TaxTMI 
TaxTMI 
2021 (3) TMI 312
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....assessment proceedings u/s 143(3) of the Act, the AO observed that the assessee has entered into international transactions with its AEs. He therefore, referred the matter to the TPO for determination of the ALP of the international transactions u/s 92CA(3) of the I.T. Act. The TPO, vide order dated 28.8.2013, suggested adjustment of Rs. 6,06,93,406/- u/s 92CA of the Act. Accordingly, the AO proposed the draft assessment order against which, the assessee preferred its objections before the DRP. The DRP passed an order dated 28.10.2014 wherein it has directed the TPO to re-examine the computation of mark-up by giving due opportunity to the assessee and also to re-workout the adjustment and also by including the three companies i.e., 1.ADF Foods Ltd., 2.DFM Foods Ltd., and 3.Tasty Bite Eatables Ltd., as comparables. Accordingly, the TPO passed the consequential order dated 31.12.2014 and suggested TP adjustment at Rs. 3,19,11,176/-. 2.1. The AO while passing the assessment order also considered the expenditure debited by the assessee towards advertisement and sales promotion and held that it falls into the expenditure referred to under Sub-Clause(iii) of Clause (a) of Section.3....
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....nd that if the assessee was not satisfied with the same, it had recourse of remedy under the Act and that the provisions u/s 263 of the I.T. Act are not meant to provide such remedy to the assessee. He therefore, directed the TPO to recompute the ALP in accordance with the directions of the DRP and keeping in mind the errors pointed out in the revision order, he further observed that the directions of the DRP cannot be agitated by the assessee nor can they be reconsidered by the TPO. He therefore, held that the purpose of exercise will be limited to correctly computing the arms' length price in the given set of transactions. Against this order of the CIT (IT & TP) u/s.263 of the Act, the assessee is in appeal before us by raising the following grounds of appeal: "Each of the grounds and/ or sub-grounds of the appeal are independent and without prejudice to the others. 1. On the facts and in the circumstances of the case and in law, the Hon'ble Commissioner of Income tax (IT&TP) ['CIT'] erred in revising the order passed by the Ld. Transfer pricing Officer ('TPO') under section 263 of the Act 2. On the facts and in the circumstances of ....
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....re the ITAT. He submitted that the CIT u/s 263 has not only revised the PLI of the assessee at 5.29% but has also directed the TPO to recompute the PLI of the comparable companies due to which the PLI of the comparable companies rose to 10.83% and since the difference between the PLI of the assessee and the comparable companies consequent to the order u/s 263 is more than +_5%, the TP adjustment was required. The learned Counsel for the assessee submitted that the TPO, in his order, has adopted 'more than 25% of the RPT transactions' as one of the filters to exclude several companies. He has drawn our attention to the annual report of the comparable, Tasty Bites Eatables Ltd, to demonstrate that the RPT of the said company with its holding company was actually 75%. Therefore, according to him, if the TPO had calculated and applied the RPT filter to Tasty Bites and Eatables Ltd, this company would have been excluded from the final list of comparable by the TPO during the 92CA proceedings itself and the PLI of the assessee would have been within +_5% of the PLI of the comparables and in the result the assessment order would not have been erroneous and prejudicial to the interest of t....
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....committed by the TPO, in computing the operating revenue while determining the ALP. Thus, the TPO order was clearly erroneous in so far as it was prejudicial to the interest of the revenue. 5.1. Second question raised by the assessee was whether the CIT (IT&TP) could have revised the TPO order. The provisions of section 263 reads as under: "The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the 2 Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Thus, it is clear that any order passed by the AO can be revised by the CIT. The order of the TPO u/s 92CA of the Act is based on the reference of the AO and therefore, it is also part of the assessment record and can be revised by the CIT u/s 263....
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.... merged with the order of the Assessing Officer, passed u/s 143(3) r.w.s. 144C(13) of the Act, which is a lower authority. Thus we are unable to accept this argument of the ld. Counsel for the assessee. 8.1.2. Without prejudice to our above view, it is also settled that the doctrine of merger applies only on those issues that are considered and adjudicated by a higher appellate authority. In the case on hand, the argument of the ld. Counsel for the assessee, at best, holds good, only on those issues, which the DRP had considered and had adjudicated upon. Those issues which were never considered or looked into by the DRP cannot be considered as those which have merged with the order of the Assessing Officer, simply because, the DRP, has as per the provisions of the Act, had the powers to consider any issue that arises in an assessment order. Such enabling power under the Act, does not lead to a conclusion that all issues which were never looked into by the DRP were considered and adjudicated by the DRP. 8.2. In our view at best, without prejudice to our finding that there is no merger of the order of the Assessing Officer with that of the DRP, the doctrine....
