Tetra Pak India Pvt.Ltd., Pune V. CIT-IV, Pune

ITA 733/PUN/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0444 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-04-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 27-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Revision of order; Depreciation; Transfer pricing; Prejudicial to interest; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 72; 13

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , ! , # $ BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.733/PN/2011 & & / ASSESSMENT YEAR : 2005-06 TETRA PAK INDIA PRIVATE LIMITED MAYFAIR TOWERS, GROUND FLOOR, MUMBAI PUNE ROAD, SHIVAJINAGAR, PUNE 411 005. PAN NO.AAACT 3467 B. . / APPELLANT V/S COMMISSIONER OF INCOME - TAX IV, PUNE. . / RESPONDENT / APPELLANT BY : SHRI SUNIL PATHAK & SHRI NIKHAL PATHAK / RESPONDENT BY : SHRI S.K. RASTOGI ' / ORDER PER ANIL CHATURVEDI, AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX-IV (CIT), PUNE DATED 29.03.2011 FOR THE ASSESSMENT YEAR 2005-06 PASSED UNDE R SEC.263 OF THE I.T. ACT. / DATE OF HEARING : 07.11.2016 / DATE OF PRONOUNCEMENT: 18.11.2016 2 ITA NO.733/PN/2011 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER :- 2.1 THE ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF PACKAGING MATERIAL, PACKAGING MACHINES AND SYSTEMS. IT ALSO LEASES PACKAGING MACHINERY AND SPARE PARTS THEREOF. ASSESSEE FILED ITS RE TURN OF INCOME FOR A.Y. 2005-06 ON 31.10.2005 DECLARING TOTAL INCOME OF RS.NIL AFTER SET OFF OF BROUGHT FORWARD LOSSES. THE CASE W AS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SEC.143(3) VIDE ORDER DT.10.12.2008 AND THE TOTAL INCO ME, BEFORE SET OFF OF BROUGHT FORWARD LOSSES, WAS DETERMINED AT RS.28,32,96,698/-. THEREAFTER, ON EXAMINATION OF THE ASSESSM ENT RECORDS, THE LEARNED CIT ON THE BASIS OF THE PROPOSAL SU BMITTED BY THE ADDL.CIT, NOTICED THAT WHILE COMPUTING THE ARMS LEN GTH PRICE (ALP) NO ADJUSTMENT ON ACCOUNT OF EXIST COST OF TBA-10 MACHINES WAS MADE IN THE ORDER BY THE AO. ACCORDING TO HIM, THE ADJUSTMENT ON ACCOUNT OF EXIST COST OF TBA-10 FILLING MAC HINES WHILE COMPUTING THE ARMS LENGTH PRICE (ALP) WAS NOT A LLOWABLE AND WAS ALSO WITHOUT ANY DISCUSSION. APART FROM THE AFORES AID ADJUSTMENT, HE WAS OF THE VIEW THAT CLAIMS MADE BY THE ASSESSEE AND THAT WERE ALLOWED BY THE AO IN RESPECT OF DEPRECIAT ION, AMORTIZATION AND IMPAIRMENT AS PER ACCOUNTS, LOSS ON SALE OF ASSETS, ETC., REQUIRED VERIFICATION AND ADDITION, IF ANY ON THE ISSUE. HE WAS, THEREFORE, OF THE VIEW THAT THE ORDER DTD 10.12.20 08 PASSED BY A.O. U/S 143(3) OF THE ACT WAS PREJUDICIAL TO THE INTEREST OF REVENUE AND THEREFORE REQUIRE REVISION UNDER SEC.263 O F THE ACT. HE ACCORDINGLY ISSUED NOTICE TO THE ASSESSEE ASKING TO SHOW CAUSE 3 ITA NO.733/PN/2011 AS TO WHY APPROPRIATE ORDER UNDER SEC.263 OF THE ACT BE NOT PASSED. 