TaxTMI 
TaxTMI 
2024 (12) TMI 626
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....n Law, the CIT erred in observing in para 7.4.1- "Assessee has called the invocation of section 263 provisions at this stage as premature since the assessment order is yet to be passed and there is no 'proceeding' existent as on date. Since the TPO order has not attained finality on account of pendency of DRP proceedings, invocation of section 263 proceeding is premature." 3. That on facts and in law the order passed by the CIT u/s 263 is bad in law as it grossly violates applicable rules of natural justice in as much as inter alia: (a) not providing an opportunity of being heard in person, (b) passing the impugned order in haste (c) not allowing the appellant adequate time to prepare and represent. has thereby violated the settled principles. 4. That on facts and in law the CIT has erred in cancelling order dated 25th July 2023 passed by the TPO and directing the TPO to pass the order afresh. 5. That on facts and in law the CIT has erred in holding that order dated 25th July 2023 passed by the Addl/JCIT TP 2(3) - Mumbai {hereinafter referred to as "TPO"} is erroneous and prejudicial to the interest of revenue. ....
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....d not find any favour with the ld. CIT(TP) who was of the firm belief that the impugned order of the TPO dated 25.07.2023 was passed without making enquiries or verification, which should have been made in this case and, therefore, such an error is erroneous in so far as it is prejudicial to the interest of the Revenue. 7. The ld. CIT(TP) went on to cancel the order of the TPO dated 23.07.2023 and directed the TPO to pass order afresh after examining available record and after making necessary enquiries as deemed fit for determination of arm's length price of international transactions of the assessee. 8. Before us, the assessee assailed the order of the ld. CIT(TP) questioning the very assumption of jurisdiction u/s 263 of the Act. It is the say of the ld. counsel for the assessee that the order of the TPO has not attained finality and, therefore, assumption of jurisdiction in respect of an order which has not attained finality is bad in law. 9. The ld. counsel for the assessee vehemently stated that after the TPO frames the order, the Assessing Officer passes a draft assessment order for which the assessee has an option to object before the DRP and if no objection is rai....
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.... or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120;[(iii) an order under section 92CA by the Transfer Pricing Officer;] (b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer 92[or the Transfer Pricing Officer, as the case may be,] had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the* Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as....
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....improper enquiry/inadequate enquiry/framing order without making enquiries or verifications, which should have been made in this case. All that is required to be seen is whether during the transfer pricing assessment proceedings the TPO has raised specific queries to which the assessee has framed specific replies or not. 14. Under Rule 10- D of the Rules, every person who has entered into an international transaction shall keep and maintain information/ documents as mentioned therein and the assessee is required to substantiate on the basis of material available with him that income arising from international transactions entered into by him has been computed in accordance with section 92 of the Act. 15. Transfer Pricing proceedings start with TP study report and on the basis of TPSR, TPO conducts enquiry. In our considered opinion, there is no presumption that the officer proceeds on wrong facts. 16. Considering the relevant rule, read with relevant provision of the Act, the nature of enquiry of the TPO depends upon the requirements mentioned therein. In our considered opinion, past history of the assessee also helps the TPO to conduct enquiry and in the case of the asses....
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.... out of India when the AE has not added any value to the goods. 3.4 Further, the TPO has also not asked for reconciliation of total sale value of goods to AEs as per invoices vis-à-vis as per books of accounts. This was crucial to identify whether there is any difference between the quantum of actual sale and revenue recognized in the books on account related to sale of goods to AEs. Any suppression of revenue in the books may lead to reduction of tax liability of the assessee and profit shifting out of India. 3.5 In the FAR analysis done in the TP study report, assessee has characterized itself as a manufacturer of SIM cards and Smart cards bearing routine risk. However, in the submission dated 29.06.2023, the assessee has characterized itself as a contract manufacturer bearing limited risk. The assessee has also submitted that there is no written agreement between the assessee and AEs for supply of products manufactured by the assessee and same is governed by long-lasting business relationship. However, as discussed, the assessee is earning a dictated mark-up as provided in the Group Transfer Pricing Policy. Therefore, it is seen that the mark-up charged ....
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....hapter II." 20. The assessee is a Contract Manufacturer of SIM Card and Smart Card for IDFEMIA Syscom group and it is not in dispute that the assessee is a manufacturer. In our considered opinion, any difference in nomenclature will not change the picture. 21. Vide notice dated 09.12.2021, the TPO had directed the assessee to submit its TPSR along with other documents. Vide notice dated 02.09.2022, the TPO directed the assessee to explain with documentary evidences and relevant working a justification of its NCP Margin of 6.80% vis a vis its manufacturing activities. 22. The assessee filed detailed reply and explained that information sought is duly documented in the TP Study report. 23. After considering the reply of the assessee, vided notice dated 16.06.2023, the TPO specifically asked the assessee to clarify whether any value addition is done by the AEs to the product sold to the AEs before sale of such products to final customer. 24. The assessee replied that vis a vis AE sales, it is a contract manufacturer and explained the steps involved in the process of SIM manufacturing, collection of orders and making of sale. It was clarified that post manufacturing, no ....
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....inable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/iss....
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....said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent‟s computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Office....
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.... 4237], wherein, it was held that if the AO has not provided detailed reasons with respect to each and every item of deduction etc. in the assessment order, that by itself would not reflect a non- application of mind by the AO. It was further held that merely inadequacy of enquiry would not confer the power of revision under Section 263 of the Act on the Commissioner. The relevant paragraph of the said decision reads as under:- "17. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer ....
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....jpal as well, this Court was of the view that the fact that a query was raised during the course of scrutiny which was satisfactorily answered by the assessee but did not get reflected in the assessment order, would not by itself lead to a conclusion that there was no enquiry with respect to transactions carried out by the assessee. 25. Further, the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd., enunciates the meaning and intent of the phrase "prejudicial to the interests of the Revenue", in the following words:- "8. The phrase "prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy & Co. v. S.P. Jain [(1957) 31 ITR 872 (Cal)], the High Court of Karnataka in CIT v. T. Narayana Pai [(1975) 98 ITR 422 (Kant)], the High Court of Bombay in CIT v. Gabriel India Ltd. [(1993) 203 ITR 108(Bom)] and the High Court of Gujarat in CIT v. Minalben S. Parikh [(1995) 215 ITR 81 (Guj)] treated loss of tax as prejudicial to the interests of the Revenue. ....
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....or the purpose of invoking jurisdiction under Section 263 of the Act. The relevant paragraph of the said decision reads as under:- "27. Learned counsel appearing on behalf of the assessee has heavily relied upon the decision of this Court in the case of Malabar Industrial Co. Ltd. (supra). It is true that in the said decision and on interpretation of Section 263 of the Income Tax Act, it is observed and held that in order to exercise the jurisdiction under Section 263(1) of the Income tax Act, the Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. It is further observed that if one of them is absent, recourse cannot be had to Section 263(1) of the Act. ***" 27. Considering the aforesaid judicial pronouncements, it can be safely concluded that inadequacy of enquiry by the AO with respect to certain claims would not in itself be a reason to invoke the powers enshrined in Section 263 of the Act. The Revenue in the instant case has not been able to make out a sufficient case that the CIT has exercised the power in accordance w....