Tribunal quashes PCIT order, deems jurisdiction lacking for revising TPO's transfer pricing pre-1/4/2022

The Tribunal held that the Principal Commissioner of Income Tax (PCIT) did not have jurisdiction to revise the Transfer Pricing Officer's (TPO) order before 1/4/2022. The PCIT's attempt to direct the TPO to recompute the Arm's Length Price (ALP) of the international transaction was deemed impermissible. Consequently, the Tribunal found the PCIT's order under Section 263 of the Income-tax Act to be legally unsustainable and quashed it, allowing the appeal of the assessee.

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Issues Involved:
1. Validity of the Revision Order under Section 263 of the Income-tax Act, 1961.
2. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) in revising the order of the Transfer Pricing Officer (TPO).

Summary:

Issue 1: Validity of the Revision Order under Section 263 of the Income-tax Act, 1961

The assessee filed an appeal against the Revision Order passed under Section 263 of the Income-tax Act, 1961 by the PCIT, which directed the Assessing Officer (AO) to refer the international transaction of interest on a loan (arising from the conversion of redeemable preference shares) to the TPO for determination of Arm's Length Price (ALP). The PCIT found the assessment order for A.Y. 2013-14 erroneous and prejudicial to the interest of the Revenue because the interest of Rs. 18.83 crores was not added to the total income. The assessee contended that this transaction was already examined by the TPO and AO, who determined the ALP at NIL and made no adjustments. The assessee argued that the PCIT's order was wrong and contrary to the provisions of the Income-tax Act, 1961, as the view adopted by the TPO and AO was one of the possible views within the Act's provisions.

Issue 2: Jurisdiction of the Principal Commissioner of Income Tax (PCIT) in Revising the Order of the Transfer Pricing Officer (TPO)

The assessee argued that the PCIT did not have the power to direct the TPO to recompute the ALP of the international transaction, as such powers were available only with effect from 1/4/2022. The PCIT's order was passed on 29/3/2019, and the issue pertained to A.Y. 2013-14. The Tribunal noted that the original reference to the TPO was made by the AO after obtaining prior approval from the PCIT, and the TPO's order was not subject to revision under Section 263 by the PCIT before 1/4/2022. The Tribunal found that the PCIT's order indirectly attempted to revise the TPO's order, which was not permitted.

Conclusion:

The Tribunal held that the order passed by the PCIT under Section 263 of the Income-tax Act was not sustainable in law and quashed it. The appeal of the assessee was allowed.

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