Court Validates Transfer Price Officer Reference Process, Dismisses Writ Petitions

The court upheld the validity of the reference to the Transfer Price Officer (TPO) dated 19.12.2018, finding that the proper procedure was followed in obtaining approval for the reference. It dismissed the writ petitions, stating there was no issue with the proceedings for assessment finalized thereafter, emphasizing that the petitioner's argument regarding the reason for selection of scrutiny being merely a numerical reconciliation was oversimplified.

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Issues Involved:
1. Legality of the reference to the Transfer Price Officer (TPO) dated 19.12.2018.
2. Validity of the proceedings for assessment finalized thereafter.

Issue-Wise Detailed Analysis:

1. Legality of the Reference to the Transfer Price Officer (TPO) Dated 19.12.2018:

The petitioner, a private limited company providing Software Business and Technology Solutions, challenged an order dated 19.12.2018 by the 2nd respondent/Assistant Commissioner of Income Tax under Sections 92CA(2) and 92D(3) of the Income Tax Act, 1961 for AY 2016-17. The petitioner argued that the limited scrutiny notice dated 27.07.2017 only necessitated a reconciliation between Form-3CEB and the return of income filed, and did not involve the examination of Transfer pricing risk parameters, thus no necessity to make a reference to the TPO to determine Arms Length Price (ALP). The petitioner relied on Instruction No.3 of 2016 dated 10.03.2016 by the Central Board of Direct Taxes (CBDT), which mandates that cases selected for scrutiny on a TP risk parameter must be referred to the TPO by the AO after obtaining the approval of the jurisdictional Principal Commissioner of Income-tax (PCIT) or Commissioner of Income-tax (CIT).

The court examined the sequence of events:
- The petitioner filed an Income Tax Return on 15.10.2016.
- Notice dated 27.07.2017 issued under Section 143(2) identified the issue for scrutiny as whether the value of international transactions was correctly shown in Form-3CEB and the return of income.
- On 24.07.2017, PCIT recorded satisfaction and granted approval to the AO to make a reference to the TPO.
- On 06.08.2018, R1 made a reference to R2 to compute the ALP of Specified Domestic Transactions (SDT), which was later amended to compute the ALP of international transactions.
- The impugned notice dated 19.12.2018 was issued by R1 to R2.

The court noted that the revenue had filed extracts of the records of assessments, revealing the reason for selection by CASS as "Large Aggregate value of total employee cost in comparison to Aggregate value of international transactions as per books of accounts (T.P. Risk Parameter)." The court found that the proper procedure had been followed by the Assessing Officer in approaching the PCIT for approval for reference, and the PCIT granted approval on 24.07.2018.

The court concluded that the petitioner's submission that the reason for selection of scrutiny by CASS only involved a numerical reconciliation was an oversimplification. The reason for selection by CASS had been produced and placed on record by the Officer while seeking approval of the PCIT for reference of the matter to the TPO.

2. Validity of the Proceedings for Assessment Finalized Thereafter:

The court noted that the petitioner had cooperated and participated in the conduct of the assessment after the expiry of the interim protection on 29.03.2019. The petitioner had filed objections before the Dispute Resolution Panel (DRP) that were pending disposal.

The court found no merit in the writ petitions and dismissed the same, stating that there was no infirmity in the proceedings for assessment finalized thereafter.

Conclusion:

The court dismissed the writ petitions, finding that the reference to the TPO dated 19.12.2018 was validly issued, and there was no infirmity in the proceedings for assessment finalized thereafter. The court emphasized that the proper procedure had been followed by the Assessing Officer in seeking approval for the reference to the TPO, and the petitioner's argument that the reason for selection of scrutiny only involved a numerical reconciliation was an oversimplification.

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