Supreme Court directs remand for Transfer Pricing Officer review.

The Supreme Court allowed the appeal, directing the matter to be remanded back to the Assessing Officer for compliance with Instruction No. 3/2003. The AO was instructed to refer the computation of arm's length price to the Transfer Pricing Officer, as mandated by the CBDT guidelines. The appeal was allowed to this extent, with no costs awarded.

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Issues Involved:
1. Validity of Transfer Pricing Adjustments made by the Assessing Officer without referring to the Transfer Pricing Officer (TPO).
2. Compliance with CBDT Instruction No. 3/2003 regarding mandatory reference to the TPO.
3. Appropriate remedy for the breach of mandatory instructions by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Validity of Transfer Pricing Adjustments made by the Assessing Officer without referring to the Transfer Pricing Officer (TPO):
The Assessing Officer (AO) made an addition of Rs. 2,89,82,746/- under Section 92 of the Income Tax Act, 1961, on the grounds that the brokerage charged by the respondent was lower than the prevalent market rates. The respondent appealed, and the Tribunal set aside the AO's findings, stating that the AO's failure to refer the matter to the TPO was contrary to the mandatory instructions issued by the CBDT in Instruction No. 3/2003. The Tribunal held that the AO breached mandatory instructions by not referring the transfer pricing issue to the TPO, thus making the transfer pricing adjustments invalid.

2. Compliance with CBDT Instruction No. 3/2003 regarding mandatory reference to the TPO:
Instruction No. 3/2003 mandates that if the aggregate value of international transactions exceeds Rs. 5 crores, the case should be referred to the TPO. The Tribunal and the High Court found that the AO's failure to refer the matter to the TPO was a breach of these instructions. The Supreme Court noted that the guidelines clearly state that the AO should not scrutinize the correctness of the price of the international transaction at the initial stage and must refer the matter to the TPO if the value exceeds Rs. 5 crores.

3. Appropriate remedy for the breach of mandatory instructions by the Assessing Officer:
The Tribunal did not agree with the Departmental Representative's suggestion to remand the matter back to the AO for reference to the TPO, stating that it was beyond their appellate jurisdiction to interfere in administrative matters. However, the Supreme Court found that the Tribunal should have accepted this submission and restored the matter to the AO for appropriate reference to the TPO. The Supreme Court directed that it would be up to the AO to take appropriate steps in terms of Instruction No. 3/2003.

Conclusion:
The Supreme Court allowed the appeal to the extent that the matter should be remanded back to the AO for compliance with Instruction No. 3/2003, directing the AO to take appropriate steps to refer the computation of arm's length price to the TPO. The appeal was thus allowed to this extent, with no costs awarded.

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