TaxTMI 
TaxTMI 
TaxTMI 
2023 (11) TMI 30
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.... approval from the competent authority. The TPO passed order on 24.01.2021 and accordingly the AO passed the final assessment order on 23.04.2021. The ld. CIT on examination of records noted that the TPO while calculating the PLI (OP/OC) had not considered the following three items as operating expenses of the assessee :- (i) Share based compensation - Rs. 4,054 million. (ii) Foreign exchange fluctuation loss - Rs. 110 million (iii) Impairment of investments in subsidiaries - Rs. 118 million. 3. These expenses were debited to the Profit & Loss account by the assessee. Accordingly, he issued show cause notice to the assessee on 17.02.2023 for revision of the order u/s. 263 of the Act. After considering the submissions of the assessee, the ld. CIT held as under:- "26. In line with the principles laid down in the above rulings which clearly apply to the facts and circumstances of this case and in the absence of verification in the manner required under the Act by the TPO to determine the inclusion of the share-based compensation in the form of ESOP cost in the Operating Cost base in TP proceedings, the order u/s 92CA(3) of the IT Act dated 24.01.2021 is erroneous in so far....
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....1 (SC) - CIT vs. Amitabh Bachchan: 384 ITR 200 (SC) - CIT v. Hindustan Lever Ltd: 343 ITR 161 (Bom.) - CIT v. Vikas Polymers: 341 ITR 537 (Del.) - CIT v. Sunbeam Auto Ltd.: 332 ITR 167 (Del) - CIT vs. Development Credit Bank Ltd: 323 ITR 206 (Bom.) - Vimgi Investment (P) Limited: 290 ITR 505 (Del) - Hari Iron Trading Co. vs. CIT: 263 ITR 437 (P&H) - CIT vs. Gabriel India Limited: 203 ITR 108 (Bom) 7. It is further settled law that if the assessing officer has adopted one of the courses permissible in law which may have resulted in loss of revenue, or where two views are possible and the assessing officer has taken one view with which the Commissioner does not agree, the exercise of revisionary power under section 263 of the Act would be without jurisdiction [refer Malabar Industrial (supra), Max India (supra), CIT vs Kwality Steel Suppliers Complex (supra)]. Transfer Pricing order neither "erroneous" nor "prejudicial to interests of Revenue" 8. Applying the aforesaid settled legal position, it is, at the outset, submitted that the order passed by the TPO is "not erroneous", inasmuch as the TPO passed the order after due application of mind, as elaborated hereu....
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....ence of Rs. 110 million and impairment of investment in subsidiary of Rs. 118 million, which as per the CIT(TP)'s own admission are not in the nature of operating expense [Refer para 26 @ pg 16 of the impugned revisionary order]. Re: TPO made enquiries and applied mind - order not erroneous 16. It is emphatically submitted that the TPO, in the course of original transfer pricing proceedings for the assessment year 2017-18, was not only conscious/ aware of the aforesaid issues but also conducted extensive/ necessary enquiries/ investigations, as required in law, therein before accepting the same, as would be evident from the details of enquiries conducted. 17. In this connection, the appellant is providing herein below details of relevant queries raised by the TPO vide notices/questionnaire and information/ replies filed by the appellant in response thereto from time to time, which clearly establishes that the TP order dated 24.01.2021 was passed after due examination and verification of the information/documents submitted during the course of assessment proceedings: Particulars of notice/reply Summary of information sought/filed before the TPO Notice dated 06.01.2020 &nb....
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....x loss/profit arising out of delay in trade receipts (@relevant at page 197 of the PB) (b) Stock Incentive Plan/ Employee Stock Option Plan/ restricted stock units ('RSU') granted by the AE to employees of appellant (@relevant at page 198 of the PB) Reply dated 15.01.2021 [Copy enclosed at pages 201 to 408 of paperbook] In response to the aforesaid query, the appellant filed elaborate reply justifying, inter alia: - Information pertaining to ESOP cost and why the same should not be considered as part of cost base; (@relevant at page 239, 405- 408 of the PB) - Details qua forex loss/profit arising out of the delay in trade receipts; (@relevant at page 231-238 of the PB) - Segmented financial information (as part of TP Study) reducing (i) share based compensation, (ii) foreign exchange differences; (iii) impairment of investment from operating cost. 24.01.2021 The TPO passed the order under section 92CA(3), duly accepting the aforesaid information filed by the appellant. 18. On perusal of the aforesaid, it will kindly be appreciated that the TPO made extensive/ necessary enquiries to verify and examine the operating cost as reported by the appellant in so far as ....
