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In the instant case, after due consideration of the evidence produced, including the order passed by the TPO, a draft order as provided under section 144C(1) was prepared and sent to the assessee.
The assessee filed an objection against the said draft order before the DRP. The DRP passed the order under section 144C(5) and directed the Assessing Officer (AO) to give effect to the directions contained in the said order. Thereafter, the assessment order had been passed under section 143(3) read with section 144C(13) based on the direction of the DRP.
The Commissioner initiated proceedings under section 263 on the ground that the assessment order passed by Assessing Officer was erroneous and prejudicial to the interest of revenue. Aggrieved-assessee filed the instant appeal before the Tribunal.
The Tribunal held that reading of section 263 shows that an order passed by the AO may be revised if the same is erroneous insofar as prejudicial to the interest of the revenue. Explanation 1(a) of section 263 also clarifies that the order of the AO in certain cases passed on the direction of certain superior officers can also be the subject matter of section 263.
However, said Explanation does not include the order passed under the direction of the DRP under section 144C(13). The Legislature in its wisdom has thought it appropriate to include orders passed by AO under direction under section 144A, but not under direction under section 144C(13).
The Commissioner in the given case seems to be quite conscious of this fact as he has mentioned on one of the issues, that AO has not properly followed the direction under section 144A. But, he is quite silent and has nowhere mentioned that the final assessment order is passed after the direction of the DRP.
It is apparent that members of the DRP are three in number and are individually equivalent in rank to the Commissioner, who is initiating proceedings under section 263 against the order passed pursuant to their direction.
Now as far as the equivalence of a single Commissioner to a collegium of 3 Commissioners is concerned, it is settled law that a bench comprising a single person is not higher/superior to a collegium of three persons. Hence, it is abundantly clear that the DRP stands at a higher pedestal than the Commissioner passing an order alone.
Further, in the light of the provision of section 144C(13) which mandates that the AO has to pass an order in accordance with the direction of the DRP without giving any opportunity to the assessee. If this order passed is getting revised and AO starts giving the opportunity of hearing to the assessee in accordance with the direction of the Commissioner, the same will violate the sanguine provision of section 144C(13).
The assessee was engaged in the business of trading in automobile components, manufacturing/processing steel products, and providing logistic services primarily catering to the automotive industry. It procured raw materials for its manufacturing activities from AE and, therefore, the transaction of manufacture of steel was regarded as an international transaction.
In the manufacturing segment, in arriving at operating profit/sales or operating profit/cost, the assessee had reduced sum described as 'other expenses' stating same to be pre-operative expenses. Since the assessee was a tested party, TPO was of the view that adjustments to the tested party profit margin could not be done. As the assessee could not give details of similar expenses incurred by comparable companies chosen by TPO, AO did not accept the exclusion of pre-operating expenses from operating costs.
The Tribunal held that in case appropriate adjustments cannot be made to uncontrolled transactions due to lack of data, then to read provisions of transfer pricing regulations in harmony, adjustments should be made on the tested party.
Further, where it was practically not possible to obtain data on pre-operative expenses of comparable companies, TPO should collate same from comparable companies by exercising his powers under section 133(6) and provide the assessee an opportunity by sharing details so obtained, and accordingly, grant adjustment.
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