3. IN RESPONSE TO NOTICE U/S 263 OF THE ACT, ASSESS EE INTER ALIA SUBMITTED THAT THE INFERENCE DRAWN BY CIT ON ACCOUNT OF IMPROPER ADJUSTMENT ON ARMS LENGTH PRICE AND OTHER ISSUES WAS NOT CORRECT AND FURTHER THE ASSESSEE HAD FILED ALL THE RE QUIRED DETAILS BEFORE TPO AND AO AND AFTER CONSIDERING THE SUBMI SSIONS THE ORDER WAS PASSED. ASSESSEE ALSO INTER ALIA OBJECTED TO THE INITIATION OF THE PROCEEDINGS UNDER SEC.263 OF THE ACT AND SUBMITTED THAT THE INITIATION OF THE PROCEEDINGS U/S 263 WAS BAD IN LAW. THE SUBMISSIONS OF THE ASSESSEE WAS NOT FOUND ACC EPTABLE TO THE LD. CIT. HE THEREAFTER VIDE ORDER DATED 29.3.2011 , DIRECTED THE A.O. TO TREAT THE EXIST COST RELATED TO REPLACEM ENT OF OLD TBA-10 PACKING MACHINES WITH THAT OF NEW MACHINES AS NO RMAL OPERATING EXPENSES AND NOT AS AN EXTRA ORDINARY OR NO N OPERATIONAL EXPENSES AND ACCORDINGLY MADE ADDITION OF RS.12,66,65,008/- HE ALSO DIRECTED THE A.O. TO VERIFY THE O THER EXPENSES WHICH DID NOT FIGURE IN THE ASSESSMENT ORDER PA SSED UNDER SEC.143(3). 4. AGGRIEVED BY THE ORDER OF THE LEARNED CIT, ASSESSEE IS NOW IN APPEAL BEFORE US. ASSESSEE, VIDE LETTER DATED 3 RD MAY 2013 REVISED THE GROUNDS OF APPEAL AND ALSO RAISED THE ADDITION AL GROUNDS. FOR ADMISSION OF ADDITIONAL GROUNDS IT WAS SUBMITTE D THAT THE ADDITIONAL GROUNDS DOES NOT NEED ANY FRESH VER IFICATION OF FACTS AND THEREFORE THE SAME BE ADMITTED. THE ABRIDGED G ROUNDS AND ADDITIONAL GROUNDS READ AS UNDER : 4 ITA NO.733/PN/2011 ABRIDGED GROUNDS: 1. THE LEARNED CIT ERRED IN HOLDING THAT THE ASSESSMENT ORDER U/S 143(3) IS ERRONEOUS AND PREJUDICIAL TO THE REVENUE. 2. THE LEARNED CIT FAILED TO APPRECIATE THAT A. THE APPELLANT HAD SUBMITTED TO THE TPO THAT EXIT COST OF RS.12,66,65,008/- WAS NOT CONSIDERED WHILE CALCULATING NET OPERATING MARGIN AND THE TPO HAD CONSIDERED THIS ISSUE WHILE CALCULATING THE ALP. B. THE TPO HAD APPLIED MIND, CONSIDERED ALL FACTS WHILE DETERMINING THE ALP AND THE A.O., HAS FOLLOWED THE TPOS ORDER AND THUS, THERE WAS NO ERROR IN THE ASSESSMENT ORDER WHICH WARRANTED REVISION U/S.263. 3. THE LEARNED CIT ERRED IN DIRECTING THE A.O. TO TREAT THE EXIT COST OF RS.12,66,65,008/- AS OPERATING EXPENDITURE FOR COMPUTING THE OPERATING MARGIN OF THE APPELLANT FOR TP PURPOSES WITHOUT APPRECIATING THE NATURE OF THIS EXPENDIT URE. ADDITIONAL GROUNDS: 4. THE ORDER U/S 263 REVISING THE ASSESSMENT ORDER U/S 143(3) IS BAD IN LAW AS IT IS PASSED FOR CORRECTING AN ALLEGED E RROR IN THE ORDER OF THE TPO U/S 92CA(3) AND THE CIT HAS NO JURIS DICTION TO REVISE THE ORDER PASSED BY THE TPO U/S 92CA(3). 