Finance Bill, 2022 has amended the provisions of section 263 of the Income-tax Act, 1961 (‘Act’) relating to revisionary powers of PCIT/CIT to cover orders passed by the Transfer Pricing Officer (TPO) working under his jurisdiction.
Amendment in the provisions of section 263 of the Act
Section 263 of the Act contains the provision for revision of order which is erroneous in so far as it is prejudicial to the interests of revenue. An order under section 263 of the Act can be passed within two years from the end of the financial year in which the order sought to be revised was passed.
As per provisions of section 92CA, if the Assessing Officer considers it necessary or expedient, he may, with the approval of the Principal Commissioner or Commissioner, refer the computation of arm’s length price (ALP) or specified domestic transaction entered into by an assessee, to the Transfer Pricing Officer (TPO). The TPO passes an order determining the ALP in an international transaction or specified domestic transaction under the provisions of section 92CA and send it to the Assessing Officer for final income determination.
However, it is not clear as to who has the power under section 263 to revise the order of the TPO passed under section 92CA.
Therefore, it is proposed to amend the provisions of section 263 of the Act so as to provide that the Principal Chief Commissioner or the Chief Commissioner or the Principal Commissioner or Commissioner who is assigned the jurisdiction of transfer pricing may call for and examine the record of any proceeding under this Act, and if he considers that any order passed by the TPO, working under his jurisdiction, to be erroneous in so far as it is prejudicial to the interests of revenue, he may pass an order directing revision of the order of TPO. Consequential changes are also be made in the provisions of section 153 of the Act inter alia to provide two months’ time to the Assessing Officer to give effect to the order of TPO consequent to the directions in the revision order.
Further, in section 153 of the Act, it is proposed to
(i) provide that the provisions of sub-sections (3) and (5) of that section shall also be applicable to order passed by Transfer Pricing Officer under section 92CA,
(ii) to insert sub-section (5A) to provide that where the Transfer Pricing Officer gives effect to an order or direction under section 263 by means of an order under section 92CA and forwards such order to the Assessing Officer, the Assessing Officer shall proceed to modify the order of assessment or reassessment or recomputation, in conformity with such order of the Transfer Pricing Officer, within two months from the end of the month in which such order of the Transfer Pricing Officer is received by him,
(iii) provide that the said provisions of the sub-section (6) shall also be applicable to orders referred to in the sub-section (5A) inserted in the Act.
Clause 72 of the Finance Bill, 2022 proposes to amend section 263 of the Act.
Amendment of section 263.
72. In section 263 of the Income-tax Act, in sub-section (1),–
(a) after the words “Assessing Officer” wherever they occur, the words “or the Transfer Pricing Officer, as the case may be,” shall be inserted;
(b) for the words “including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment”, the following shall be substituted, namely:–
“including,–
(i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or
(ii) an order modifying the order under section 92CA; or
(iii) an order cancelling the order under section 92CA and directing a fresh order under the said section.”;
(c) in Explanation 1, in clause (a), after sub-clause (ii), the following sub-clause shall be inserted, namely:–
“(iii) an order under section 92CA by the Transfer Pricing Officer;”;
(d) after Explanation 2, the following Explanation shall be inserted, namely:–
‘Explanation 3.–For the purposes of this section, “Transfer Pricing Officer” shall have the same meaning as assigned to it in the Explanation to section 92CA.’.
Explaining the proposed amendments in section 263
Clause 72 seeks to amend section 263 of the Act relating to the revision of orders prejudicial to revenue.
Sub-section (1) in the said section provides that the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceedings under the Act, and if he considers that any order passed by the Assessing Officer under the Act is erroneous in so far as it is prejudicial to the interests of revenue, he may pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment, after making or causing to be made any such inquiry as he deems necessary.
It is proposed to provide that in addition to the existing provision, the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceedings under the Act, and if he considers that any order passed by the Transfer Pricing Officer under the Act is erroneous in so far as it is prejudicial to the interests of revenue, he may pass such order thereon as the circumstances of the case justify, including an order modifying the order under section 92CA or cancelling the order under section 92CA and directing a fresh order under section 92CA, after making or causing to be made any such inquiry as he deems necessary. Such order shall be passed only after giving the assessee an opportunity of being heard.
It is further proposed to amend clause (a) of Explanation 1 to the said sub-section also to include an order under section 92CA by the Transfer Pricing Officer for the purposes of the said section.
It is also proposed that the clause (c) of the Explanation 1 to the sub-section (1) of the said section shall provide that where any order referred to in the said sub-section and passed by the Assessing Officer or the Transfer Pricing Officer, as the case may be, had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
It is also proposed to amend Explanation 2 to the sub-section (1) to make it applicable to an order passed by the Transfer Pricing Officer also.
It is also proposed to insert Explanation 3 in the sub-section (1) of the said section to define the expression “Transfer Pricing Officer”.
These amendments will take effect from 1st April, 2022.
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