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.... departmental representative contended that the amendment including the revision of an order of assessment framed on the directions under section 144A of the Act has to be construed in its true. perspective and should not be broken up as suggested by the learned counsels for the assessee. In support of the above arguments, reliance was placed on the Bombay High Court decision in CIT v. M.M. Virwani [1994] 207 ITR 225. In support of the argument that the Assessing Officer when applies wrong law it gives raise to an error and could be revised by the Commissioner, reliance was placed on the Rajasthan High Court decision in CIT v. Emery Stone Mfg. Co. [1995] 213 ITR 843. It was pointed out that the order did not deal with the provisions of section 11(4A) of the Act and therefore, error did creep in the order of Assessing Officer. The contention of the learned counsel for the assessee that the amendment to section 263 of the Act permitting revision of orders has to be limited to that portion of the order not covered by the direction under section 144A of the Act, in our considered opinion deserves to be rejected. Sections 144A and 144B of the Act were introduced with a view to ....
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....iny and the DDIT was closely following every stage of the assessment and in the course of such function had issued his directions under section 144A of the Act and was performing the identical functions of the Assessing Officer and the order finally passed according to the directions remain to be an order made by Assessing Officer jointly with DDIT acting as an Assessing Officer. Therefore, there is absolutely no merit in the argument advanced by the learned counsel of the appellant-trust that to the extent of the directions received under section 144A and applied by the Assessing Officer it could not be revised and hence is rejected." 9.1. A perusal of the above case-law shows that, it can be said that the DRP is also discharging a function of an assessing officer and the assessment order still remains that of the Assessing Officer, though it incorporates the directions of the DRP. The DRP proceedings are a stage of assessment proceedings. If the proposition of law laid down in this caselaw is applied to the case at hand, then even the directions given by the DRP and incorporated in the assessment order can be a subject matter of revision u/s 263 of the Act, even in the a....
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.... cannot review such order u/s 263 of the Act. Reliance is placed on the decision of the Hon'ble Delhi High Court in the case of CIT vs. K.L. Ahuja reported in [2001] 250 ITR 763 (Delhi). In this judgement the proposition of law laid down was that, if an order is passed by the Assessing Officer in pursuance of directions of his superior officers who happens to be a Commissioner of Income Tax, then such Commissioner of Income Tax cannot revise that order, as it would tantamount to revising one's own order. In the case of K.L. Ahuja (supra), an order under Section 154 of the Act was passed by the Assessing Officer relying upon a general circular issued by CIT which in turn followed an earlier CBDT circular accepting the ITAT Mumbai Bench's decision. Here the facts are entirely different. In this case, it is not a question of revising one's own order. Further, neither the Assessing Officer nor the DRP have applied their mind on the issues which are the subject matter of revision. Hence the question of revising one's own order or orders of authorities of concurrent or equal ranks does not arise. This argument may be accepted only to the extent that the directions giv....
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....ons of the ld. CIT on these issues afresh in his order u/s 263 of the Act and adjudicate both these issues in accordance with law. 11. In the result, appeal of the assessee is dismissed". Thus, where the direction of the DRP have been held to be part of the assessment order, then, there can be no doubt that TP order is also part of assessment order and is thus amenable to jurisdiction of the CIT u/s.263 of the Act and particularly on the issues which were not considered by the TPO and DRP. Thus, assessee's grounds of appeal No.1 to 3(i), (ii) & (iii) are rejected. 5.2. As regards G.No.3(iv) i.e., the assessee's objection that the Tasty Bites and Eastables Ltd does not satisfy the filter adopted by the TPO, we find that the TPO has himself adopted the RPT filter of more than 25% and in the case of Tasty Bites and Eatables Ltd., it's RPT is clearly beyond the range fixed by the TPO, its RPT transactions are much more than 50%, but nearly 75%. In such circumstances, the TPO ought not to have considered the said company as a comparable company. Though the assessee may not have challenged the same before the TPO, assessee has challenged it before the DRP, but the DRP has ....