5. THE LEARNED CIT FAILED TO APPRECIATE THAT THE A.O. WAS BOUND TO FOLLOW THE ORDER OF THE TPO U/S 92CA(3) WHILE MAKING THE ASSESSMENT U/S 143(3) AND THERE WAS NO ERROR IN THE ASSESSMENT ORDER U/S 143(3) AND THEREFORE, THE REVISI ON ORDER U/S 263 IS BAD IN LAW. 6. THE ASSESSEE SUBMITS THAT THE LEARNED CIT HAS ERRED I N REVISING THE ASSESSMENT ORDER ON THE ISSUE OF DETER MINATION OF ARMS LENGTH PRICE WITHOUT APPRECIATING THAT THE SAID ISSUE WAS BEING AGITATED BY THE ASSESSEE BEFORE THE LEARNED CIT (A) AND HENCE, THE LEARNED CIT HAD NO JURISDICTION TO PAS S REVISION ORDER U/S 263. 7. THE APPEAL CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE A NY OF THE ABOVE GROUNDS OF APPEAL. 8. BASED ON THE FACTS OF THE CASE AND IN LAW, THE LEARNE D COMMISSIONER OF INCOME TAX (CIT) HAS ERRED IN ASSUMI NG THE JURISDICTION UNDER SECTION 263 OF THE ACT TO REVISE THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER (AO) UNDER SE CTION 143(3) R.W.S 92C(3)/(4) OF THE ACT. SUCH ORDER WHICH I S PASSED AFTER CONSIDERING THE ORDER PASSED BY THE LEARNED TR ANSFER PRICING OFFICER DETERMINING ARMS LENGTH PRICE CANNOT BE CONSIDERED ERRONEOUS AND PREJUDICIAL TO INTEREST OF THE REVENUE. 9. FURTHER, THE COMMISSIONER OF INCOME-TAX IV, PUNE ERRE D IN EXERCISING THE JURISDICTION UNDER SECTION 263 OF TH E ACT OVER 5 ITA NO.733/PN/2011 THE LEARNED TRANSFER PRICING OFFICER AS ADMINISTRATI VELY THE LEARNED TRANSFER PRICING OFFICER FUNCTIONS SEPARATEL Y UNDER THE DIRECTOR OF INTERNATIONAL TAX (DIT). 5. THE LD. DR DID NOT OBJECT TO THE FILING OF ADDITIONAL GROUND BY THE ASSESSEE. AFTER CONSIDERING THE SUBMISSION S OF THE LD AR, WE ADMIT THE ADDITIONAL GROUNDS. 6. BEFORE US LD.A.R. SUBMITTED THAT HE DOES NOT WISH TO P RESS GROUND NO.6. IN VIEW OF THE AFORESAID SUBMISSION, WE DISMISS THE GROUND. 7. AT THE TIME OF HEARING AND AT THE OUTSET, LD. A.R SUBMITTED THAT THOUGH ASSESSEE HAS RAISED VARIOUS GROU NDS BUT THE SOLE CONTROVERSY WHICH IS TO BE DECIDED IS ABOUT THE INVOKING OF REVISIONARY POWERS UNDER SEC.263 OF THE ACT. 8. BEFORE US, THE LD. AR SUBMITTED THAT IN THE PRESENT CASE THE PRE-REQUISITE CONDITIONS UNDER SEC.263 OF THE AC T WERE NOT SATISFIED AND THEREFORE, THE PROCEEDINGS INITIATED U/S 263 O F THE ACT LACKS JURISDICTION AND ARE BAD-IN-LAW. HE FURTHER SUBMITTED THAT THE MAIN REASON FOR INVOKING THE PROCEEDINGS U/S 263 BY CIT WAS THAT ACCORDING TO HIM THE ALP WAS NOT CORRECTLY DETER MINED. HE SUBMITTED THAT FOR EXAMINATION OF THE ALP TRANSACTIONS, TH E ASSESSEE WAS DIRECTED BY THE TPO TO FURNISH THE NECESS ARY EXPLANATIONS AND EVIDENCES. AFTER MAKING THE NECESSARY INQ UIRIES AND EXAMINING THE FACTS AND