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2016 (7) TMI 1587 - AT - Income TaxRevision u/s 263 - additions on account of TP adjustment in relation to transaction with AE - Assessment order is erroneous and prejudicial to the interest of revenue for this reason alone that he has not referred the international transaction between the assessee and its associated company i.e. M/s GLA Trading International PTE Ltd. for determination of ALP - HELD THAT - CBDT Instruction No. 3 dated 20.05.2003 is not binding on the A.O. Hence, the action of the A.O. of himself determining the TP adjustment without referring the matter to the TPO in the present case is a possible view as per this tribunal order. In this view of the matter, the assessment order cannot be said to be erroneous because the view taken by the A.O. of not referring the matter to the TPO is a possible view as per this tribunal order. Learned DR of the revenue could not point out any other basis indicated by the learned CIT in the impugned order to say that the assessment order is erroneous. This is a settled position of law by now that revisionary powers of CIT u/s 263 can be invoked only when the assessment order is erroneous as well as prejudicial to the interest of the revenue. Since, in the present case, the assessment order could not be established to be erroneous, the impugned order of CIT u/s 263 is not sustainable - Appeal of the assessee is allowed.
Issues Involved:
1. Jurisdiction and legality of the order passed under section 263 of the IT Act, 1961. 2. Provision of sufficient and reasonable opportunity of being heard. 3. Erroneous and prejudicial nature of the AO's order. 4. Suppression and under-invoicing of sales to an associated enterprise. 5. Benchmarking of transactions and related data considerations. 6. Dollar conversion rate and accounting of invoices. Detailed Analysis: 1. Jurisdiction and Legality of the Order Passed Under Section 263 of the IT Act, 1961: The assessee challenged the jurisdiction and legality of the order passed by the Commissioner of Income Tax (CIT) under section 263, arguing that the order was against the law and without jurisdiction. The Tribunal noted that the CIT's order was based on the failure of the Assessing Officer (AO) to refer the matter to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP) of international transactions. The Tribunal referenced the judgment of the Hon'ble Bombay High Court in Vodafone India Services Pvt. Ltd. vs. Union of India, which held that CBDT Instruction No.3 dated 20-05-2003, mandating such references, was not valid post the 2007 amendment. The Tribunal concluded that the AO's decision not to refer the matter to the TPO was a possible view, making the assessment order neither erroneous nor prejudicial to the revenue. 2. Provision of Sufficient and Reasonable Opportunity of Being Heard: The assessee argued that the CIT's order was passed in haste without providing a sufficient and reasonable opportunity of being heard. The Tribunal did not find specific details in the judgment addressing this procedural aspect but focused on the substantive issue of whether the AO's order was erroneous and prejudicial to the revenue. 3. Erroneous and Prejudicial Nature of the AO's Order: The CIT held that the AO's order was erroneous and prejudicial to the interest of the revenue solely because the AO did not refer the international transactions to the TPO. The Tribunal, however, noted that post the 2007 amendment, the AO was required to pass the assessment order in conformity with the ALP determined by the TPO, and the reliance on pre-2007 judgments was misplaced. The Tribunal found that the AO's decision not to refer the matter to the TPO was supported by the Tribunal's own decision in DCIT vs. Tata Consulting Services Ltd., where it was held that the CBDT Instruction No.3 was not binding on the AO. 4. Suppression and Under-Invoicing of Sales to an Associated Enterprise: The CIT concluded that there was suppression and under-invoicing of sales to M/s Gla Trading International PTE Ltd., an associated enterprise. The assessee contested this, arguing that the sales were at market prices and that the CIT erred in rejecting comparable prices and evidence. The Tribunal did not explicitly address this issue in detail but focused on the procedural correctness of the AO's actions and the validity of the CIT's reliance on the CBDT Instruction. 5. Benchmarking of Transactions and Related Data Considerations: The assessee argued that the CIT erred in benchmarking the transactions against data from March 2008 and adopting an incorrect dollar conversion rate. The Tribunal's analysis primarily centered on the procedural aspect of whether the AO's failure to refer the matter to the TPO rendered the assessment order erroneous. The Tribunal upheld the AO's view as a possible one, thereby not delving deeply into the specifics of benchmarking and data considerations. 6. Dollar Conversion Rate and Accounting of Invoices: The CIT's order included conclusions on the dollar conversion rate and the accounting of invoices in subsequent assessment years. The Tribunal's decision to quash the CIT's order was based on the procedural aspect of the AO's decision-making process rather than the specific financial details. The Tribunal emphasized that the AO's view was a possible one and not erroneous, thus not addressing the conversion rate and invoice accounting issues in detail. Conclusion: The Tribunal quashed the CIT's order under section 263, finding that the AO's decision not to refer the matter to the TPO was a possible view supported by the Tribunal's own precedents. The assessment order was not deemed erroneous or prejudicial to the interest of the revenue, leading to the allowance of the assessee's appeal.
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