S. 263: TPO’s acceptance of ALP shows two views are possible & CIT has no jurisdiction to revise assessment

The assessee filed a ROI for AY 2002-03 which was accepted u/s 143(1). The AO issued a notice u/s 148 dated 01.04.2004 to reopen the assessment. Before the assessee filed a ROI in response to the notice, the TPO issued a notice dated 12.04.2004 u/s 92CA seeking details about the international transactions entered into by the assessee with its group companies. The assessee thereafter filed a ROI on 21.04.2004. The TPO passed an order u/s 92CA in which he did not make any adjustments. The CIT passed an order u/s 263 setting aside the assessment order on the ground that it was erroneous and prejudicial to the interest of the revenue. On appeal by the assessee, the Tribunal quashed the CIT’s order on the ground that (i) two views are possible when the TPO has accepted the arms’ length valuation and the CIT had no jurisdiction to interfere with the said order u/s 263 & (ii) on the day the reference was made by the AO to the TPO, there was no return pending for consideration. On appeal by the department to the High Court HELD dismissing the appeal:

On the day the reference was made by the AO to the TPO, there was no return pending for consideration by him and therefore, the very reference was bad. Even otherwise, the said Transfer Pricing Authority did not find fault with the adjudication of determining arms length price by the Assessing Authority. In those circumstances, the CIT committed an error in exercising his power u/s 263 and the Tribunal was justified in interfering with the said order.