EVIDENCES THAT WERE SUBMITTE D BY THE ASSESSEE, TPO HAD PASSED THE ORDER UNDER SEC.92CA(3) OF THE ACT WHEREIN HE DIRECTED THE INCREASE IN INCOME TO THE EXTENT OF RS.27,75,44,805/- BE MADE ON ACCOUNT OF ADJUSTMENT TO A LP. 6 ITA NO.733/PN/2011 LD. A.R. THUS SUBMITTED THAT TPO WHILE MAKING AN UPWARD ADJUSTMENT TO THE INCOME, HAD EXAMINED ALL THE ISSUES RE LATED TO IT. HE THEREFORE SUBMITTED THAT ONCE THE ISSUE HAS BEEN EXAMINED BY THE TPO, THEN NO REVISION IS POSSIBLE U/S 263 OF THE AC T. ON THE MERITS OF THE ISSUE OF ALLOWABILITY OF EXIST COST WHILE COMP UTING THE OPERATING PROFIT HE SUBMITTED THAT TETRA LEVEL GROUP WORLD-WIDE HAD DISCONTINUED THE PRODUCTION OF TBA-10 FILING MACHINES AN D ITS SPARE PARTS DUE TO TECHNOLOGICAL OBSOLENCE. IN THE PAS T, ASSESSEE HAD SOLD/LEASED TBA-10 FILING MACHINES TO ITS CUSTOMERS IN INDIA AND WAS MAKING SIGNIFICANT SALES OF PACKAGING MATERIAL TO TH OSE CUSTOMERS. AS THE SUPPLY OF THE SPARES AND TECHNICAL SU PPORT FOR MACHINES AND UPKEEP OF THE EXISTING OF TBA-10 WOULD NOT B E AVAILABLE IN THE FUTURE AND HAD THE ASSESSEE NOT REPLACED THE MACHINES, THERE WAS A POSSIBILITY THAT THE ASSESSEE WOULD HAVE LOST OUT ON THE SALE OF PACKAGING MATERIAL USED BY THOSE CUS TOMERS ON THE TBA-10 FILING MACHINES. THE ASSESSEE, THEREFORE TOOK D ECISION TO WITHDRAW THE SAID TBA-10 FILING MACHINES FROM THE CUSTOM ERS AT SOME PRE-DETERMINED VALUE AND REPLACED IT WITH LATEST TEC HNOLOGY TBA-10 FILING MACHINES WITH HIGHER PRODUCTION CAPACITIES BY OFFERING SPECIAL DISCOUNTS ON THE VALUE OF THOSE ON THE NEW MACHINES. THIS BUSINESS DECISION WAS TAKEN SO THAT THE ASSESSEE COULD CONTINUE TO SELL PACKAGING MATERIAL TO THOSE CUSTOME RS BECAUSE ONLY THE PACKAGING MATERIAL SOLD BY THE ASSESS EE COULD BE USED ON THOSE MACHINES. IT WAS FURTHER SUBMITTED THAT IF THE ASSESSEE HAD NOT SUBSIDIZED THE COST OF THE LATEST TEC HNOLOGY FILING MACHINES, THERE WAS A RISK OF ASSESSEE LOSING OUT ITS PA CKAGING BUSINESS FROM THE CUSTOMERS AS THE CUSTOMERS WOULD HAV E SHIFTED TO ALTERNATIVE MEDIUMS OF PACKAGING PROVIDED BY OTHER SU PPLIERS AND THAT IN THE LONG RUN IT WOULD HAVE BEEN DETRIMENTAL TO THE 7 ITA NO.733/PN/2011 BUSINESS OF THE ASSESSEE. THE COST FOR WITHDRAWING THE FILLIN G MACHINES THAT WERE SOLD AND THE REPLACEMENT COST OF NEW SUITABLE MACHINES AMOUNTING TO RS.12,66,65,008/- WAS BASICALLY THE DISCOUNTS GIVEN TO CUSTOMERS ON THE NEW MACHINES AND W RITE OFF THE MACHINES ON LEASE THAT WERE WITHDRAWN IN CONSONANCE WITH T HE AGREEMENTS OF THE CUSTOMERS. HE SUBMITTED THAT THIS EX PENDITURE WAS DISCLOSED AS AN EXCEPTIONAL ITEM IN THE PROFIT AND LO SS ACCOUNT AND SINCE IT HAS NOT BEEN INCURRED ON A REGULAR BASIS AND IT BEING OF AN EXTRA