TaxTMI 
TaxTMI 
2016 (10) TMI 326
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....r as they were not with its associated enterprises within the meaning of that expression in the Act. It is contended, therefore, that the entire proceedings including the reference to the TPO for the assessment year 2011-12 is without jurisdiction and void. 3. By our interim order dated 29.08.2016 we recorded Ms. Radhika Suri's statement that the petitioner would only raise legal submissions to the effect that before making a reference to the TPO to determine the arms length price of an international transaction the Assessing Officer is bound to grant the assessee an opportunity of showing cause against it including by a personal hearing, pass a reasoned order on the objections and serve the same. 4. In view of the limited scope of this petition it is necessary to state only those facts which are necessary for deciding the submissions. 5. Section 92A(1) of the Act reads as under:- Meaning of associated enterprise 92A. (1) For the purposes of this section and sections 92, 92B, 92C, 92D, 92E and 92F, "associated enterprise", in relation to another enterprise, means an enterprise- (a) which participates, directly or indirectly, or through one or mor....
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....referred to the TPO. 8. A show cause notice dated 22.03.2016 in continuance of the earlier letters including the show cause notice dated 19.03.2016 was issued in respect of the assessment years 2008-09 to 2010-11 calling upon the petitioner to show cause why its cases for the said years be not also referred to the TPO. 9. By a letter dated 05.04.2016 respondent No.2. i.e. the TPO informed the petitioner that he had received a reference under section 92CA(1) of the Act from respondent No.1 to determine under section 92CA(3) the arm's length price in respect of international transactions/specified domestic transaction entered into by the petitioner during the financial year 2010-11 corresponding to the assessment year 2011-12. The petitioner was called upon to produce the evidence and/or material relied upon by it in support of its computation of the arm's length price of the said transactions as well as various other documents including form No.3CEB and information and documents maintained under section 92D(1) read with rules 10D(1) and (3) of the Income Tax Rules, 1962 alongwith a copy of the transfer pricing study report. 10. By a letter dated 30.04.2016 the petitioner co....
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....s and the sister concern in turn sold the same at much higher rates and the income generated thereby found its way back to India and was invested in properties by the members of the group. Instruction No.3/2016 dated 10.03.2016 issued by the Central Board of Direct Taxes was held applicable. The circular contains instructions for reference to the TPO inter-alia where search and seizure or survey operations had been carried out and findings regarding transfer pricing issues have been recorded by the Assessing Officer. 12. The first respondent has submitted a satisfaction note with adequate particulars and reasons. The correctness of what is stated therein is a different matter. The challenge to the decision to refer the transactions to the TPO on the ground that there are no international transactions must be taken in the proceedings and before the authorities under the Act. It is not a fit case to entertain them in a writ petition under Article 226 of the Constitution of India. 13. Respondent No.1 by his letter dated 23.03.2016 addressed to the Principal, Commissioner of Income Tax, set out all that he had recorded in the satisfaction note as well as the petitioner's reply/ob....
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.... and the gnawing feeling that he is made the victim of palpable injustice" The revenue would do well to keep the above stage advice in mind while dealing with the assessee. We are constrained to observe that in this case it would be natural for the petitioner to feel harassed as the Assessing Officer did not give any opportunity of hearing before making a reference to the TPO and none of the two authorities viz. the TPO and the Assessing Officer dealt with its preliminary objection. The TPO does not deal with the petitioner's objection about applicability of Chapter X, on the ground that it would be dealt with by the Assessing officer. Thereafter when the petitioner raises the same issue before the Assessing Officer he does not deal with the same on the ground that he is bound to complete the assessment in terms of the ALP determined by the TPO. We hope the revenue will be more sensitive to the just demands of the assessee and not treat the assessee as an adversary who has to be taxed, no matter what." 17. We are in respectful agreement with the view that it is necessary for the Assessing Officer to decide the objections, if any, to the applicability of Chapter-X be....
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....#39;s length price in relation to an international transaction under section 92C to the TPO. In such a case, the TPO would be bound to determine the arm's length price in respect of the said transaction. In doing so, the TPO would not be entitled to reconsider the question as to whether the transaction is an international transaction or not. In a reference under section 92CA(1), this question is determined by the AO as well as the Commissioner. That under section 92CA(1) the Commissioner must accord his approval to the AO's decision to refer the computation of the arm's length price to the TPO posits the Commissioner having satisfied himself that the transaction is an international transaction. The remedy of the assessee to question the TPO's decision would be before the Commissioner of Income-tax or the Dispute Resolution Panel as we will shortly indicate and thereafter before the ITAT. The provisions of the Act do not indicate that the Legislature intended conferring upon the TPO the jurisdiction to effectively sit in appeal over the decision not merely of the AO, but of the Commissioner as well. The explanation to section 92CA provides that for the purpo....
