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TMI Blog2024 (12) TMI 626X X X X Extracts X X X X X X X X Extracts X X X X ..... called the invocation of section 263 provisions at this stage as premature since the assessment order is yet to be passed and there is no 'proceeding' existent as on date. Since the TPO order has not attained finality on account of pendency of DRP proceedings, invocation of section 263 proceeding is premature." 3. That on facts and in law the order passed by the CIT u/s 263 is bad in law as it grossly violates applicable rules of natural justice in as much as inter alia: (a) not providing an opportunity of being heard in person, (b) passing the impugned order in haste (c) not allowing the appellant adequate time to prepare and represent. has thereby violated the settled principles. 4. That on facts and in law the CIT has erred in cancelling order dated 25th July 2023 passed by the TPO and directing the TPO to pass the order afresh. 5. That on facts and in law the CIT has erred in holding that order dated 25th July 2023 passed by the Addl/JCIT TP 2(3) - Mumbai {hereinafter referred to as "TPO"} is erroneous and prejudicial to the interest of revenue. 6. That on facts and in law the CIT has erred in holding that TPO has accepted Arm's Length Price of International T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made in this case and, therefore, such an error is erroneous in so far as it is prejudicial to the interest of the Revenue. 7. The ld. CIT(TP) went on to cancel the order of the TPO dated 23.07.2023 and directed the TPO to pass order afresh after examining available record and after making necessary enquiries as deemed fit for determination of arm's length price of international transactions of the assessee. 8. Before us, the assessee assailed the order of the ld. CIT(TP) questioning the very assumption of jurisdiction u/s 263 of the Act. It is the say of the ld. counsel for the assessee that the order of the TPO has not attained finality and, therefore, assumption of jurisdiction in respect of an order which has not attained finality is bad in law. 9. The ld. counsel for the assessee vehemently stated that after the TPO frames the order, the Assessing Officer passes a draft assessment order for which the assessee has an option to object before the DRP and if no objection is raised, the Assessing Officer frames the final assessment order against which the assessee can prefer an appeal before the ld. CIT(A). 10. It is the say of the ld. counsel for the assessee that in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer 92[or the Transfer Pricing Officer, as the case may be,] had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the* Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,- (a)the order is passed without making inquiries or verification which should have been made;(b)th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic replies or not. 14. Under Rule 10- D of the Rules, every person who has entered into an international transaction shall keep and maintain information/ documents as mentioned therein and the assessee is required to substantiate on the basis of material available with him that income arising from international transactions entered into by him has been computed in accordance with section 92 of the Act. 15. Transfer Pricing proceedings start with TP study report and on the basis of TPSR, TPO conducts enquiry. In our considered opinion, there is no presumption that the officer proceeds on wrong facts. 16. Considering the relevant rule, read with relevant provision of the Act, the nature of enquiry of the TPO depends upon the requirements mentioned therein. In our considered opinion, past history of the assessee also helps the TPO to conduct enquiry and in the case of the assessee, since 2015, TPSR has been accepted as such and since there was no assumption of jurisdiction by the CIT(TP) since 2015, enquiry conducted by the TPO was in line with the past history of the assessee. 17. The entire case of the revenue revolves around the following: "3.1 The assessee company is primari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nized in the books on account related to sale of goods to AEs. Any suppression of revenue in the books may lead to reduction of tax liability of the assessee and profit shifting out of India. 3.5 In the FAR analysis done in the TP study report, assessee has characterized itself as a manufacturer of SIM cards and Smart cards bearing routine risk. However, in the submission dated 29.06.2023, the assessee has characterized itself as a contract manufacturer bearing limited risk. The assessee has also submitted that there is no written agreement between the assessee and AEs for supply of products manufactured by the assessee and same is governed by long-lasting business relationship. However, as discussed, the assessee is earning a dictated mark-up as provided in the Group Transfer Pricing Policy. Therefore, it is seen that the mark-up charged by the assessee has been deliberately kept low and not commensurate with the FAR profile of the assessee. The actual characterization of assessee in respect of sales of manufactured goods was required to be determined based on correct FAR analysis. However, the TPO did not called for sufficient evidences to ascertain actual functions performed, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments. Vide notice dated 02.09.2022, the TPO directed the assessee to explain with documentary evidences and relevant working a justification of its NCP Margin of 6.80% vis a vis its manufacturing activities. 22. The assessee filed detailed reply and explained that information sought is duly documented in the TP Study report. 23. After considering the reply of the assessee, vided notice dated 16.06.2023, the TPO specifically asked the assessee to clarify whether any value addition is done by the AEs to the product sold to the AEs before sale of such products to final customer. 24. The assessee replied that vis a vis AE sales, it is a contract manufacturer and explained the steps involved in the process of SIM manufacturing, collection of orders and making of sale. It was clarified that post manufacturing, no value addition is done by the AE other than packaging. 25. Vide notice dated 16.06.2023, the TPO also directed the assessee to furnish details of sales made to AE and non-AEs. Details were furnished by the assessee. 26. Apprehensions of the ld. CIT(TP) in his order have all been addressed by the TPO during his enquiries/investigations before framing the TP order. In our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not." 27. It would not be out of place to refer to the judgment of the Hon'ble High Court of Delhi in the case of CIT Vs Clix Finance India Pvt Ltd ITA 1428/2018 order dated 01.03.2024. The rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejudicial to the interests of the Revenue", in the following words:- "8. The phrase "prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy & Co. v. S.P. Jain [(1957) 31 ITR 872 (Cal)], the High Court of Karnataka in CIT v. T. Narayana Pai [(1975) 98 ITR 422 (Kant)], the High Court of Bombay in CIT v. Gabriel India Ltd. [(1993) 203 ITR 108(Bom)] and the High Court of Gujarat in CIT v. Minalben S. Parikh [(1995) 215 ITR 81 (Guj)] treated loss of tax as prejudicial to the interests of the Revenue. 9. Mr. Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Co. v. CIT [(1987) 163 ITR 129 (Mad)] interpreting "prejudicial to the interests of the Revenue". The High Court held: "In this context, (it must) be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the Income Tax Officer, which might set a bad trend or pattern for similar asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. It is further observed that if one of them is absent, recourse cannot be had to Section 263(1) of the Act. ***" 27. Considering the aforesaid judicial pronouncements, it can be safely concluded that inadequacy of enquiry by the AO with respect to certain claims would not in itself be a reason to invoke the powers enshrined in Section 263 of the Act. The Revenue in the instant case has not been able to make out a sufficient case that the CIT has exercised the power in accordance with law. Rather, in our considered opinion, the facts of the case do not indicate that the twin conditions contained in Section 263 of the Act are fulfilled in its letter and spirit." 28. The ld. DR has filed written submissions. We have carefully gone through the contents of the written submissions made by the ld. DR. We find that the ld. DR has submitted more or less the same thing which he has presented in his oral arguments. All the issues raised in the written submissions have been duly considered by us elsewhere. 29. Considering the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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