ORDINARY NATURE, IT WAS RIGHTLY EXCLUD ED WHILE COMPUTING THE OPERATING PROFITS. HE SUBMITTED THAT THE A FORESAID EXPLANATIONS WERE GIVEN TO TPO DURING THE COURSE OF PROC EEDINGS BEFORE HIM AND THE EXPLANATION WAS FOUND ACCEPTABLE TO TH E TPO BECAUSE NO ADJUSTMENT WAS MADE BY HIM ON THIS ACCOUNT WHILE MAKING AN UPWARD ADJUSTMENT MEANING THEREBY THAT TPO HAD TAKEN A CONSCIOUS DECISION TO EXCLUDE IT. IN SUPPORT OF T HE SUBMISSION THAT THE REQUIRED DETAILS WERE FURNISHED BEFORE TPO, HE POINTED TO THE RELEVANT SUBMISSIONS AND EXPLANATIONS MADE BEFORE TPO AND WHICH ARE PLACED IN THE PAPER BOOK. FURTHER IN SUPPORT OF HIS CONTENTION THAT THE EXTRAORDINARY ITEMS WERE RIGHT LY EXCLUDED WHILE CALCULATING OPERATING MARGINS, HE RELIED ON THE FOLLOWING DECISIONS. 1. TRANSWITCH INDIA PVT. LTD V DCIT (2013) 151 TTJ 0177 (DELHI TRIBUNAL). 2. MARUBENI INDIA PVT. LTD V DIRECTOR OF INCOME TAX (2013) 354 ITR 0638 (DELHI). 3. SKODA AUTO INDIA (P) LTD. V ACIT (2009) 122 TTJ 0699 (PUNE TRIBUNAL). 4. CAPEGEMINI INDIA PVT. LTD. V ACIT (2013) 27 ITR (TRIB) 0074 (MUMBAI). 8 ITA NO.733/PN/2011 9. LD ARS NEXT ARGUMENT WAS THAT PURSUANT TO THE ORDER OF TPO THAT WAS PASSED UNDER SEC.93CA(3), THE A.O. HAD F RAMED ASSESSMENT ORDER UNDER SEC.143(3). HE SUBMITTED THAT S INCE THE ADJUSTMENTS THAT WERE DETERMINED BY TPO ARE BINDING ON THE A.O. IN TERMS OF PROVISIONS OF SEC.92CA(4) OF THE I.T. ACT, THE AO HAD RIGHTLY FOLLOWED THE ADJUSTMENTS DIRECTED BY THE TPO. SINCE THE A O HAD MERELY FOLLOWED THE ADJUSTMENTS AS DETERMINED BY TP O, THERE IS NO MISTAKE IN THE ORDER OF THE A.O. AND IN SUCH A SITUA TION PROCEEDINGS U/S 263 CANNOT BE INVOKED AND FOR THIS PROP OSITION HE RELIED ON THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF ES SAR STEEL LIMITED VS. ADDL.CIT REPORTED IN (2013) 152 TTJ 265. HE ALSO PLACED RELIANCE ON THE DECISION IN THE CASE OF TATA COMMUNICATIONS LTD., VS. DCIT IN ITA TP NO.2131/MUM/2013 ORDER DT.20.12.2013. HE ALSO PLACED ON RECORD THE COPY O F THE AFORESAID DECISION. 10 . LD ARS NEXT ARGUMENT WAS THAT EVEN IF IT IS PRESUMED (THOUGH NOT ADMITTED) THAT THERE IS ANY MISTAKE IN THE OR DER, THE MISTAKE IS IN THE ORDER OF TPO. HE SUBMITTED THAT THE OR DER OF TPO HAS ATTAINED FINALITY AND HAS NOT BEEN MODIFIED / AMENDED. HE FURTHER SUBMITTED THAT AS PER THE INSTRUCTIONS OF CBDT, T PO HAS TO PASS ORDER AFTER OBTAINING APPROVAL FROM DIT(TP). HE SUBM ITTED THAT IN THE PRESENT CASE THE ORDER U/S 92CA(3) HAS BEEN PASSED BY THE TPO AFTER OBTAINING APPROVAL OF DIT(TP). IT THUS W OULD MEAN THAT, DIT(TP) HAD FULL KNOWLEDGE OF THE CONTENTS OF TH E ORDERS PASSED BY TPO. HE SUBMITTED THAT FOR EXERCISING REVISIONA L REMEDY U/S 263 OF THE ACT, AN ORDER TO