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2016 (11) TMI 1756 - AT - Income TaxRevision u/s 263 - TP Adjustment - exist cost of TBA-10 machines which was considered by Assessee as an extraordinary item and therefore not considered as part of operating profit, was allowed without any discussion - other reason that assessee s claim in respect of depreciation, amortization and impairment, loss of sale on assets etc. needs verification and addition, if any. HELD THAT - On perusing the order of TPO and the submission made by the assessee before TPO, it is seen that the submission of Assessee with respect to exist cost was found acceptable to the TPO as no addition/adjustment on that account was made by TPO. At this moment we would like to refer the decision of Malabar Industrial Company Ltd 2000 (2) TMI 10 - SUPREME COURT wherein as held that CIT has to be satisfied of twin conditions namely i) the order of the A.O. sought to be revised is erroneous ii) by virtue of being erroneous prejudice has been caused to the interests of the Revenue for invoking the provisions of Sec. 263. If one of them is absent if the order of ITO is erroneous but is not prejudicial to the interest of Revenue or if it is not erroneous but is prejudicial to the interest of Revenue - recourse cannot be had to Sec. 263(1). AO had passed order u/s 143(3) and with respect to the adjustments to the international transactions, addition was made as per the order of TPO s order that was passed u/s 92CA(3) of the Act. As per the provisions of Sec. 94CA(4) the order passed by TPO is binding on A.O. In the present case, thus it is seen that A.O. has followed the adjustments directed by TPO in the order dt. 30.09.2008 passed under Sec. 92CA(3) of the Act. There is nothing on record which points out that the order of TPO dt. 30.09.08 has been revised or the order was not in existence when AO passed the order u/s 143(3) of the Act. Therefore in the present case, since the A.O. has followed the order of TPO passed u/s 92CA(4), it cannot be said that there is any error in the order passed by the A.O., u/s 143(3) of the Act. On the merits of the case of excluding Exist cost while computing the operational margin, being of an extra-ordinary and exceptional in nature, we find force in the argument of the learned A.R. for its exclusion in the light of the ratio of the decision of Marubeni India Pvt. Ltd 2013 (6) TMI 104 - DELHI HIGH COURT as upheld the exclusion of payment of compensation for closure of Indian units by the associated enterprise by considering it to be an abnormal item of expenses and excluding it while computing operating profits. We are of the view that the ratio of the aforesaid decision is squarely applicable to the present case. Before us, the Revenue has not placed any contrary binding decision nor has brought any material on record to demonstrate that the view taken by the A.O. was contrary to law or was an impermissible view or was upon application of wrong legal principles and therefore required initiating the exercise of revisionary powers under Sec. 263 - Thus CIT was not justified in resorting to the revisionary powers under Sec. 263 - Appeal of assessee is partly allowed.
Issues Involved:
1. Invocation of revisionary powers u/s 263 of the I.T. Act. 2. Determination of Arm's Length Price (ALP) and treatment of "Exist Cost". 3. Jurisdiction of CIT to revise the order passed by TPO u/s 92CA(3). Summary: Issue 1: Invocation of revisionary powers u/s 263 of the I.T. Act The appeal by the assessee challenges the order of the CIT-IV, Pune, dated 29.03.2011, for the assessment year 2005-06, passed u/s 263 of the I.T. Act. The CIT invoked the provisions of Sec. 263, asserting that the assessment order u/s 143(3) was erroneous and prejudicial to the interest of the Revenue. The CIT's primary contention was the improper adjustment of the "Exist Cost" of TBA-10 machines in the ALP computation, which was allowed without discussion. Additionally, the CIT believed that claims related to depreciation, amortization, and impairment required further verification. Issue 2: Determination of Arm's Length Price (ALP) and treatment of "Exist Cost" The assessee argued that the TPO had considered all relevant details, including the "Exist Cost" of Rs. 12,66,65,008/-, while determining the ALP. The TPO's order, which was followed by the AO, did not make any adjustments for the "Exist Cost," indicating acceptance of the assessee's explanation. The assessee contended that the "Exist Cost" was an extraordinary item due to the technological obsolescence of TBA-10 machines and was rightly excluded from operating profits. The Tribunal found merit in the assessee's argument, citing the decision of the Hon'ble Delhi High Court in Marubeni India Pvt. Ltd, which upheld the exclusion of abnormal expenses while computing operating profits. Issue 3: Jurisdiction of CIT to revise the order passed by TPO u/s 92CA(3) The assessee contended that the CIT lacked jurisdiction to revise the TPO's order u/s 92CA(3), as the AO was bound to follow the TPO's adjustments u/s 92CA(4). The Tribunal agreed, referencing the decision in Tata Communications Ltd. vs. DCIT, which held that the CIT cannot exercise revisionary jurisdiction over the TPO's order. The Tribunal emphasized that the AO's order, which followed the TPO's adjustments, could not be considered erroneous or prejudicial to the Revenue. Conclusion: The Tribunal concluded that the CIT was not justified in invoking revisionary powers u/s 263, as the AO's order was neither erroneous nor prejudicial to the Revenue. The Tribunal set aside the CIT's order canceling the AO's order dated 10.12.2008, and allowed the assessee's appeal. The appeal was partly allowed, and the order was pronounced on 18th November 2016.
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