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TMI Blog2021 (3) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... objection that the Tasty Bites and Eastables Ltd does not satisfy the filter adopted by the TPO - We find that the TPO has himself adopted the RPT filter of more than 25% and in the case of Tasty Bites and Eatables Ltd., it s RPT is clearly beyond the range fixed by the TPO, its RPT transactions are much more than 50%, but nearly 75%. In such circumstances, the TPO ought not to have considered the said company as a comparable company. Though the assessee may not have challenged the same before the TPO, assessee has challenged it before the DRP, but the DRP has not adjudicated the same and since there was no demand arising due to the consequential order passed by the AO, there was no occasion for the assessee to file an appeal before the ITAT. Therefore, in our opinion, the CIT (IT TP) ought to have directed the TPO to consider assessee s objections to Tasty Bites and Eatables Ltd before concluding the assessment proceedings. We direct the AO to examine and verify whether the RPT transaction of Tasty Bites Eatables Ltd with its AE is more than 25% and if it is found to be correct, then the said company shall be excluded from the final list of comparables. With these directio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited by the assessee towards advertisement and sales promotion and held that it falls into the expenditure referred to under Sub-Clause(iii) of Clause (a) of Section.35D of the I.T. Act and he allowed 1/5th of the total of such expenditure in this year and disallowed the balance being ₹ 6,93,37,003/- and accordingly brought it to tax. 2.2. Subsequently, the CIT (IT TP) assuming powers u/s 263 of the I.T. Act, perused the TPO s order and observed that the order passed by the TPO is erroneous in so far as it is prejudicial to the interest of the revenue. He observed that the assessee has incurred total operating cost of ₹ 626.92 crores but the TPO has allocated only ₹ 610.44 crores in his segmental analysis and no reason was mentioned for not allocating the balance sum of ₹ 16.48 crores. He also observed that the TPO has considered the miscellaneous income and foreign exchange fluctuation gain as operating revenue in the assessee s case, but while computing the operating revenue of the comparables, miscellaneous income and foreign exchange fluctuation gains was not considered as operating revenue in their cases. Therefore, he observed that the arithmetic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;] erred in revising the order passed by the Ld. Transfer pricing Officer ('TPO') under section 263 of the Act 2. On the facts and in the circumstances of the case and in law, the Hon'ble CIT has grossly erred in invoking the jurisdiction under section 263 of the Act for setting aside the order passed by the Ld. TPO under section 92CA of the Act 3. On the facts and in the circumstances of the case and in law, the Hon'ble CIT grossly erred in making revision under section 263 of the Act without appreciating / ignoring that: i. Order of the Ld. TPO is not erroneous and prejudicial to the interest of revenue and hence needs to be quashed; ii. The view taken by the Ld. TPO is possible view; iii. There is a change of opinion and hence does not justify the initiation of revision under section 263 of the Act; iv. Without Prejudice, Ld. TPO erred in including Tasty Bites Eatables Limited as a comparable which fails the related party transaction filter. It is prayed that the revision initiated by the CIT under section 263 of the Act be quashed. The above grounds are without prejudice to each other. The Appellant reserves its rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... _5% of the PLI of the comparables and in the result the assessment order would not have been erroneous and prejudicial to the interest of the revenue. He submitted that since there was no demand arising out of the draft assessment order or the final assessment order after giving effect to the directions of the DRP, there was no occasion for the assessee to file any appeal before the ITAT and that it was only due to erroneous order of the CIT u/s.263 of the Act, the demand has arisen. He submitted that the CIT, in his order u/s 263, also could have considered whether the said company i.e., Tasty Bites and Eatables Ltd satisfied the filters adopted by the TPO and if for the said reason, the said company is excluded from the final list of the comparables, the assessment order could not have been held to be erroneous. He therefore, prayed that the order of the CIT (IT TP) u/s.263 of the Act should be set aside. He also argued that u/s 263 of the Act only an assessment order can be revised and not the TPO s order passed u/s 92CA of the Act and therefore, the order u/s.263 of the Act is not sustainable. 4. The learned DR, on the other hand, supported the order of the CIT (IT TP) u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act is based on the reference of the AO and therefore, it is also part of the assessment record and can be revised by the CIT u/s 263 of the I.T. Act. Similar issue had arisen before the Co-ordinate Bench of ITAT at Kolkata in the case of Philips Ltd., Vs. Pr.CIT, Kolkata in ITA No.1142/Kol/2016 for A.Y.2009-10 and vide order dt.27.03.2019, the Tribunal has held as under: 7. We have heard rival contentions. On careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, we hold as follows:- 8. The first issue that is to be adjudicated is whether ld. Pr. CIT has the power u/s 263 of the Act to revise the assessment order passed by an Assessing Officer in compliance with the directions of the DRP u/s 144C(13) r.w.s 144C(5) of the Act. Under Section 144C(10) of the Act, the directions issued by the DRP are binding on the Assessing Officer. Under section 144C(13) of the Act, the Assessing Officer is required to complete the assessment in conformity with the directions of the DRP, without providing any further opportunity of being heard to the assessee. The ld. Counsel for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding that there is no merger of the order of the Assessing Officer with that of the DRP, the doctrine of partial merger may apply to the facts of the case at hand. Thus, on the issues that were not before the DRP and the issues which the DRP had not examined nor has applied its mind to, there can be no merger with the directions of the DRP. In the case on hand, both the issues that were subject matter of revision u/s 263 of the Act, were not issues considered or examined by the DRP. 9. The ld. Counsel for the assessee relied on the decision of the Bombay 'A' Bench of the Tribunal in the case of Trustees of Parsi Panchayat Funds Properties vs. Director of Incometax (supra). The contention of the assessee in this case was that, the order framed on the directions given by the DDIT u/s 144A of the Act, could not be revised u/s 263 of the Act, as to the extent, the Assessing Officer could not be said to have applied his mind. The Tribunal held as follows:- 7. The contention of the assessee was that the order was framed on the direction given by DDIT under section 144A of the Act and to that extent the Assessing Officer could not be said to have applied his mind and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rves to be rejected. Sections 144A and 144B of the Act were introduced with a view to contain litigation by making the immediately superior authority to the Assessing officer to have concurrent jurisdiction in the framing of the assessment and this jurisdiction so exercised by that superior authority is not merely as a superior but as an Assessing Officer as well. To ensure that the assessments framed after obtaining the directions under section 144A do not go unchecked the Legislature in their wisdom had amended the section 263 to include such an order as within the ambit of revision provided of course it could be said that the order is erroneous so as to make it prejudicial to the interests of the revenue. Considering the volume and the tax involved, the CBDT from time to time had issued such notifications to the effect that Inspecting Assistant Commissioners of Income-tax, Deputy Commissioners of Income-tax would also act as Assessing Officer singly or shall have concurrent jurisdiction. The order of assessment passed by Assessing Officer or Assessing Officer under directions of Inspecting Assistant Commissioner (IAC) or by IAC all are performing the functions of an Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be a subject matter of revision u/s 263 of the Act, even in the absence of an enabling provisions such as sub-clause (a) to Explanation 1 to Section 263 of the Act, which is clarificatory in nature. Hence the argument that an enabling provision such as explanation 1(a) to Section 263 of the Act, is required for the ld. Pr. CIT to revise an order passed u/s 143(3)/144C of the Act, is in our view not correct as this explanation only clarifies the powers that are inherently held by the Pr. CIT u/s 263 of the Act. In any event, the argument of the assessee cannot be applied to those issues which were not considered by the DRP. 9.2. Another limb of the argument of the ld. Counsel for the assessee is that the DRP's power extends to such matters that have not been raised in the objections filed by the assessee before it under section 144C sub-section 8 and explanation thereto, and hence the entire order of the Assessing Officer can be said to be have been passed on the directions of the DRP. Simply because there is a power in the Act provided to the DRP, to examine all issues relatable to an assessment, whether raised by the assessee before it or not, it cannot be concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepted only to the extent that the directions given by the DRP and followed by the Assessing Officer may not be subject matter of revision by the ld. CIT u/s 263 of the Act as the persons constituting the DRP are of the same rank as that of the ld Pr. CIT. . 11. Applying the propositions of law laid down in these caselaws to the facts of the case at hand, in our considered opinion, as the Assessing Officer has passed this assessment order, without enquiry and application of mind on these two issues, the order is erroneous and prejudicial to the interest of the revenue. 11.1. The ld. Counsel for the assessee further relied on the decision of the Hon'ble Delhi High Court for the proposition that the ld. CIT cannot direct the Assessing Officer to conduct a fresh enquiry on the issue without specifying as to how the assessment order passed by the Assessing Officer was erroneous insofar it is prejudicial to the interest of the revenue. In our view, the ld. CIT has applied his mind to both these issues by considering, the facts and the law as well as the explanation of the assessee. He has indicated as to how the assessment order in hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce there was no demand arising due to the consequential order passed by the AO, there was no occasion for the assessee to file an appeal before the ITAT. Therefore, in our opinion, the CIT (IT TP) ought to have directed the TPO to consider assessee s objections to Tasty Bites and Eatables Ltd before concluding the assessment proceedings. Therefore, we deem it fit and proper to direct the AO to examine and verify whether the RPT transaction of Tasty Bites Eatables Ltd with its AE is more than 25% and if it is found to be correct, then the said company shall be excluded from the final list of comparables. With these directions, the order of the CIT u/s 263 is modified and the AO/TPO is directed to recompute the ALP by excluding the Tasty Bites Eatables Ltd, and if thereafter the PLI of the assessee is less than +_5% of the comparable companies, then no TP adjustment is called for. With these directions, the appeal of the assessee against the order u/s.263 of the Act, is partly allowed. ITA No.1116/Hyd/2018 6. In ITA No.1116/Hyd/2018, the only grievance of the assessee is that both the TPO and CIT(A) have erred in not considering the assessee s objections to Tasty Bit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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