Tribunal rejects PCIT's jurisdictional move under section 263, upholds AO's decision.

The Tribunal held that the Principal Commissioner of Income Tax (PCIT) was not justified in invoking jurisdiction under section 263 to direct the Assessing Officer (AO) to refer the matter to the Transfer Pricing Officer (TPO) in a case involving a mismatch in payments to related persons. The Tribunal found that the AO had properly considered explanations for discrepancies in sales turnover and transfer pricing risk parameters, determining that the AO's order was not erroneous or prejudicial to revenue interests. Consequently, the Tribunal quashed the PCIT's revisionary order under section 263, allowing the appeal of the assessee.

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Issues Involved:
1. Mismatch in amount paid to related persons u/s. 40A(2)(b) reported in Audit Report and ITR.
2. Low income shown by large contractors.
3. Mismatch in sales turnover reported in Audit report and ITR.
4. Transfer Pricing Risk Parameter and its referral to TPO.

Detailed Analysis:

1. Mismatch in Amount Paid to Related Persons u/s. 40A(2)(b):
The case was selected for scrutiny due to a mismatch in the amount paid to related persons as reported in the Audit Report and ITR. The Principal Commissioner of Income Tax (PCIT) observed that the payments to related persons were Transfer Pricing (TP) issues listed in Form 3CEB and Form 3CD. The PCIT argued that the Assessing Officer (AO) should have referred the matter to the Transfer Pricing Officer (TPO) as per CBDT Instruction No. 8 of 2015. However, the Tribunal found that the case was not selected for scrutiny on the basis of TP risk parameters. The Tribunal held that the TP risk parameter was not one of the reasons for limited scrutiny and the PCIT was not justified in invoking jurisdiction u/s. 263 to direct the AO to refer the matter to the TPO.

2. Low Income Shown by Large Contractors:
The Tribunal did not specifically address this issue in detail in the judgment. However, it was one of the reasons for the case being selected for scrutiny.

3. Mismatch in Sales Turnover Reported in Audit Report and ITR:
The Tribunal noted that the AO had conducted inquiries regarding the mismatch in sales turnover reported in the Audit Report and ITR. The assessee had provided explanations and reconciliations for the mismatch. The Tribunal found that the AO had applied his mind and accepted the explanations provided by the assessee. Therefore, the Tribunal held that the AO's order was neither erroneous nor prejudicial to the interests of the revenue on this issue.

4. Transfer Pricing Risk Parameter and its Referral to TPO:
The PCIT argued that the AO should have referred the matter to the TPO for determining the Arm's Length Price (ALP) of specified domestic transactions with related parties. The Tribunal observed that the case was not selected for limited scrutiny on the basis of TP risk parameters. The Tribunal also noted that the CBDT Instruction No. 3/2016 mandates referral to the TPO only if the case was selected for scrutiny with TP risk as one of the parameters. The Tribunal held that the AO had conducted inquiries and used his discretion as per the provisions of section 92CA of the Act. The Tribunal found that the PCIT's invocation of jurisdiction u/s. 263 was not justified as the AO's order was not erroneous or prejudicial to the interests of the revenue.

Conclusion:
The Tribunal quashed the revisionary order passed by the PCIT u/s. 263 of the Act, holding that the AO's order was neither erroneous nor prejudicial to the interests of the revenue. The appeal of the assessee was allowed.

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