Section 263 revision fails where dependent agent remuneration is at arm's length and no further attribution is justified.

Section 263 revision was unsustainable because the assessment order was not shown to be both erroneous and prejudicial to the interests of the revenue. The assessment had accepted the assessee's profit attribution methodology for an Indian dependent agent permanent establishment, and the dependent agent was already remunerated at arm's length with no transfer pricing adjustment made to that remuneration. On those facts, the mere existence of the dependent agent permanent establishment did not justify further attribution, and the revisional authority also failed to examine whether the remuneration itself was below arm's length. The revision was therefore set aside.

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Issues: Whether the revisional order under section 263 of the Income-tax Act, 1961 was sustainable when the assessee's dependent agent was remunerated at arm's length and no adjustment to that remuneration had been made.

Analysis: The assessment had accepted the assessee's attribution methodology for profits of the Indian dependent agent permanent establishment. The revisional authority sought to disturb that assessment on the premise that the Assessing Officer had not made adequate enquiry and had wrongly accepted the function-asset-risk analysis. The controlling principle applied was that jurisdiction under section 263 can be exercised only when the assessment order is both erroneous and prejudicial to the interests of the revenue. The earlier coordinate bench decision on identical facts was followed. It was noted that where the dependent agent has been paid arm's length remuneration and no transfer pricing adjustment has been made in respect of that remuneration, the existence of the dependent agent permanent establishment does not, by itself, justify further attribution for the purpose of section 263. The revisional authority also did not examine whether the dependent agent's remuneration itself was below arm's length.

Conclusion: The revision under section 263 was unsustainable and was set aside; the assessee succeeded.

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