BE REVISED BY COMMISS IONER MUST BE ONE WHICH IS MADE BY THE AUTHORITY BELOW THE RANK OF COMMISSIONER AND SINCE DIT(TP) UNDER WHOSE DIRECTIONS T HE TPO 9 ITA NO.733/PN/2011 HAS PASSED THE ORDER, IS OF THE SAME RANK AS OF CIT, CI T HAS NO JURISDICTION FOR REVIEW OF THE ORDER OF TPO AND FOR THIS PRO POSITION HE RELIED ON THE DECISION IN THE CASE OF R. SRINIVAS VS. DC IT REPORTED IN (2014) 368 ITR 471 (MADRAS) AND THE DECISION O F PUNE TRIBUNAL IN THE CASE OF J.R. AGARWAL VS. ECIT REPORTED IN (20 06) 7 TTJ 72 PUNE. 11. AS FAR AS THE OTHER ISSUES LIKE DEPRECIATION, AMORTIZATION ETC IS CONCERNED, HE SUBMITTED THAT ON THOS E ISSUES NO ERROR REQUIRING REVISION HAS BEEN POINTED OUT BY LD CIT. 12. LD. A.R. THEREFORE SUBMITTED THAT CONSIDERING THE FACT S OF THE CASE FROM ANY ANGLE, THE ORDER PASSED BY THE LD . CIT NEEDS TO BE SET ASIDE BOTH ON THE GROUNDS OF JURISDICTION AND EVEN ON MERITS. LD. DR ON THE OTHER HAND SUPPORTED THE ORDER OF A.O. AND CIT (A) AND FURTHER SUBMITTED THAT THE PROPOSAL FOR REVISIO N UNDER SEC.263 ORIGINATED ON THE BASIS OF PROPOSAL SUBMITTED BY ADDL.CIT AND THE BASIS FOR SUCH PROPOSAL WAS THE ORDER PASSED FO R A.Y.2006-07 AND THAT THERE IS NO INFIRMITY IN THE ORDER OF L D CIT. HE THUS, SUPPORTED THE ORDER OF CIT. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS ABO UT THE INVOKING THE PROVISIONS OF SEC.263 OF THE LD. CIT. 14. SECTION 263(1) OF THE ACT, THE POWERS UNDER WHICH TH E LD CIT HAS ASSUMED POWERS FOR REVISION READS AS UNDER: THE COMMISSIONER MAY CALL FOR AND EXAMINE THE RECOR DS OF ANY PROCEEDINGS UNDER THIS ACT AND IF HE CONSIDE RS THAT ANY ORDER PASSED THEREIN BY THE ITO IS ERRONEOUS IN SO FAR 10 ITA NO.733/PN/2011 AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENU E, HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING H EARD AND AFTER MAKING PR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, INCLUDING AN ORD ER ENHANCING OR MODIFYING THE ASSESSMENT OR CANCELING THE ASSESSMENT AND DIRECTING FRESH ASSESSMENT 15. THE READING OF THE ABOVE PROVISIONS MAKES IT VERY CLE AR THAT THE POWER OF SUO MOTU REVISION U/S 263(1) IS IN THE NATURE OF SUPERVISORY JURISDICTION AND THE SAME CAN BE EXERCISED O NLY IF THE CIRCUMSTANCES SPECIFIED THEREIN EXIST. TWO CIRCUMSTANCES MU ST EXIST TO ENABLE THE COMMISSIONER TO EXERCISE POWER U/S 2 63 NAMELY (I) THE ORDER IS ERRONEOUS (II) BY VIRTUE OF BEING ERRO NEOUS, PREJUDICE HAS BEEN CAUSED TO THE INTEREST OF THE REVENUE. 