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....Private Family Specific Trust: 171 ITR 698 (All) − CIT v. Ganpat Ram Bishnoi: 296 ITR 292 (Raj) − CIT vs. Girdhari Lal: 258 ITR 331 (Raj.) − Paul Mathew and Sons v. CIT 263 ITR 101 (Ker.) − CIT v. Arvind Jewellers: 259 ITR 502 (Guj.) − CIT v. Ratlam Coal Ash Co. 171 ITR 141 (MP) 23. As a necessary corollary, when on a particular issue the TPO conducted extensive enquires during the course of proceedings, such order cannot, it is submitted, be regarded as erroneous so as to warrant exercise of revisionary jurisdiction under section 263 of the Act. 24. It is thus reiterated that once, on the facts of the case, not only the relevant details/ documents are available on record and the issues were specifically raised and considered by the TPO, in such circumstances, it is not open to the CIT(TP) to exercise revisionary jurisdiction, unless the TPO is found to have failed to make inquiries/ verification, which should have been made as per law but were not made. The CIT cannot, merely on difference of opinion with regard to the manner of the inquiries/ investigation, exercise revisionary jurisdiction. 25. In the aforesaid circumstance, it is su....
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.... Therefore, it is submitted that the RSU cost is a notional cost in the appellant's statement of profit and loss account; and in order to meet the requirements of Ind-AS 102 the same has been recorded in the financial statements. Further, it is also pertinent to mention that the appellant has, accordingly, not claimed the aforesaid expense as admissible expenditure in the return of income. 32. It may also be pertinent to note that relevant inter-company agreements were also filed by the appellant vide letter dated 20.01.2020, which were duly examined by the TPO and the allegation of the CIT(TP) that the TPO failed to examine agreements is factually incorrect. 33. In so far as allegation of the CIT(TP) @ page 13 of the impugned order that safe harbour provisions under Rule 10TA(j) of the Income Tax Rules, 1962 ('the Rules') provide for inclusion of ESOP cost as part of the operating cost base, it is submitted that safe harbour rules cannot be considered as a benchmark in cases where the assessee itself has not opted for application of the same. [Refer: Rule 10TD r.w.r 10TE, CDBT Instruction No. 500/139/2012-FTD-I] 34. The fact that the appellant has not opted for application o....
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....Trib.) 41. Further, even the CIT(TP) has observed that safe harbour provisions under Rule 10TA(j) of the Rules provide exclusion of extraordinary expenditure from the ambit of operating expenses. 42. It may be critical to note that the CIT(TP) has himself, at para 26 @ page 16 of the revisionary order, accepted the fact that forex loss and impairment in investment in subsidiary do not prima facie constitute operating expense, without appreciating the fact that the impugned Rs. 228 million actually pertained to the said cost only. The relevant findings of the CIT(TP) is extracted as under: "26 ............... The assessee has in its submissions referred to forex loss and impairment in investment in subsidiary that have been treated as non-operating items by the TPO. The reference made by the assessee therefore to forex loss and impairment in investment in subsidiary is not relevant to the issue at hand since even by the abovementioned definition in the safe harbour rules, the said items do not prima facie constitute operating expense." (emphasis supplied) 43. Thus, on perusal of the aforesaid and the assessment records for the assessment year under consideration, it will ....
