TaxTMI 
TaxTMI 
2022 (1) TMI 1198
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.... 2. That on the facts and circumstances of the case and in law, the PCIT has erred in invoking jurisdiction under section 263 of the Act and setting aside the order passed by the AO without appreciating that the assessment order passed was neither erroneous nor prejudicial to the interest of the revenue. 3. That on the facts and circumstances of the case and in law, the revisionary jurisdiction assumed by the PCIT under section 263 of the Act is also bad in law and liable to be quashed for the reason that the order of the AO cannot be held to be erroneous and prejudicial to the interest of the revenue, especially, for the reason that as per section 92CA(4) of the Act, the AO has no other option but to pass the assessment order in conformity with the ALP determined by the TPO. 3.1 That on the facts and circumstances of the case and in law, the PCIT has erred in exceeding his jurisdiction by initiating the revisionary proceedings under section 263 of the Act without appreciating that PCIT has no jurisdiction over the TPO administratively, and initiation of such revisionary proceedings is bad in law and liable to be quashed. 4. That on the facts and c....
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....39;s Length Price (ALP) of the international transactions. After examining the transfer pricing study report furnishing by the assessee and other materials/details, the TPO accepted all international transactions, except, the transaction relating to payment of royalty to the AE on certain patented products. The TPO found that the assessee had paid royalty to the AE on certain patented products manufactured by the AE at the rate of 5%. He further noticed that for benchmarking the ALP of the royalty payment, the assessee had adopted Comparable Uncontrolled Price (CUP) method as the most appropriate method and after economic analysis having found the royalty paid in similarly placed comparable transactions works out to average rate of 6.37% claimed the payment of royalty to the AE to be at arm's length. 5. The TPO accepted the payment of royalty to the AE at 5% in respect of all earth moving equipments, except, 3DX model. As far as the 3DX model is concerned, the TPO observed that the assessee was unable to furnish any documentary evidence to indicate that the patent of the product is with the AE. He observed, the information available on record indicates that the product was d....
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.... be made to the ALP of royalty for models other than 3DX model. The specific observations of learned PCIT while setting aside the assessment order are as under: "3. As mentioned in the show cause notice the upward adjustment of royalty was done only in respect of 3DX model, while the issue of similar adjustment for other models was neither examined nor any such adjustment was made. This issue should have been examined by the TPO and AO and failure to examine the same and conduct necessary enquiry makes the assessment order passed erroneous and prejudicial to the interest of revenue. 4. Consequently, it is set aside and the issue is restored to the file of TPO/AO for examination of the adjustment of Arm's Length Price in respect of Royalty for models other than 3DX in accordance with law after giving the assessee an opportunity of hearing." 7. Learned counsel for the assessee submitted, the order passed under Section 263 of the Act is invalid in the eye of law as learned PCIT has wrongly assumed jurisdiction under Section 263 of the Act to revise the order passed by learned TPO and the assessment order passed in pursuance thereof. He submitted, section 263 o....
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...., upon considering the application filed by the assessee under section 154 of the Act, the TPO restricted the adjustment on account of royalty payment only to 3DX model. Thus, he submitted, when payment of royalty on other products have been consistently accepted by the revenue over the years to be at arm's length, the TPO cannot be faulted in following the rule of consistency and proposing adjustment only in respect of 3DX model. Thus, he submitted, the assessment order cannot be considered erroneous and prejudicial to the interest of revenue. Drawing our attention to the order passed under Section 263 of the Act, learned counsel submitted, except for a general observation made that the TPO has not inquired into the royalty payment of other models, the PCIT has not even whispered a single word as to for which other model, the payment or royalty is not at arm's length. Thus, he submitted, merely for initiating a roving and fishing inquiry, learned PCIT cannot exercise jurisdiction under Section 263 of the Act. 9. Learned Departmental Representative submitted, the facts on record clearly reveal that the TPO has not at all examined the arm's length nature of royalty pa....
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....to address the preliminary issue raised by the assessee assailing the assumption of jurisdiction under section 263 of the Act to revise the assessment order. Undisputedly, in the previous year relevant to the assessment order under dispute, the assessee had entered into various international transactions with its overseas AEs. In course of assessment proceeding, the Assessing Officer having noticed the aforesaid fact, considered it appropriate that ALP of the international transaction with the AEs has to be determined by the TPO. Accordingly, complying with the provision contained in Section 92CA(1) of the Act, the Assessing Officer obtained an approval from the PCIT and made a reference to the TPO to determine the ALP of various international transaction with the AE. Once the reference was made by the Assessing Officer as aforesaid, the TPO proceeded to determine the ALP of the international transactions with the AEs. After following the procedure laid down in sub-section (2), the TPO passed an order under section 92CA(3) of the Act determining the ALP of the international transactions with AE. While doing so, the TPO made an adjustment to the ALP of the royalty paid to the AE on ....
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....amined the arm's length nature of royalty paid to the AE in respect of other models of earth moving equipment. 14. Thus, the show-cause notice issued under Section 263 of the Act and the order passed there under would leave no room for doubt that the shortcoming, according to the PCIT, is in the order passed by the TPO under section 92CA(3) of the Act due to non-inquiry/non-examination of certain transaction. However, section 263(1) empowers the Revisionary Authority to revise any order passed by the Assessing Officer, if in his opinion, such order is erroneous and prejudicial to the interest of Revenue. Thus, due to restriction imposed under section 263(1) of the Act, learned PCIT has no administrative power to revise the order passed by the TPO under section 92CA(3) of the Act. Therefore, the question arising for consideration is, when the PCIT has no power to revise the order passed by the TPO under section 92CA(3) of the Act, can he revise the assessment order which has been passed in conformity with the order of the TPO, as mandated under Section 92CA(4) of the Act? Our answer to the question is in the negative. 15. When the provision contained under Section 92CA(4) ....
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.... relating to payment of royalty on all models of earth moving equipment. It is a fact on record that the assessee has paid royalty at the rate of 5% on all the models. While examining arm's length nature of royalty payment, the TPO having found that the patent for the 3DX model was not owned by the AE but was developed in India, was of the view that payment of royalty at 5% is not at arm's length. Accordingly, relying upon the orders passed in the preceding assessment years, wherein, adjustment in respect of royalty payment was made only in respect of 3DX model, the TPO proceeded to determine the ALP of the royalty paid only in respect of 3DX model. Thus, the materials on record clearly reveal that the royalty paid at 5% on other models, except 3DX model, was always accepted by the department to be at arm's length and was never a subject matter of dispute between the assessee and the revenue. 18. In fact, when the TPO proposed adjustment to the rate of royalty paid on other models in assessment year 2010-11, the assessee moved an application for rectification under Section 154 of the Act. While considering such application, the TPO rectified the order passed by him b....