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2025 (4) TMI 587 - AT - Income TaxRevision u/s 263 - TP adjustment on account of interest paid by the assessee on CCDs issued to AE - HELD THAT - On perusal of the of the order of the ld PCIT we find that he has merely reproduced the various show cause notices issued by him and the replies filed by the assessee and his finding starts only by merely stating that the comparables chosen by the ld TPO for benchmarking the rate of interest of CCDs to AEs are to be rejected. This observation of the ld PCIT has got absolutely no basis. PCIT does not even state as to why and how the order of ld TPO is erroneous. Tribunal in assessee s own case. 2024 (9) TMI 1721 - ITAT DELHI had categorically held that no domestic transfer pricing adjustment is permissible in view of the decision of Texport Overseas Pvt. Ltd. 2019 (12) TMI 1312 - KARNATAKA HIGH COURT wherein it was held that once the Section 92BA(i) of the Act is omitted w.e.f. 01.04.2017 from the statute the resultant effect would be that it had never been passed to be considered as a law and never been existed in the statute. Hence the Tribunal order had categorically held that no transfer pricing adjustment per se in respect of domestic transaction could be made. This fact was duly brought to the notice of the ld PCIT and despite that he has proceeded to treat the order of the ld TPO/ AO as erroneous (without stating as to why it is erroneous) and prejudicial to the interest of the revenue for calculating ALP of interest rate of selecting different robust and correct comparables. This action of the ld PCIT is clearly condemnable and not to be appreciated in the eyes of law. Assessee has received certain security premium which was not investigated by the ld AO thereby making his order erroneous and prejudicial to the interest of the revenue - PCIT had also directed to the ld AO to consider the provisions of section 94B of the Act while addressing the said issue - The equity shares have been issued by the assessee only to its joint venture partners at a premium of Rs. 130 and no external or 3rd party is involved thereon. The initial allotment of shares was done at the same premium in AY 2016-17 which was accepted by the revenue. Hence there is absolutely no reason for the ld AO to even doubt the genuineness creditworthiness of the investors with regard to issue of shares at premium during the year under consideration. Hence his order cannot be treated as erroneous much less prejudicial to the interest of the revenue. Further adequate enquiries were indeed made by the ld AO. Hence this is not a fit case for assumption of revision jurisdiction u/s 263 of the Act on the impugned issue and hence the assumption of jurisdiction is hereby quashed on this issue. Assessee had disclosed inventories whereas no revenue has been disclosed - PCIT had merely made a general and vague observation by directing the ld AO to examine the issue in order to make fishing and roving enquiry which is not legally permitted while assuming revision jurisdiction u/s 263 - recognition of revenue under POCM even if deferred by the assessee (though factually that is not the case of the assessee herein) still there would be no loss of tax to the exchequer as ultimately the same would only result in revenue neutral mechanism as it is only timing difference of recognition of revenue. Hence it cannot be said that the order passed by the ld AO would be prejudicial to the interest of the revenue. Reliance in this regard is placed on the decision of Excel Industries Ltd. 2013 (10) TMI 324 - SUPREME COURT Hence direction of the ld PCIT being vague and mechanical and the impact not being prejudicial to the interest of the revenue become fatal to the assumption of revision jurisdiction u/s 263 of the Act qua the issue of recognition of revenue under the POCM. Hence the action of the ld PCIT in this regard is hereby quashed. PCIT has assumed revision jurisdiction is only by directing the ld AO to examine the complete details of the borrowing cost including its purpose and utilization for the project - As the borrowing cost incurred by the assessee arises out of fund raised by the assessee from its joint venture partners vide issuance of CCDs and OCDs. The fact of interest paid by CCDs and OCDs was subject matter of detailed examination by the ld TPO and a sum of Rs. 63.95 crores was even proposed as a transfer pricing adjustment by the ld TPO. Hence this is not a case where no enquiry has been made by the lower authorities. Further it is relevant to note that the borrowing cost has been capitalized by the assessee under inventories and the ld AO had already examined the entire inventories in the earlier ground. Hence it could be safely concluded that the ld PCIT had merely given a vague and general direction without any legal basis and without pointing out any error in the order of assessment of the ld AO. Hence revision jurisdiction u/s 263 of the Act is hereby quashed qua this issue. CIT giving direction to the ld AO to examine the genuineness of the financial liability and examine the details of foreign equity valuation of the assessee company and selling of equity to non residents and taxability of the same as per the Act - This interest accrued but not due is in respect of CCDs and OCDs issued to joint venture partners which had already been examined by the ld AO and ld TPO in the original assessment proceedings wherein they were convinced that it merely represent unpaid portion of borrowing cost. It