The Commissioner of Income Tax vs Sap Labs Pvt. Ltd.

The revenue has preferred these appeals challenging the order passed by the Tribunal which has set aside the order passed by the Appellate Commissioner u/s 263 of the Income Tax Act (hereinafter referred to as ''the Act'').

The asses-see in ITA No. 842/2008 filed its return of income for the assessment year 2002-03 on 31st October, 2002. The same was processed u/s 143(1) of the Income Tax Act. The assessee received notices dated 1st of April, 2004 u/s 148 of the Act and 12th April 2004 u/s 92CA of the Act from the Transfer Pricing Officer seeking details about the international transactions entered into by the assessee with the group companies on a reference made by the Assessing Authority. At the time of issue of notice u/s 92CA of the Act, no valid return was pending on the basis of which notice u/s 92CA of the Act could have been issued. Since no notice u/s 143(2) of the Act was issued pursuant to filing of the original return, the assessment is deemed to have become final. In reply to the notice issued u/s 148 of the Act, the assessee filed a letter dated 21st April, 2004 requesting the Assessing Authority to treat the return filed on 31-10-2002 as return in compliance with the notice u/s 148 of the Act. In fact the Transfer Pricing Officer on 20.1.2005 passed an order u/s 92CA of the Act accepting the pricing of the Assessing Authority. However, the Commissioner of Income Tax invoking his power u/s 263 of the Act initiated proceedings and set aside the order of the Assessing Authority on the ground that it is erroneous and prejudicial to the interest of the revenue. It is against that order, the assessee preferred an appeal to the Tribunal.

The Tribunal has held that when two views are possible and when the Transfer Pricing Authority has accepted valuation by the Assessing Authority determining the arm''s length price, the Commissioner had no jurisdiction to interfere with the said order u/s 263 of the Act and moreover on the day the reference was made by the Assessing Authority, there was no return pending for consideration and therefore, the Tribunal has set aside the order of the Commissioner. It is against the said order, the revenue is before this Court.

From the aforesaid facts, it is clear that on the day the reference was made by the Assessing Authority to the Transfer Pricing Authority, 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 Commissioner committed an error in exercising his power u/s 263 of the Act and the Tribunal was justified in interfering with the said order. Therefore, we do not see any merit in appeal No. 842/2008. Accordingly, it is dismissed.

Consequently, the impugned order which is the subject matter of ITA 339/2010 which is a consequential order is also dismissed.