2011 (11) TMI 73 - HC - Income Tax

Court limits Transfer Pricing Officer's jurisdiction to referred transactions only

COMMISSIONER OF INCOME TAX Versus AMADEUS INDIA PVT LTD

The court held that the Transfer Pricing Officer (TPO) exceeded his jurisdiction by independently considering and adjusting the Arm's Length Price (ALP) ... Whether, on the facts and circumstance of the case, the Income Tax Appellate Tribunal erred in deciding that the Transfer Pricing Officer (TPO) could not take cognizance suo moto of any international transaction for adjustment in the Arms Length Price (ALP) under Section 92CA of the Income-tax Act, 1961 - held that:- It is quite possible that in the case of a particular assessee, there may be several international transactions and the Assessing Officer may only wish to refer some of those international transactions for the purposes of computing the arm’s length price while in respect of others, he may compute the arm’s length price himself. Thus, the jurisdiction of the Transfer Pricing Officer is limited and restricted to computing the arm’s length price of only those international transactions which have been specifically referred to him by the Assessing Officer. - ITAT committed no error in deciding that the Transfer Pricing Officer could not take cognizance suo moto of any international transaction for adjustment in the arm’s length price under Section 92C of the Income-tax Act, 1961. - Decided against the revenue. Issues Involved:1. Jurisdiction of the Transfer Pricing Officer (TPO) to take suo moto cognizance of international transactions for adjustment in the Arm's Length Price (ALP) under Section 92CA of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Jurisdiction of the TPO to Take Suo Moto Cognizance of International Transactions:Facts of the Case:The assessee, a joint venture company, engaged in data processing and related services, entered into international transactions with associated enterprises during the assessment year 2006-07. The Assessing Officer (AO) referred the case to the TPO under Section 92CA(1) of the Income-tax Act, 1961, for determining the ALP. The TPO adjusted the ALP by Rs. 32,92,83,589/- due to differences in AMP expenses, which were not specifically referred to him by the AO. The assessee challenged this adjustment before the Income Tax Appellate Tribunal (ITAT), which ruled in favor of the assessee, stating that the TPO exceeded his jurisdiction.Arguments by the Parties:- Assessee's Contention: The TPO exceeded his jurisdiction by considering AMP expenses as an international transaction without a specific reference from the AO. The TPO's role is limited to transactions referred to him by the AO, and he cannot suo moto take cognizance of other transactions.- Revenue's Contention: The reference to the TPO includes the entire gamut of transactions between the assessee and its associated enterprise. The TPO can determine the ALP for any transaction that comes to his notice during the proceedings.Tribunal's Interpretation:The ITAT interpreted the provisions of Section 92CA and concluded that the TPO's role is restricted to determining the ALP of transactions specifically referred to him by the AO. The Tribunal emphasized that the TPO cannot suo moto take cognizance of other transactions not referred to him.Relevant Provisions and Legal Precedents:- Section 92CA: The AO, with the previous approval of the Commissioner, may refer the computation of the ALP of an international transaction to the TPO. The TPO's jurisdiction is limited to the transactions referred to him.- CBDT Instruction No. 3/2003: Clarifies that the TPO's role begins after a reference from the AO and is limited to determining the ALP of the referred transactions.- Case Law: The Tribunal relied on the decision in Sony India P. Ltd v. CBDT and the Gujarat High Court's decision in M/s Veer Gems v. ACIT, which supported the interpretation that the TPO's jurisdiction is limited to referred transactions.Court's Analysis:The court examined the relevant provisions and legal precedents and agreed with the ITAT's interpretation. The court noted that the AO is responsible for determining whether a transaction is an international transaction and, if necessary, referring it to the TPO for ALP computation. The TPO cannot independently determine whether a transaction is international and compute its ALP without a specific reference from the AO.Prospective Application of Section 92CA(2A):The court also considered the amendment introduced by the Finance Act, 2011, which inserted sub-section (2A) in Section 92CA, allowing the TPO to take cognizance of other international transactions that come to his notice during proceedings. The court held that this amendment is prospective and does not apply to the assessment year 2006-07.Conclusion:The court concluded that the TPO exceeded his jurisdiction by taking suo moto cognizance of the AMP expenses as an international transaction and determining its ALP without a specific reference from the AO. The court upheld the ITAT's decision and dismissed the revenue's appeal, affirming that the TPO cannot independently take cognizance of transactions not referred to him by the AO.Final Judgment:The substantial question of law was answered in the negative, and the revenue's appeal was dismissed with no order as to costs.