ITAT quashes PCIT revision order under section 263 for transfer pricing reference errors during search proceedings

The ITAT Delhi quashed the PCIT's revision order u/s 263. The PCIT had invoked revision jurisdiction claiming the AO erred by not waiting for the TPO's order u/s 92CA(3) regarding transfer pricing adjustments for international transactions. The ITAT held that when original assessment proceedings get abated due to search proceedings u/s 153C, and the AO chose not to make fresh reference to TPO u/s 92CA(1), no error could be attributed to the AO's order. Additionally, the PCIT failed to establish that the prior approval granted u/s 153D was erroneous, which was necessary before assuming revision jurisdiction. The revision order was quashed on multiple grounds.

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Issues: Appeal against revision order u/s 263 of the Income-tax Act, 1961 for AY 2010-11; Delay in filing appeal; Assumption of revision jurisdiction by the Principal Commissioner of Income Tax (PCIT); Error in the original assessment by the Assessing Officer (AO) regarding Transfer Pricing order; Approval granted by Additional CIT u/s 153D; Legitimacy of revision order by PCIT.

Analysis:

The appeal in ITA No. 917/Del/2017 was filed against the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income-tax Act, 1961 for the assessment year 2010-11. The appeal was initially found to be time-barred by 629 days. However, the delay was condoned based on affidavits from the director and the Chartered Accountant advising against filing the appeal. The PCIT sought to revise the assessment framed by the Assessing Officer (AO) under section 143(3) read with Section 153C of the Act, citing errors related to Transfer Pricing order and revenue interest. The PCIT contended that the AO should have waited for the Transfer Pricing order before finalizing the assessment, leading to a prejudicial order. The PCIT's revision jurisdiction was challenged by the assessee on various grounds.

The facts emerged from the events included the initiation of proceedings under section 153C of the Act, a search and seizure action, and the abatement of original assessment proceedings due to section 153C proceedings. The PCIT's revision jurisdiction was questioned based on the absence of fresh reference to the Transfer Pricing Officer (TPO) and the lack of mention of approval granted by the Additional CIT under section 153D. The tribunal referred to judicial precedents highlighting the importance of considering the approval granted by competent authorities before assuming revision jurisdiction. The tribunal concluded that the PCIT's revision order failed on multiple grounds, leading to the quashing of the revision order and allowing the appeals of the assessee in ITA No. 917/Del/2017 and ITA No. 6117/Del/2016.

In summary, the tribunal held that the PCIT's revision order under section 263 of the Act was not justified due to procedural lapses and errors in the assessment process, ultimately leading to the quashing of the revision order and allowing the appeals of the assessee. The judgment emphasized the importance of following proper procedures and considering all relevant factors before invoking revision jurisdiction in tax matters.

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