Transfer pricing order u/s 92CA(3) held time-barred; delayed TPO order invalidates entire TP adjustment

The ITAT Bangalore allowed the appeal of the assessee, holding that the transfer pricing order passed u/s 92CA(3) was barred by limitation. Applying the statutory requirement that the TPO must pass the order at least 60 days prior to the expiry of the time limit for completion of assessment, the Tribunal computed the last permissible date as 29.01.2015. Since the TPO's order was actually passed on 30.01.2015, it was declared time-barred. Consequently, the TP adjustment founded on this invalid order was quashed in entirety.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the order determining arm's length price under section 92CA(3) was barred by limitation under section 92CA(3A) read with section 153 for assessment year 2011-12.

1.2 Consequentially, whether the transfer pricing adjustment and assessment based on such order could be sustained.

1.3 Whether, in view of the finding on limitation, the departmental appeal challenging the directions of the Dispute Resolution Panel survived for adjudication.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Limitation of order under section 92CA(3) and validity of transfer pricing adjustment

Legal framework

2.1 The Tribunal examined section 92CA(3A), which provides that an order under section 92CA(3) may be made at any time before sixty days prior to the date on which the period of limitation referred to in section 153 for making the assessment order expires.

2.2 The Tribunal noted that for assessment year 2011-12, the normal limitation under section 153 for passing an order under section 143(3), as extended by twelve months due to reference under section 92CA, expired on 31.03.2015.

2.3 The Tribunal referred to and followed the decisions of the Madras High Court in Pfizer Healthcare India Pvt. Ltd. and Saint Gobain India (P) Ltd., and the Karnataka High Court in Principal Commissioner of Income-tax v. Tata Power Solar Systems Ltd., wherein the 60-day time limit under section 92CA(3A) was held to be mandatory and the word "may" construed as "shall".

Interpretation and reasoning

2.4 On the assessee's contention, it was computed that where the assessment order was required to be passed by 31.03.2015, the TPO's order under section 92CA(3) had to be made on or before 60 days prior to that date. Following the Karnataka High Court's reasoning in respect of AY 2011-12, the Tribunal adopted the view that the order under section 92CA(3) should have been passed on or before 28.01.2015.

2.5 The Department argued that: (i) the term "may" in section 92CA(3A) should not be read as mandatory; (ii) computation of 60 days should permit the TPO to pass the order up to 30.01.2015 or even 31.01.2015, given the legislative intent to leave "at least two months" for the Assessing Officer; (iii) the concept of "expiry" of limitation in section 153 should be interpreted so that the TPO's order dated 30.01.2015 is treated as within time; and (iv) no prejudice arose from delay in the TPO's order since liability crystallises only upon the assessment order, which was itself within time.

2.6 The Tribunal referred to the jurisdictional High Court decision in Tata Power Solar Systems Ltd., where it was held that, for the same assessment year and comparable fact situation, an order under section 92CA(3) passed on 30.01.2015 was beyond the permissible time limit, as it ought to have been passed on or before 28.01.2015. That decision, while treating the issue as factual, proceeded on the binding interpretation that the 60-day time schedule is mandatory.

2.7 The Tribunal further took note of the Madras High Court's holding, as affirmed in Saint Gobain India (P) Ltd., that: (i) in transfer pricing cases, statutory time limits at various stages are mandatory; (ii) the order of the TPO, or failure to pass such order before 60 days, directly impacts the validity of the assessment, for which outer time limits under sections 144C and 153 are prescribed; and (iii) the word "may" in section 92CA(3A) has to be read as "shall", and the time schedule must be "scrupulously followed".

2.8 Relying on these authorities, the Tribunal rejected the Revenue's contention that the 60-day period is directory or that any computation that effectively gives more than 60 days to the Assessing Officer could be sustained by reference to legislative intent. The Tribunal instead treated the statutory language, as judicially interpreted, as controlling.

Conclusions

2.9 The Tribunal held that: (i) the period of limitation for passing the assessment order under section 143(3) for AY 2011-12 expired on 31.03.2015; (ii) accordingly, under section 92CA(3A), the order under section 92CA(3) was required to be made on or before 60 days prior thereto, i.e., on or before 28.01.2015; and (iii) since the TPO's order was passed on 30.01.2015, it was barred by limitation.

2.10 The Tribunal held that the time limit prescribed under section 92CA(3A) is mandatory, and once the TPO's order is time-barred, it cannot be relied upon for making transfer pricing adjustments.

2.11 Consequently, the entire transfer pricing adjustment, including the balance amount of Rs. 54,56,230 remaining after MAP proceedings, was held to be unsustainable and was deleted. The grounds of the assessee on limitation were allowed.

Issue 3: Survival of the departmental appeal

Interpretation and reasoning

2.12 The departmental appeal challenged the directions of the Dispute Resolution Panel in respect of transfer pricing matters.

2.13 Having held that the TPO's order was barred by limitation and that the entire transfer pricing adjustment was to be deleted, the Tribunal found that no further transfer pricing-related dispute survived for consideration in the Revenue's appeal.

Conclusions

2.14 The Tribunal held that, in light of the deletion of the entire transfer pricing adjustment on limitation, the departmental appeal had become infructuous and did not survive, and it was accordingly dismissed.

2.15 The assessee's appeal was partly allowed on the ground of limitation, and, there being no other issues pressed, no further adjudication was undertaken.

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