16. IN THE PRESENT CASE, IT IS SEEN THAT THE PROVISIONS OF SEC.263 HAS BEEN INVOKED BY LEARNED CIT MAINLY FOR THE REASON THAT EXIST COST OF TBA-10 MACHINES WHICH WAS CONSIDE RED BY ASSESSEE AS AN EXTRAORDINARY ITEM AND THEREFORE NOT CO NSIDERED AS PART OF OPERATING PROFIT, WAS ALLOWED WITHOUT ANY DISCUSSION . THE OTHER REASON FOR INVOKING PROVISIONS OF SEC.263 OF THE ACT WAS THAT THE ASSESSEES CLAIM IN RESPECT OF DEPRECIATION, AMORTIZAT ION AND IMPAIRMENT, LOSS OF SALE ON ASSETS ETC. NEEDS VERIFICATION AND ADDITION, IF ANY. 17. IN THE PRESENT CASE, WE FIND THAT THE ASSESSEE HAD FOLLOWED TNMM METHOD AND THE PROFIT LEVEL INDICATOR (PLI) W AS COMPUTED AS OPERATING PROFIT TO OPERATING REVENUE AT 1.8 2 %. TPO HAD SHOW CAUSED THE ASSESSEE AND ASKED TO JUSTIFY ITS WORKING. AFTER CONSIDERING THE MATERIAL BEFORE HIM AND AFTER TAKING IN TO CONSIDERATIONS THE SUBMISSIONS OF THE ASSESSEE, TPO REWOR KED OPERATING PROFIT MARGIN OF 1.51% AND THEREAFTER DETERMINED THE 11 ITA NO.733/PN/2011 UPWARD ADJUSTMENT TO THE ALP OF THE INTERNATIONAL TRANS ACTIONS AT RS 27,75,44,805/- IN THE ORDER PASSED U/S 92CA(3). A.O. AFTE R CONSIDERING THE ORDER PASSED BY TPO U/SEC.92CA(3) MADE A DDITION OF THE AMOUNT THAT WAS DIRECTED BY THE TPO. THUS, ON PERUSING THE ORDER OF TPO AND THE SUBMISSION MADE BY THE ASSESS EE BEFORE TPO, IT IS SEEN THAT THE SUBMISSION OF ASSESSEE WITH RESP ECT 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 THE HONBLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL COMPANY LTD., (200 0) 243 ITR (SC) WHEREIN THE HONBLE APEX COURT HAS HELD THAT C IT 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 ER RONEOUS PREJUDICE HAS BEEN CAUSED TO THE INTERESTS OF THE REVE NUE FOR INVOKING THE PROVISIONS OF SEC.263. IF ONE OF THEM IS ABS ENT IF THE ORDER OF ITO IS ERRONEOUS BUT IS NOT PREJUDICIAL TO T HE INTEREST OF REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO T HE INTEREST OF REVENUE - RECOURSE CANNOT BE HAD TO SEC.263(1). IT H AS FURTHER HELD THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE A.O. WHEN ITO ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE ITO HA D TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE R EVENUE UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. WE ALSO FIND THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V S, GABRIEL INDIA LTD. (1993) 203 ITR 108 (BOM) HAS OBSERVED THAT T HE SECTION DOES NOT VISUALIZE A CASE OF SUBSTITUTION OF THE JUDGMENT OF THE 12 ITA NO.733/PN/2011 COMMISSIONER FOR THAT OF THE ITO WHO PASSED THE ORDER U NLESS THE DECISION IS HELD TO BE ERRONEOUS. 