2015 (1) TMI 1303 - HC - Income Tax

High Court upholds Income Tax Act approval process, emphasizes legal requirements

The High Court upheld the legality of the approval process under Section 92CA(1) of the Income Tax Act, emphasizing the necessity of obtaining the ... Previous approval of the Commissioner of Income Tax to make reference to the Transfer Pricing Officer for computation of Arm's Length Price - Held that:- The respondent no.1 sent a reference under Section 92CA(1) of the Income Tax Act vide letter no. Addl CIT/R/Ind/2010-11/460 dated 22-3-2011 observing that in the opinion of the first respondent, it was necessary and expedient to refer the case to the second respondent to determine Arm's Length Price of international transactions. On verification of the audit report in Form No.3 CEB furnished by the petitioner, it was found that the assessee petitioner had entered into international transaction specified under section 92CA of Income Tax Act of substantial magnitude. After careful examination of the reference, the respondent No.3 has correctly accorded approval on the reference received from the respondent no.1 which was based on the contents of the Audit Report in Form No.3CEB. The transaction is more than ₹ 15 crores and therefore covered for reference to the Transfer Pricing Officer ie., respondent no.2. The approval is granted by the respondent no.3 after careful examination of the justification given by the respondent No.1 on the reference and also keeping in view the CBDT's instructions on the subject which mandates for such reference. Since the present writ petition raises similar grounds for assessment year 2010-11 which has already been decided by this court passing a detailed order, we are of the view that the contention of the petitioner that no approval is granted by the respondent No.3, ie., Commissioner of Income-tax – I is without any basis and has no merit. The issue raised in this petition is squarely covered by the writ petition decided by this court and the matter is pending before the Hon'ble Supreme Court. The petitioner has adopted a novel method by filing an application for withdrawal of the writ petition. In the present case this court by order dated 28.2.2014 granted stay directing the assessing authority not to proceed with the assessment proceedings. In the meanwhile, the application was filed before the settlement authority and when the proceedings of settlement authority is coming to end an application for withdrawal is filed with a prayer that the petitioner be permitted to withdraw the writ petition with liberty to move this Hon'ble Court if the settlement fails. The present writ petition is merely an attempt to by pass the normal process of orders and appeal as laid down in the Income-Tax Act and cause undue loss to revenue. Issues:1. Approval requirement of Commissioner of Income Tax for reference to Transfer Pricing Officer under Section 92CA(1) of the Income Tax Act.2. Legality and constitutionality of the reference and approval process under Section 92CA(1) of the Income Tax Act.3. Jurisdiction of the High Court in granting relief under Article 226 of the Constitution of India.4. Application for withdrawal of the writ petition and its implications on the legal process.Issue 1: Approval requirement of Commissioner of Income Tax for reference to Transfer Pricing Officer under Section 92CA(1) of the Income Tax Act:The petitioner sought to quash a reference made under Section 92CA(1) of the Income Tax Act, contending that the approval of the Commissioner of Income Tax was not obtained as required by law. The High Court analyzed the statutory provisions and previous orders, emphasizing the necessity of such approval for the Assessing Officer to refer the computation of the arm's length price to the Transfer Pricing Officer. The court noted that the approval process was correctly followed in the case at hand, as the approval was granted after careful examination of the reference and the audit report, meeting the legal requirements.Issue 2: Legality and constitutionality of the reference and approval process under Section 92CA(1) of the Income Tax Act:The petitioner challenged the legality and constitutionality of the reference and approval process under Section 92CA(1) of the Income Tax Act. The High Court examined the grounds raised by the petitioner, comparing them to a previous judgment on a similar matter. The court found that the petitioner's contentions lacked merit, as the approval by the Commissioner of Income Tax was deemed necessary and had been correctly obtained in accordance with the law. The court highlighted that the contention raised was already addressed in a detailed order, indicating that the issue was not valid for further challenge.Issue 3: Jurisdiction of the High Court in granting relief under Article 226 of the Constitution of India:The High Court deliberated on the jurisdiction to grant relief under Article 226 of the Constitution of India in the context of the present case. The court observed that the petitioner's attempt to withdraw the writ petition was a novel method to bypass the normal legal process of orders and appeals laid down in the Income-Tax Act. Despite a stay being granted earlier, the court dismissed the writ petition as withdrawn without granting any liberty, emphasizing the importance of following due legal procedures and preventing any undue loss to revenue.Issue 4: Application for withdrawal of the writ petition and its implications on the legal process:The High Court addressed the implications of the petitioner's application for withdrawal of the writ petition. The court noted that the application was filed during the settlement proceedings, indicating a potential attempt to circumvent the legal process. The court dismissed the petition without granting any liberty, thereby vacating the earlier stay and allowing the department to proceed in accordance with the law. This decision underscored the importance of adhering to legal procedures and preventing any misuse of the legal system.This comprehensive analysis of the judgment from the Madhya Pradesh High Court highlights the key legal issues, the court's reasoning, and the final decision regarding the approval process under Section 92CA(1) of the Income Tax Act, the jurisdiction of the High Court, and the implications of the application for withdrawal of the writ petition.