Tuesday 11 February 2014

S. 263: CIT cannot revise the TPO’s transfer pricing order passed u/s 92CA(3). CIT also cannot revise s. 143(3) order because such order is not erroneous if it follows binding order of TPO

Tata Communications Limited vs. DCIT (ITAT Mumbai)

The AO made a reference u/s 92CA(1) to the TPO for the computation of arm’s length price (“ALP”) in relation to the international transactions in AY 2005-06 & 2006-07. Pursuant thereto, the TPO passed an order u/s 92CA(3) proposing an adjustment of Rs. 12.19 crore for AY 2005–06 & Rs. 9.18 crore for AY 2006–07. The AO computed the income of the assessee in conformity with the ALP determined by the TPO. Thereafter, the CIT passed an order u/s 263 by which he held that the order passed by the TPO was erroneous and prejudicial to the interests of the revenue and that the s. 143(3) assessment order was also erroneous & prejudicial to the interests of the revenue. He set aside the assessment order with a direction to refer the issue of adjustment of arm length value of international transactions to the TPO for reconsideration and to pass an appropriate assessment order in view of the findings from the TPO. The assessee filed an appeal before the Tribunal in which it claimed that the CIT had no jurisdiction over the TPO administratively and, therefore, he could not have revised the order u/s 92CA(3) passed by the TPO and that, therefore, the s. 263 order was without jurisdiction. HELD by the Tribunal allowing the appeal:
The Commissioner cannot exercise revisionary jurisdiction u/s 263 on the transfer pricing order passed u/s 92CA(3) by the TPO. As regards the assessment order, it cannot be said to be “erroneous” because the AO is bound by the transfer pricing order u/s 92CA(4) is binding on the AO. Consequently, the CIT’s order is without jurisdiction (Essar Steels Ltd 152 TTJ 265 (Mum) followed)
Obiter: The Director of IT (DIT) has administrative jurisdiction over the TPO and could have revised the s. 92CA(3) order u/s 263. However, the issue is whether the DIT can call an order which he himself has approved as per the Board circular as being “erroneous

No comments:

Taxability of online games

Introduction: 1. Taxability of online winnings before the introduction of section 115BBJ of the Income Tax Act and section 194BA of the Inco...