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....el) - CIT v. International Travel House: 344 ITR 554 (Del) - CIT vs. Vikas Polymers: 341 ITR 537 (Del) - Gulmohar Finances Limited: 170 Taxman 483 (Del.) - Fab India Overseas vs. CIT: 244 CTR 380 (Del.) - CIT vs. Vodafone Essar: 212 Taxman 184 (Del.) - CIT vs. DLF Ltd.: 350 ITR 555 (Del) - CIT v. Ratlam Coal Ash Co: 171 ITR 141 (MP) - CIT vs. Ganpat Ram Bishonoi: 152 Taxman 242 (Raj.) - CIT vs. Mehrotra Brothers: 270 ITR 157 (MP) - CIT vs. Associated Food Profits (P) Ltd: 280 ITR 377 (MP) - CIT vs. Development Credit Bank Ltd: 323 ITR 206 (Bom.) 49. The case of the appellant stands on a much better footing since complete and detailed enquiries were made in the case of the appellant as elaborated supra and there was due examination and application of mind on part of the TPO which also stands recorded in the assessment order. Further, the view taken by the TPO is a plausible view as demonstrated above. 50. It is respectfully submitted that, in the aforesaid circumstances, the TP order dated 24.01.2021 for the assessment year 2017-18, is neither `erroneous' nor `prejudicial to the interests of the Revenue warranting exercise of revisionary jurisdiction under ....
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.... the appellant that the impugned order under section 263 of the Act is without jurisdiction and bad in law, since the pre-requisite twin conditions for invoking jurisdiction under the said section have not been fulfilled in as much as the order dated 24.01.2021, issued by the TPO under section 92CA(3) of the Act is neither erroneous nor prejudicial to the interests of the Revenue. Re: CIT(TP) to record prima facie finding on merits before setting aside the assessment: 56. That apart, it is further submitted that the CIT(TP) has in the revisionary order, merely set aside the assessment order on the alleged ground that the TPO had excluded certain expenses as nonoperating without making necessary/proper enquiries and verification. The CIT(TP) has, however, not pointed out the error, if any, much less the prejudice caused to the interests of Revenue as a consequence of alleged non-verification, while setting aside the assessment. The CIT(TP) has not, before setting aside the assessment on the said issue, recorded any prima facie finding on the merits thereof. 57. The Courts have in the undermentioned decisions held that the CIT while exercising revisionary powers under section 2....
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....ction 92CA after the date in this effect, i.e. 01.04.2022. Any interpretation contrary to the aforementioned position would lead to giving retrospective effect / retroactive operation to the amendment in section 263 of the Act, which the Legislature consciously chose not to opt. 62. Reliance in this regard is placed on the decision of the Hon'ble Supreme Court in the case of Estate Duty v. M.A. Merchant: 177 ITR 490 (SC), wherein the Court observed as under: "As it stands, there are no specific words either which confer retrospective effect to section 59. To spell out retrospectivity in section 59, then, there must be something in the intent of section 59 from which retrospective operation can be necessarily inferred. We are unable to see such intent. The new section 59 is altogether different from the old section 62 and there is nothing in the new section 59 from which an intent to give retrospective effect to it can be concluded. 6......There is a well settled principle against interference with vested rights by subsequent legislation unless the legislation has been made retrospective expressly or by necessary implication. If an assessment has already been made and complete....
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....n the ground that the assessment order was passed without application of mind." 6. The ld. AR further argued that the ld. CIT is not justified in exercising his power u/s. 263 of the Act. He also referred to the financial statements and the TP study report and also filed the details of computation of total operating cost. 7. The ld. DR relied on the order of the ld. CIT. 8. After considering the rival submissions, we note that the ld. CIT has exercised is power as per section 263 and observed that the TPO has wrongly calculated the total operating expenses ignoring the ESOP expenses issued by the parent company to the employees of the subsidiary company and debited expenses to the P&L account of Rs. 4,054 million. He further noted that the foreign exchange fluctuation loss of Rs. 110 million and loss on investment in subsidiaries of Rs. 118 million was to be treated as operating expenses. However, the TPO has not treated these as operating expenditure and accepted the TP study of the assessee. We note that the TPO has issued show cause notice to the assessee and the assessee has duly replied. Copy of notices and reply are placed in the PB which were referred to by the ld. AR dur....