Pricing Officer to be incorporated in the assessment order - HELD THAT:- It is an undisputed fact that conversion of redeemable preference shares into unsecured loan is an international transaction entered into by the assessee with its associated enterprises in Mauritius. Therefore, any adjustment arising on account of the arm's-length price of this international transaction is falling into the domain of the learned transfer-pricing officer only. Sole responsibility lying on the AO is to make reference of this international transaction to the learned transfer-pricing officer which has been made by the learned assessing officer after obtaining the prior approval of the PCIT

It is also not the case of PCIT while passing order under section 263 of the income tax act that the provisions of explanation 2 are applicable as the order of the assessment has not been made in accordance with any orders/directions or instruction issued by the board u/s 119 of the act.

There is no allegation/assertion in the order under section 263 of the income tax act that the learned assessing officer has not followed the mandatory instructions issued by the central board of direct taxes of referring to the learned transfer-pricing officer. It is also clear that prior to The Finance Act 2022 amended with effect from 1/4/2022, the order of the learned transfer pricing officer were not subject to revision under section 263 of the income tax act by the principal Commissioner of income tax.

By The Finance Act 2022, with effect from 1/4/2022 clause (iii) to explanation 1 inserts order under section 92CA by the transfer-pricing officer. Thus, it is clear that the order passed under section 92CA by the learned TPO was not subject to revision under section 263 of the income tax act by the principal Commissioner of income tax. The order of the learned principal Commissioner of income tax is indirectly revising the order of the learned transfer-pricing officer.

In the assessment order passed under section 143 (3) of the act there is no error on the part of the learned assessing officer either in making reference to the learned transfer pricing officer or in not incorporating any modification made by the learned transfer pricing officer. Therefore, No error in the order of the learned assessing officer but it is an attempt by the learned principal Commissioner of income tax to revise the order of the learned transfer-pricing officer, which is not permitted prior to 1/4/2022. Appeal of the assessee is allowed.