is pertinent to note that the said item has been duly subjected to deduction of tax at source also. These facts were duly brought to the notice of the ld PCIT vide reply dated 15.03.2024 in response to show case notice u/s 263 of the Act which was completely ignored by the ld PCIT for reasons best known to him with a preconceived notion in order to reach pre meditated destination. Hence assumption of revision jurisdiction u/s 263 of the Act by the ld PCIT is not permissible and deserves to be quashed on this issue. Similar was the direction given by the ld PCIT to the ld AO to examine details of foreign equity valuation of the company and selling of flats to non residents etc. In this regard the assessee only issued equity shares to its non resident joint venture partners which has already been duly examined by the ld AO. Hence assumption of revision jurisdiction u/s 263 of the Act by the ld PCIT is not permissible and deserves to be quashed on this issue. PCIT giving direction to the AO to investigate the transaction of purchase of rights in land parcel from M/s. DLF Home Developers Ltd - This is also a vague direction without narrating the facts of the case and only to enable the AO to make fishing and roving enquiries on the subject mentioned issue. The transaction of purchase of rights in land parcel pertain to AY 2016-17 and is already disclosed in the balance sheet. Even this primary basic fact was not looked into by the ld PCIT or sought to be understood from the reply given by the assessee. Either way it does not pertain to the year under consideration. Further in AY 2016-17 the ld TPO/ AO made upward TP adjustment in respect of the issue of purchase of rights in land parcel which was deleted by this Tribunal 2024 (9) TMI 1721 - ITAT DELHI Hence the assumption of revision jurisdiction u/s 263 of the Act was purely mechanical with vague direction. Thus we have no hesitation to conclude that the very assumption of revision jurisdiction u/s 263 of the Act of the ld PCIT is completely flawed and deserves to be quashed and void ab initio - Decided in favour of assessee.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment revolved around the assumption of revision jurisdiction under Section 263 of the Income Tax Act, 1961 by the Principal Commissioner of Income Tax (PCIT). The primary questions were:
ISSUE-WISE DETAILED ANALYSIS 1. Assumption of Jurisdiction under Section 263 The legal framework under Section 263 allows the PCIT to revise an assessment order if it is erroneous and prejudicial to the interest of the revenue. The Court examined whether the PCIT's assumption of jurisdiction was valid, considering the AO had already conducted a detailed inquiry during the assessment proceedings. The Court noted that the AO had issued notices under Sections 143(2) and 142(1), and the TPO had made a transfer pricing adjustment. The PCIT's jurisdiction was challenged as the AO had already conducted adequate inquiries, and the PCIT's directions seemed to substitute his opinion for the AO's plausible view. 2. Directions to Recalculate ALP of Interest Rate The PCIT directed the TPO to recalculate the ALP of interest rates on Compulsorily Convertible Debentures (CCDs). The Court found that the TPO had already benchmarked the transaction using the CUP method, and the PCIT's rejection of the comparables without reason was unjustified. The Tribunal in the assessee's previous case had held that no domestic transfer pricing adjustment was permissible post the omission of Section 92BA(i). 3. Examination of Security Premium The PCIT questioned the security premium received by the assessee, directing the AO to consider Section 94B. The Court found that the AO had already examined the issue in detail, and Section 94B was not applicable for the assessment year in question. The PCIT's direction was against the statute, and the AO's order was not erroneous. 4. Revenue Recognition under POCM The PCIT directed the AO to compute taxable income based on the Percentage of Completion Method (POCM). The Court noted that the project had not commenced, and no revenue was recognized as per POCM. The AO had already examined this issue, and the PCIT's direction was deemed a fishing expedition without legal basis. 5. Examination of Borrowing Costs The PCIT directed the AO to examine borrowing costs, including their purpose and utilization. The Court found the direction vague and noted that the TPO had already examined the borrowing costs related to CCDs and OCDs. The PCIT's direction was seen as an attempt to conduct a roving inquiry. 6. Examination of Financial Liabilities and Foreign Equity The PCIT's direction to examine the genuineness of financial liabilities and foreign equity was challenged. The Court found that these issues had been examined by the AO and TPO, and the PCIT's directions were vague and unsupported by any identified errors in the AO's order. 7. Investigation of Land Transaction The PCIT directed an investigation into a land transaction with DLF Home Developers Ltd. The Court found that the transaction pertained to a previous assessment year and had already been scrutinized. The PCIT's direction was deemed mechanical and without understanding the primary facts. SIGNIFICANT HOLDINGS The Court held that the PCIT's assumption of revision jurisdiction under Section 263 was flawed and quashed the revision order. The Court emphasized that:
The appeal of the assessee was allowed, and the PCIT's order was set aside.
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