18. IN THE PRESENT CASE, THE AO HAD PASSED ORDER U/S 143(3) AND WITH RESPECT TO THE ADJUSTMENTS TO THE INTER NATIONAL 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 PR OVISIONS 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 P ASSED 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 R EVISED OR THE ORDER WAS NOT IN EXISTENCE WHEN AO PASSED THE ORD ER U/S 143(3) OF THE ACT. THEREFORE IN THE PRESENT CASE, SINCE TH E 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 DT.10.12.2008 PASS ED BY THE A.O., U/S143(3) OF THE ACT. WE FURTHER FIND THAT CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TATA COMMUNICATIONS LIMITED VS. DCIT (SUPRA) AFTER FOLLOWING THE DECISIONS OF THE CO-ORDINATE BENCH IN THE CASE OF ESSAR STEELS LIMITED VS. DCIT SAID (SUPRA), H AS HELD THAT COMMISSIONER CANNOT EXERCISE THE REVISIONARY JURISDIC TION UNDER SEC.263 ON THE ORDER PASSED UNDER SEC.92CA(3) BY THE TPO. IT FURTHER HELD THAT ONCE THE COMMISSIONER CANNOT EXERC ISE JURISDICTION, THEN THE ORDER PASSED BY THE A.O., CANNOT BE SET ASIDE AS THE ORDER OF THE TPO UNDER SEC.92CA(4) IS BINDING ON TH E A.O. ON THE MERITS OF THE CASE OF EXCLUDING EXIST COST WHILE COMPUTING THE OPERATIONAL MARGIN, BEING OF AN EXTRA-ORDINARY AND EX CEPTIONAL 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 HONBLE DELHI 13 ITA NO.733/PN/2011 HIGH COURT IN THE CASE OF MARUBENI INDIA PVT. LTD VS DIT REPORTED IN (2013) 354 ITR 638 (DEL), WHEREIN THE HONBLE DELHI HIGH COU RT HAS UPHELD THE EXCLUSION OF PAYMENT OF COMPENSATION FOR CLOSURE OF INDIAN UNITS BY THE ASSOCIATED ENTERPRISE BY CONSIDERIN G IT TO BE AN ABNORMAL ITEM OF EXPENSES AND EXCLUDING IT WHILE COMPUT ING OPERATING PROFITS. WE ARE OF THE VIEW THAT THE RATIO OF TH E AFORESAID DECISION IS SQUARELY APPLICABLE TO THE PRESENT CASE. 19. BEFORE US, THE REVENUE HAS NOT PLACED ANY CONTRARY BINDING DECISION NOR HAS BROUGHT ANY MATERIAL ON RECORD T O DEMONSTRATE THAT THE VIEW TAKEN BY THE A.O. WAS CONTRA RY TO LAW OR WAS AN IMPERMISSIBLE VIEW OR WAS UPON APPLICATION OF WRONG LE GAL PRINCIPLES AND THEREFORE REQUIRED INITIATING THE EXERCISE OF REVISIONARY POWERS UNDER SEC.263. IN VIEW OF THE AFORESAI D FACTS, WE ARE OF THE VIEW THAT IN THE PRESENT CASE THE CIT WA S NOT JUSTIFIED IN RESORTING TO THE REVISIONARY POWERS UNDER SEC.263 OF T HE ACT. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT CANCELING T HE ORDER DT.10.12.2008 PASSED UNDER SEC.143(3) OF THE ACT. THUS, TH E GROUNDS OF THE ASSESSEE ARE ALLOWED. 20. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 18 TH DAY OF NOVEMBER, 2016. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) / JUDICIAL MEMBER # / ACCOUNTANT MEMBER PUNE; ! DATED : 18 TH NOVEMBER, 2016. YAMINI 14 ITA NO.733/PN/2011 ' ( ) *+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. CIT - IV, PUNE 4. 5. 6. ADDL.CIT, R-7, PUNE #$% &&'(, * '(, A / DR, ITAT, A PUNE; %+, - / GUARD FILE ' / BY ORDER , // TRUE COPY // // //// /////TUE COPY / //TRUE CO ./0 &1 '2 / SR. PRIVATE SECRETARY * '( , / ITAT, PUNE