PCIT Vs Tetra Pak India Pvt Ltd (Bombay High Court)
The Bombay High Court considered the Revenue’s appeal against the ITAT order dated 24 May 2019 in ITA No. 1609/PUN/2013 concerning A.Y. 2005-06. The ITAT had allowed the assessee’s appeal because the underlying revisional order, pursuant to which a fresh assessment had been framed, had already been set aside by the Tribunal in the assessee’s own case in ITA No. 733/PN/2011. In that earlier proceeding, the Tribunal had held that the Commissioner was not justified in exercising revisionary jurisdiction under Section 263 of the Income Tax Act, 1961.
Consequently, the ITAT held that once the Section 263 revisional order itself had been set aside, the fresh assessment order passed pursuant to that revisional order became invalid and had no independent basis to survive. The Revenue challenged this conclusion before the Bombay High Court and proposed a substantial question of law as to whether the ITAT was justified in invalidating the fresh assessment under Section 143(3) read with Section 263 merely because the underlying revision order had been set aside.
The Revenue informed the High Court that the Tribunal’s earlier order in ITA No. 733/PN/2011, by which the Section 263 order had been set aside, was itself under challenge before the High Court in Income Tax Appeal No. 150 of 2018. That appeal had already been admitted on two substantial questions of law by an order dated 11 August 2022. Considering this position, the High Court found that the Revenue’s first proposed question in the present appeal did give rise to a substantial question of law. The Court accordingly admitted the appeal on that question and directed that it be heard along with Income Tax Appeal No. 150 of 2018 because the outcome of the earlier appeal would have a direct bearing on the present proceedings.
The Revenue also proposed a second question concerning the merits of the transfer-pricing computation. It questioned the ITAT’s deletion of the fresh assessment without considering the PCIT’s findings concerning the assessee’s calculation of the Profit Level Indicator (PLI) after adjustment on account of “exist cost”/replacement cost of TBA-10 filling machines and the alleged effect of that adjustment on the arm’s length price of international transactions.
The High Court, however, declined to entertain this second question at that stage. It reasoned that the merits would become relevant only if the first substantial question was ultimately answered in favour of the Revenue. In such an eventuality, the matter would necessarily have to be remanded to the ITAT for adjudication of the factual aspects raised in the second question. Thus, the Court did not decide the validity of the Section 263 proceedings or the transfer-pricing issue on merits in this order; it merely admitted the Revenue’s appeal on Question (A), linked its hearing with Income Tax Appeal No. 150 of 2018, and kept the consequential merits issue open.
Cases Discussed
- Tetra Pak India Pvt. Ltd. — ITA No. 733/PN/2011, A.Y. 2005-06, order dated 18.11.2016 (ITAT) — The Tribunal had set aside the CIT’s exercise of revisionary jurisdiction under Section 263. The challenge to that order was pending before the Bombay High Court in Income Tax Appeal No. 150 of 2018 and had already been admitted.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. The above Appeal challenges the order dated 24th May 2019 passed by the Income Tax Appellate Tribunal (“ITAT”) in Appeal No. 1609/PUN/2013 (A. Y. 2005-06). By the impugned order, the Appeal of the Assessee was allowed on the basis that the Revisional Order was the subject matter of scrutiny by the Tribunal in the Assessee’s own case in ITA No.733/PN/2011 for Assessment Year 2005-06 and which culminated in an order dated 18th November 2016. Basically, in ITA No. 733/PN/2011, the Tribunal passed an order that the CIT was not justified in resorting to the revisionary powers under Section 263 of the Income Tax Act, 1961. Once the Tribunal took this view, and the Revisional Order of the CIT was set aside, any fresh Assessment Order passed pursuant to the said Revisional Order would be invalid and would have no legs to stand on was the finding of the ITAT in the impugned order. It is this finding of the Tribunal that has given rise to the first substantial question of law projected by the Revenue which reads thus:-
“A. Whether on facts and circumstances of the case the ITAT was justified in holding that the fresh assessment order u/s 143(3) rws 263 subsequent to revision order u/s 263 is invalid merely on grounds that it does not have legs to stand as the revision order has already been set aside?”
2. Mr. Sharma submitted that in the facts of the present case, the order of the Tribunal passed in ITA 733/PN/11 for Assessment Year 2005-06 is challenged before this Court in Income Tax Appeal No.150 of 2018. That Appeal has been admitted vide order dated 11th August 2022 on two substantial questions of law. Copy of the said order is also tendered to the Court.
3. Considering these facts, we are of the view that the above Appeal gives rise to a substantial question of law as reproduced by us above. We, therefore, admit the above Appeal on the aforesaid substantial question of law and direct that this Appeal shall be heard along with Income Tax Appeal No.150 of 2018. We say this because an outcome of Income Tax Appeal No.150 of 2018 will have a direct bearing on the outcome of the present Appeal.
4. The Revenue has also projected another question as substantial question of law which reads thus:-
“B. Whether on facts and circumstances of the case the ITAT was justified in deleting the fresh assessment order U/s 143(3) rws 263 without going into the merits of the case and ignoring the findings of Hon’ble PCIT-4 that the assessee had calculated the PLI after making the adjustment on account of ‘exist cost’ (replacement cost” of TBA-10 fiilng machines and has made an attempt to arrive at the higher PLI to reduce the adjustment to arrive at the Arms length Price of the International Transactions?”
5. As far as this question is concerned, the same does not arise for our consideration at present. If for any reason Question (A) is answered in favour of the Revenue, then, necessarily the matter would have to be remanded back to the Income Tax Appellate Tribunal to decide the factual aspects as more particularly set out in Question (B) reproduced by us above. Hence, Question (B) is not entertained at this stage.
6. Call for Record and Proceedings.
7. The Registry is directed to communicate a copy of this order to the Tribunal. This would enable the Tribunal to keep the Record and Proceedings relating to the present Appeal available to be produced when sought for by this Court.
8. This order will be digitally signed by the Private Secretary/ Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.
