TaxTMI 
TaxTMI 
2020 (3) TMI 542
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....ed its original return declaring total income of Rs. 8,73,81,465/-, which was subsequently revised to a loss of Rs. 4,39,40,490/- on account of merger of some companies. The assessee reported certain international transactions in Form No. 3CEB, including `Sale of Pharmaceutical products'. The AO made a reference to the Transfer Pricing Officer (TPO) for determining the ALP of the international transactions. The latter proposed a transfer pricing adjustment of Rs. 10,49,46,477/-. Pursuant to the directions given by the Dispute Resolution Panel (DRP), the AO made transfer pricing adjustment of Rs. 10,14,06,297/- in the impugned final assessment order. The case of the assessee before the Tribunal is that the AO could not have made a reference to the TPO on the basis of the reasons stated therein and hence, such a reference should be declared invalid and the consequential transfer pricing addition deleted. 4. We have heard the rival submissions and gone through the relevant material on record. In order to decide the legal question, it is sine qua non to have a glance at certain relevant documents. Page 386 of the paper book is a copy of CASS (Computer Assisted Scrutiny Selection) rea....
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....n the case of assessee. 6. Sections 92 to 92F, contained in Chapter X of the Act, were substituted / inserted by the Finance Act, 2002. Section 92C(3) of the Act empowers the AO to determine the ALP of the international transaction / specified domestic transaction in accordance with sub-sections (1) and (2). Section 92CA(1) with the marginal note "Reference to Transfer Pricing Officer" states that where an assessee has entered into an international transaction in any previous year, and the Assessing Officer considers it necessary or expedient so to do, he may, with the previous approval of the Commissioner, refer the computation of the arm's length price in relation to such international transaction to the TPO. On a conjoint reading of sections 92C and 92CA, it transpires that the ALP determination can be done directly by the AO as well as cause to be done through TPO after seeking approval from the Pr. CIT. 7. The CBDT issued Instruction No. 3/2003 dated 20-05-2003 prescribing that when the aggregate value of international transaction exceeds Rs. 5.00 crore, a reference will be made by the AO to the TPO for determination of the ALP. Such a limit was further enhanced to Rs. 15.00....
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....ced above the reasons for scrutiny selection of the assessee's case, which are clearly non-transfer pricing risk parameters. Thus para 3.2 of the 2016 Instructions does not apply to the facts of the instant case requiring any mandatory reference to be made by the AO to the TPO. The second main category of the cases selected for scrutiny on the basis of non-transfer pricing risk parameters has been dealt with at para 3.3 of the 2016 Instruction. This mandates making a reference by the AO to the TPO for the ALP determination in one or more of the three circumstances enumerated in paras (a) to (c). Para 3.3(b) of the 2016 Instruction has been invoked by the AO for seeking approval from the Pr. CIT as well as making a reference to the TPO for the determination of the ALP. The AO sought approval of the Pr. CIT vide his letter dated 28-10-2016, which was granted vide letter dated 03-11-2016. Thereafter, a reference was made to the TPO vide letter dated 04-11-2016. Thus, it is vivid that the AO made a reference to the TPO after Instruction No.3/2016 had kicked in on 10-03-2016. It is borne out from para 3.1 of the 2016 Instruction that: `the Board has decided that the AO shall henceforth....
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....nt year and such adjustment has been upheld by the judicial authorities or is pending in appeal'. 13. A careful circumspection of the above para reveals that it contains two conditions. The first condition is that there: `has been a transfer pricing adjustment of Rs. 10.00 crore or more in an earlier assessment year' and after the use of conjunction `and', the second condition is that: `such adjustment has been upheld by the judicial authorities or is pending in appeal.' These two distinct conditions need to be cumulatively satisfied so as to bring a case within the purview of this para. 14. At this juncture, it will be apt to have a look at the procedure of assessment in case of a transfer pricing adjustment. On receiving a reference from the AO, the TPO passes an order u/s 92CA(3) of the Act proposing a transfer pricing adjustment, if any. Thereafter the AO notifies draft order incorporating the proposed transfer pricing adjustment. The assessee may choose an appellate or the DRP recourse. We will discuss the appellate recourse infra. In the DRP recourse, at the stage of the order of the TPO or the draft order by the AO, it is only a 'proposed transfer pricing adjustment' bec....
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.... appeal is pending on the date of making a reference by the AO to the TPO. What follows from the above discussion is that whether the transfer pricing adjustment is upheld by the judicial authorities or is pending in appeal, it is a pre-requisite that the transfer pricing adjustment must have been made in the first instance by the AO in the final assessment order. 17. Coming back to the facts of the instant case, we find from the letter of the AO written to the Pr. CIT/TPO that a transfer pricing adjustment of Rs. 23.35 crore was made by the TPO for assessment year 2013-14 and further that `the appeal is pending before the Dispute Resolution Panel.' In addition, he also wrote that: `In this case, there are additions by the TPO concerned for earlier assessment years, namely, 2007-08 to 2012-13.' The ld. AR submitted that the position of the transfer pricing adjustments for such earlier years was similar inasmuch as the transfer pricing adjustments were only proposed in the draft orders and all the matters were pending before the DRP. This statement has not been controverted by the ld. DR. The reason for pendency of the draft orders for so many years before the DRP is that all such ....
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....ceedings as only thereafter would a final appealable assessment order be passed. Till date there is no appealable assessment order'. It further went to hold that : `The proceeding before the DRP is not a appeal proceeding but a correcting mechanism in the nature of a second look at the proposed assessment order by high functionaries of the revenue keeping in mind the interests of the assessee. It is a continuation of the Assessment proceedings till such time a final order of assessment which is appealable is passed by the Assessing Officer". 20. We have referred to the appellate recourse in an earlier para. One needs to appreciate the difference between the remedy through the CIT(A) on one hand and through the DRP on the other. Whether it is a case of appeal before the CIT(A) or filing of objections before the DRP, the AO has to first notify the draft order u/s 144C(1) in the same manner. In the scenario of the straight appeal to the CIT(A), the assessee does not file objections before the DRP within the stipulated period. On the expiry of the given period, the AO has to necessarily complete the assessment on the basis of the draft order u/s 144C(3) of the Act, which order is th....
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....s have been carried out and findings regarding transfer pricing issues have been recorded by the Investigation wing or the AO. The ld. DR submitted that though the year under consideration is not a search year but the earlier years were covered under search and seizure operations. 24. We find it difficult to countenance such a submission of the ld. DR for two reasons. First, para 3.3(c) of the 2016 Instruction refers to search and seizure or survey operations having been carried out under the Act on the assessee. Such a reference can be only to the search and seizure or survey operations relating to the year under consideration and not any earlier or later years. Second, the AO did not invoke para 3.3(c) of 2016 Instruction either at the time of seeking approval from the Pr. CIT or making a reference to the TPO. The entire case is founded on para 3.3(b) of 2016 Instruction. We, therefore, reject this contention. 25. Another argument put forth by the ld. DR was to the effect that section 92C(3) of the Act authorizes the AO to suo motu determine the ALP of an international transaction / specified domestic transaction. He stated that 2016 Instruction cannot override the statutory pr....