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2022 (1) TMI 1310 - AT - Income TaxRevision u/s 263 - Owing to non-addition of the amount adjusted by the TPO in his order passed u/s 92CA by the Assessing Officer PCIT passed order u/s 263 - HELD THAT - The reference to the TPO to determine the Arm s Length Price is not an empty exercise to be undertaken by the revenue but to bring to tax the difference determined by the TPO with regard to the Arm s Length Price. While the TPO order passed u/s 92CA determine upward adjustment we find that the AO has erred in holding that the adjustment by the TPO in respect of international taxation with the AE is Nil. Thus, the order passed by AO is erroneous insofar as it is prejudicial to the interest of revenue. Hence, the ld. PCIT in accordance with the provisions of the Act has given an opportunity of being heard to the assessee, determined the amount of the adjustment made by the TPO that was not brought to tax and set aside the order of the AO directing him to rectify the order to the extent of the adjustment made by the TPO. Since, the order of the PCIT has been rightly based on the order of the TPO which has been ignored by the Assessing Officer, we hold that the order of the AO is erroneous and prejudicial to the interest of the revenue and hence decline to interfere with the order of the ld. PCIT. Appeal of the assessee is dismissed.
Issues:
1. Interpretation of Section 263 of the Income Tax Act, 1961 regarding the revision of orders prejudicial to revenue. 2. Assessment order passed under Section 143(3) and subsequent order under Section 263 regarding computation of Arm's Length Price. 3. Failure of the Assessing Officer to make necessary adjustments based on the Transfer Pricing Officer's (TPO) order under Section 92CA(3). 4. Application of mind by the Assessing Officer in making the assessment under Section 143(3) and compliance with the provisions of Section 92CA. Analysis: 1. The appeal was filed by the assessee against the order of the Principal Commissioner of Income Tax-1, New Delhi dated 05.06.2017. The grounds raised by the assessee challenged the correctness of the order under Section 263 of the Income Tax Act, 1961, pertaining to the computation of Arm's Length Price (ALP) based on the TPO's determination under Section 92C(3). The assessee argued that the assessment was done in accordance with the law prevailing at the time of assessment order under Section 143(3) and that the order under Section 263 was based on an incorrect application of the law. 2. The Assessment Order for the year under consideration highlighted the revenue from operations, international transactions, and the TPO's order determining the ALP. The Principal Commissioner initiated proceedings under Section 263 due to the failure of the Assessing Officer to make necessary adjustments as per the provisions of Section 92CA(4). The Principal Commissioner found the assessment erroneous and prejudicial to the revenue's interest, leading to the set-aside of the assessment order for the AO to rectify based on the TPO's determination. 3. The authorized representative of the assessee argued that the Assessing Officer had applied his mind during the assessment process under Section 143(3) and that no further inquiry was necessary. However, the Principal Commissioner, relying on legal precedents, found the assessment order erroneous and prejudicial to revenue due to the failure to consider the TPO's adjustments. The order under Section 263 directed the AO to rectify the assessment based on the TPO's determination, after affording an opportunity of being heard to the assessee. 4. The Tribunal upheld the order of the Principal Commissioner, emphasizing that the reference to the TPO was not merely a procedural step but aimed at bringing to tax the adjustments determined by the TPO. The Tribunal found errors in the AO's assessment regarding the TPO's adjustments, leading to the conclusion that the assessment order was indeed erroneous and prejudicial to the revenue's interest. Consequently, the appeal of the assessee was dismissed, affirming the correctness of the order under Section 263. This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Tribunal's decision based on the interpretation of relevant legal provisions and factual circumstances.
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