Essar Steel Limited vs. ACIT (ITAT Mumbai)

S. 263: Assessment order following binding TPO’s order is not “erroneous or prejudicial”. Doubt raised whether TPO’s order can at all be revised u/s 263

The assessee sold equity shares held by it in PT Essar, Indonesia, to Essar Global Ltd, Mauritius, and claimed a capital loss of Rs. 19 crores by adopting the NAV method for computing the sale price. The TPO rejected the NAV method and held that the PE method was the appropriate method. He recomputed the ALP and reduced the capital loss to Rs. 7.41 crores. The AO passed an assessment order in conformity with the TPO’s order. The TPO thereafter submitted a proposal to the DIT which was forwarded to the CIT that the average of the NAV & PE method should have been adopted instead of the PE method to compute the capital loss and that the TPO’s order be revised u/s 263. However, instead of revising the TPO’s order, the CIT passed an order u/s 263 holding that the assessment order was erroneous and prejudicial to the interests of the revenue. On appeal by the assessee to the Tribunal, HELD:

(i) While the TPO proposed, in his application to the DIT/CIT that s. 92CA(3) order be considered for revision, the CIT revised the assessment order passed u/s 143(3). This action of the CIT is not appropriate because as so long as the TPO’s s. 92CA(3) is not revised, it is binding on the AO u/s 92CA(4). There is no fresh reference to the TPO nor is there any revised order of the TPO. As, in the assessment order, the AO followed the binding order of the TPO, there is no error in the assessment order capable of revision (Sun Microsystems (ITAT Bang) distinguished on the ground that at that the AO was not bound by the TPO’s order);

(ii) The issue whether the TPO’s order could be revised by the CIT or by the DIT is not considered as it does not arise in the present case though as the CIT has no administrative jurisdiction over the TPO, he could not have revised the s. 92CA(3) order passed by the TPO. There seems to be no clarity about the authority competent to modify the TPO’s order in case it is is prejudicial to the interests of the revenue. The CIT cannot exercise jurisdiction over the TPO as the TPO functions separately under the DIT (TP). The DIT should have initiated the s. 263 proceedings himself instead of sending a proposal to the CIT for revising the TPO’s order though the question would also arise whether the DIT can revise an order which he himself has approved as per the Board’s Circular;

(iii) Further, the issue as to whether the TPO ought to have adopted the NAV method or the PE method or an average of the two is a debatable issue on which two opinions are possible. If the AO/TPO has taken a possible view, the order cannot be branded erroneous merely because the CIT feels that the other view should have been taken (Max India 295 ITR 282 (SC) followed).