TMI Blog2022 (1) TMI 1198X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under section 263 of the Income-Tax Act, 1961 (for short 'the Act') for the assessment years 2014-15 and 2015-16. 2. Grounds raised by the assessee in both the appeals are identical and read as under: 1. That on the facts and circumstances of the case and in law, the assumption of jurisdiction by the PCIT under section 263 of the Act, based on conjectures and surmises and without recording an objective finding or a conclusive evidence as to how the assessment order passed by the Assessing Officer ( AO ) under section 143(3) of the Act is erroneous and prejudicial to the interests of Revenue, was bad in law and liable to be quashed. 2. That on the facts and circumstances of the case and in law, the PCIT has erred in invoking jurisdiction under section 263 of the Act and setting aside the order passed by the AO without appreciating that the assessment order passed was neither erroneous nor prejudicial to the interest of the revenue. 3. That on the facts and circumstances of the case and in law, the revisionary jurisdiction assumed by the PCIT under section 263 of the Act is also bad in law and liable to be quashed for the reason that the order of the AO ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h moving equipments and trading of its spare parts and components as well as providing services. For the assessment year 2014-15, the assessee filed its return of income on 28.11.2014 declaring total income of ₹ 592,85,26,809/- under normal provisions and book profit of ₹ 581,19,14,165/-. In course of assessment proceeding, the Assessing Officer having noticed that in the year under consideration, the assessee had entered into international transactions with JCB Group, its overseas Associated Enterprise (AE), made a reference under Section 92CA(1) of the Act to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP) of the international transactions. After examining the transfer pricing study report furnishing by the assessee and other materials/details, the TPO accepted all international transactions, except, the transaction relating to payment of royalty to the AE on certain patented products. The TPO found that the assessee had paid royalty to the AE on certain patented products manufactured by the AE at the rate of 5%. He further noticed that for benchmarking the ALP of the royalty payment, the assessee had adopted Comparable Uncontrolled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odel, he was of the view that the orders passed by the TPO and the Assessing Officer are erroneous and prejudicial to the interest of Revenue. Accordingly, he issued a show-cause notice under Section 263 of the Act requiring the assessee to explain, as to why the assessment order, being erroneous and prejudicial to the interest of revenue, should not be revised. Alleging that the assessee did not furnish any reply to the show-cause notice by the stipulated date, i.e., 08.03.2021, learned PCIT passed the impugned order under Section 263 of the Act setting aside the assessment order with a direction to examine the requirement of adjustment to be made to the ALP of royalty for models other than 3DX model. The specific observations of learned PCIT while setting aside the assessment order are as under: 3. As mentioned in the show cause notice the upward adjustment of royalty was done only in respect of 3DX model, while the issue of similar adjustment for other models was neither examined nor any such adjustment was made. This issue should have been examined by the TPO and AO and failure to examine the same and conduct necessary enquiry makes the assessment order passed erroneous an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , payment of royalty at 5% has never been disputed by the Revenue, except in case of 3DX model. He submitted, the major part of the royalty paid to AE is in respect of 3DX model. Therefore, except payment of royalty in respect of 3DX model, payment of royalty in respect of other models have always been accepted by the department. He submitted, for this reason only, the assessee and revenue approached for resolution of the dispute regarding payment of royalty on 3DX model under MAP. He submitted, though, in assessment year 2010-11, the TPO had proposed adjustment towards payment of royalty on all models, however, subsequently, upon considering the application filed by the assessee under section 154 of the Act, the TPO restricted the adjustment on account of royalty payment only to 3DX model. Thus, he submitted, when payment of royalty on other products have been consistently accepted by the revenue over the years to be at arm's length, the TPO cannot be faulted in following the rule of consistency and proposing adjustment only in respect of 3DX model. Thus, he submitted, the assessment order cannot be considered erroneous and prejudicial to the interest of revenue. Drawing our a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Promoters and Developers Pvt. Ltd. Another Vs. Pr. CIT, ITA No. 6905/Del/2017 Ors., dated 14.01.2019. 10. Without prejudice to the aforesaid submissions, drawing our attention to Ground no. 5, learned Departmental Representative submitted, if the assessee is aggrieved with lack of adequate opportunity of being heard granted by learned PCIT, the matter can be restored back to him for de novo adjudication after providing opportunity of being heard to the assessee. 11. We have considered rival submissions in the light of the decisions relied upon and perused the materials on record. At the outset, we propose to address the preliminary issue raised by the assessee assailing the assumption of jurisdiction under section 263 of the Act to revise the assessment order. Undisputedly, in the previous year relevant to the assessment order under dispute, the assessee had entered into various international transactions with its overseas AEs. In course of assessment proceeding, the Assessing Officer having noticed the aforesaid fact, considered it appropriate that ALP of the international transaction with the AEs has to be determined by the TPO. Accordingly, complying with the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid to the AE on 3DX model. In terms with sub-section (4) of section 92CA of the Act, the Assessing Officer has computed total income of the assessee in conformity with the order passed by the TPO. Thus, the Assessing officer has not committed any error in completing the assessment, as, he has fully complied with the statutory provisions. Reading of the show-cause 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. 14. Thus, 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng so, he has also referred to the MAP resolution filed in course of proceeding for assessment year 2017-18, wherein, relief was granted to the assessee only on 3DX model by allowing royalty of 4% and 3% for assessment years 2014-15 and 2015-16 respectively. It is the allegation of learned PCIT that the TPO has not at all inquired into the arm's length nature of royalty paid in respect of other models. 17. On perusal of materials on record, it is observed, in course of proceeding before the TPO, various details relating to royalty payment were called for and examined. The assessee has furnished all the details relating to payment of royalty on all models of earth moving equipment. It is a fact on record that the assessee has paid royalty at the rate of 5% on all the models. While examining arm's length nature of royalty payment, the TPO having found that the patent for the 3DX model was not owned by the AE but was developed in India, was of the view that payment of royalty at 5% is not at arm's length. Accordingly, relying upon the orders passed in the preceding assessment years, wherein, adjustment in respect of royalty payment was made only in respect of 3DX model, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 20. In course of hearing, learned Departmental Representative has submitted that royalty paid on other models is also substantial, as, it amounts to ₹ 32 crores. Therefore, the TPO should have examined the arm's length nature of royalty paid on other models. In view of our detailed discussions above, we do not think that the aforesaid argument of learned Departmental Representative would hold much water to justify the exercise of power under Section 263 of the Act. What we have to examine is, whether the twin conditions of section 263(1) are fulfilled. Having examined the facts of the present case, we are convi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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