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....t a informed decision as to whether the transaction that he prima-facie considered to be an international transaction is or is not infact an international transaction. The first opportunity that the assessee would in such a case have to raise a contention that the transaction is not an international transaction would be before the Disputes Resolution Panel (DRP) or the CIT(A) as the case may be. These are in effect appellate proceedings where the appellate or the higher authority CIT(A)/DRP would have to consider the issue with the benefit of the case of the department as well as of the assessee for the first time. Indeed even the Revenue would come to know of the assessee's objections and the material in support thereof for the first time. This may in a given case result in the CIT(A) or the ITAT remanding the matter resulting in multiplicity of proceedings. They may of course decide the issue themselves and indeed that would always be preferable than an order of removal. The DRP ofcourse must decide the issue itself. The DRP has ample powers under section 144C(5)(6) and (7) to consider all aspects and even further material. 20. Further in respect of international transactions,....
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....Transfer Pricing Officer for determination of the arm's length price. However, if an assessee is given such an opportunity before the Assessing Officer, that would be sufficient. The Assessing Officer would undoubtedly have to forward the same alongwith the objections, if any, to the Pr.CIT while seeking his approval to refer the transaction to the Transfer Pricing Officer. Ultimately the assessee has the opportunity of challenging the same in appeal. 24. Ms. Suri also relied upon a circular issued by the Central Board of Direct Taxes dated 10.03.2016 containing guidelines for implementation of the Transfer Pricing Provisions. The same is applicable to both international transactions and specified domestic transactions between associate enterprises. Ms. Suri relied upon the following provisions in the circular:- 3. Reference to Transfer Pricing Officer (TPO) 3.1 The power to determine the Arm's Length Price (ALP) in an international transaction or specified domestic transaction is contained in sub-section (3) of Section 92C. However, Section 92CA provides that where the Assessing Officer (AO) considers it necessary or expedient so to do, he may refer the comput....
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....ed the international transactions or specified domestic transactions in the Accountant's report filed under Section 92E of the Act but has made certain qualifying remarks to the effect that the said transactions are not international transactions or specified domestic transactions or they do not impact the income of the taxpayer. In the above three situations, the AO must provide an opportunity of being heard to the taxpayer before recording his satisfaction or otherwise. In case no objection is raised by the taxpayer to the applicability of Chapter X [Sections 92 to 92F] of the Act to these three situations, then AO should refer the international transaction or specified domestic transaction to the TPO for determining the ALP after obtaining the approval of the PCIT or CIT. However, where the applicability of Chapter X [Sections 92 to 92F] to these three situations is objected to by the taxpayer, the AO must consider the taxpayer's objections and pass a speaking order so as to comply with the principles of natural justice. If the AO decides in the said order that the transaction in question needs to be referred to the TPO, he should make a reference after obtaining the ap....
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....to furnish reasons for the satisfaction for the reference of the transaction to the TPO for determination of the arm's length price is inter-alia to enable the assessee firstly to meet the case and represent against it to the TPO before the Assessing Officer on the ground that there is no international transaction and secondly in the event of his objections being overruled, an opportunity of challenging the same before the Disputes Resolution Panel or the Commissioner of Income Tax(Appeals) as the case may be, and thereafter before the Income Tax Appellate Tribunal. 30. The matter, however, does not end here for the respondents have complied with all these requirements. The respondents have produced the satisfaction without the Pr.CIT approval for the reference. Ms. Suri, however, contends that the satisfaction that was recorded by the first respondent has not been served upon the assessee. She submits that where the satisfaction is not served upon the assessee before a reference to the TPO by the Assessing Officer, the reference is void and consequently all the proceedings before the Transfer Pricing Officer are void. 31. The submission is not well founded. As we noted earli....
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....by the petitioner may be taken before the DRP or the CIT(A) as the case may be. It is necessary, however, now to consider the nature of the order to be passed. As the provisions of the Act and of the circular have not been complied with strictly and the matter already stands referred to the TPO it is necessary to protect the petitioner in certain aspects. Normally the petitioner would have had an opportunity of contending that the transactions are not international transactions as they are not with its associated enterprises before the Assessing Officer himself. That stage having passed, it is only fair that if the petitioner chooses the DRP route or the CIT(A) route, the DRP or the CIT(A) as the case may be ought to first adjudicate the question as to whether the said transactions are international transactions or not. If they come to the conclusion that they are not international transactions, certain consequences may follow which we keep open for the petitioner to take before the DRP or the CIT(A) as the case may be. We clarify that in the event of the CIT(A) or the DRP coming to the conclusion that they are international transactions, it would not be necessary for them to stall....