TaxTMI 
TaxTMI 
2021 (8) TMI 930
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....petition and stay the assessment proceedings for AY 2017-18 undertaken by Respondent No.1; (c) any other and further relief deemed just and proper be granted in the interest of justice; (d) to provide for the cost of this petition" 2 The case put up by the writ applicant, in his writ application, may be summarized as under: 3 The writ applicant is a limited company. It seeks to challenge the reference made by the respondent No.1 to the respondent No.2 under Section 92CA (1) of the Income Tax Act (for short, "the Act"), in relation to the computation of Arm's Length Price on the ground of being erroneous, illegal and contrary to law. The writ applicant further seeks to challenge the notice under Sections 92CA(2) and 92D(3) respectively issued by the respondent No.2 dated 20th December 2019, on the ground of being erroneous, illegal, contrary to law and without jurisdiction. 4 The writ applicant is engaged in the business of manufacturing Industrial Automation Solution, Rotating Machine Control, Power Controller, Uninterrupted Power Supply and Power Conditioning products. In relation to A.Y. 2017-18, the writ applicant had availed an unsecured External Comm....
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.... Rs. 97,80,041/-. Explain nature of such claim and supporting documentary evidences in support of such claim. 8. On perusal of tax audit report is is noticed that In clause 21(a) of TAR, auditors has reported that amount debited to P & L account being in the nature of capital, personnel etc. and in relation to amortization of lease hold land amount to Rs. 2,27 ,240/-. Further on verification of computation of income it is noticed that the same has not been disallowed. Therefore, you are requested to show cause as why same should not be disallowed. 9. Please submit detailed break up of advances written off of Rs. 1,97,076/-. Please show Cause as why to why it should not be disallowed. 10. On verification of the submission made by you it is noticed that there is mismatch in additions to fixed assets as reported in note 12 & 13 of the audited financial statement and per clause 18 of tax audit report. Please reconcile the same. 11. On perusal of clause 18 of the tax audit report, it is noticed that block of asset has been increased due to change in rate of exchange. Details of same area as under: a) Building:1,13,32,654/- b) F & F :....
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..... S. Soparkar, the learned counsel appearing for the writ applicant vehemently submitted that his client was not given an opportunity of hearing by the A.O. before disposing of the objections raised by his client and making a reference to the T.P.O. for the determination of the A.L.P. Mr. Soparkar submitted that the reference at the instance of the A.O. to the T.P.O. is solely on the ground that the writ applicant has failed to fully disclose his international transaction of loan of Rs. 20 Crore. In other words, the writ applicant has not added the loan amount in column No.8 of the 3CEB report and in such circumstances, the A.O. is seeking to justify the reference made by him to the T.P.O. under para 3.3 (a) of the instruction 3/2016. However, Mr. Soparkar would vehemently submit that the A.O. has completely overlooked the jurisdictional requirement of a satisfaction in accordance with para 3.4 of the instruction 3/2016 that there ought to be an income or a potential of an income arising and/or being affected on determination of the A.L.P. of an international transaction or specified domestic transaction. Mr. Soparkar would submit that in the absence of such satisfaction being reco....
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....lates to computation of Arm's Length Price. It is submitted that the error on the part of his client in computing the amount in column No.8 would not give rise to the circumstances of referring the matter to the T.P.O. His client has fully disclosed the factum of loan and interest details in column Nos.10 and 14 respectively. The important part of Form 3CEB is part 'B' only and on that basis, the A.L.P. is determined / changed either by the A.O. or T.P.O., as the case may be. As there is no error or omission in part 'B', it would not have any impact on the A.L.P. to be determined and therefore, there is no failure on the part of his client to disclose any transaction that has impact on the income. 15 In such circumstances referred to above, Mr. Soparkar prays that there being merit in his writ application, the same be allowed and the reference made by the respondent No.1 to the respondent No.2 may be quashed and set aside including the notice dated 20th December 2019. 16 Mr. Soparkar, in support of his aforesaid submissions, has placed reliance on the following decisions: [1] Indorama Synthetics (India) Ltd vs. Additional Commissioner of Income-tax re....
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....h as the objections raised by the writ applicant were disposed of by a speaking order and the T.P.O. would otherwise provide adequate opportunity of hearing before making any transfer pricing adjustment. 19 Mr. Bhatt next submitted that indisputably, the writ applicant had entered into an international transaction with the associated enterprise namely the Hitachi International Treasury Limited. Section 92B of the Act defines the term "international transaction". The Explanation (i)(c) to Section 92B defines the term "international transaction" as under: "(c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;" 20 Mr. Bhatt, referring to the aforesaid definition of the "international transaction" submitted that for the purposes of Chapter X, "loan" is the transaction which was required to be reported in the Form 3CEB. The writ applicant had availed loan from the associated enterprise. However, the writ applicant failed to report the said "transaction" i.e. the....
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....s self-serving and dehors the records. It is submitted that the Arm's Length Price on the interest paid would have bearing on the income of the writ applicant and therefore, the contention that the international transaction entered into by the writ applicant has no bearing on the income does not hold any merit. For the purpose of arriving at the conclusion that the method adopted by the assessee and the A.L.P. is in order, the basic figure required is of the loan amount. ISSUE OF LIMITATION: 24 Mr. Bhatt also submitted as regards the issue of limitation. He pointed out that this Court vide order dated 27th December 2019 was pleased to stay the Transfer Pricing proceedings and allowed the assessment proceedings to go on. Section 153 of the Act provides for the time limit to frame assessment. The time limit to frame assessment for A.Y. 2017- 18 as per Section 153(1) was 31st December 2019. In view of Section 153(4), the time limit was extended by further 12 months as reference under Section 92CA(1) of the Act was made which expired on 31st December 2020. In view of the Covid-19 pandemic, the time limit to frame the assessment came to be extended till 31st March 2021 in light of....
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....sing Officer proceeds to compute the total income of the assessee in conformity with the arm's length price determined by the Transfer Pricing Officer. Mr. Bhatt would submit that it is clear that the Assessing officer cannot frame assessment sans the order of the Transfer Pricing Officer. 27 Mr. Bhatt would submit that the Transfer Pricing proceedings is an integral part of the assessment proceedings and therefore, the period during which proceedings before the T.P.O. was stayed is required to be excluded for the purposes of computing limitation for framing assessment under Section 143(3) of the Act. 28 Mr. Bhatt, in support of his aforesaid submissions, has placed reliance on two decisions of this High Court: (i) M/s. D. B. Corporation Limited vs. Deputy Commissioner of Income Tax - Circle and others [Special Civil Application No.5035 of 2016 decided on 10th August 2016] (ii) M/s. Veer Gems vs. Assistant Commissioner of Income Tax - Circle 7 and others [Special Civil Application No.12648 of 2011 decided on 19th October 2011] ANALYSIS: 29 Having heard the learned counsel appearing for the parties and having gone through the materials on record, the fo....
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....sessing Officer considers it necessary or expedient so to do, he may with the previous approval of the Principal Commissioner or Commissioner, refer the computation of the arm s length price in relation to ‟s length price in relation to the said international the said international transaction or specified domestic transaction under Section 92C to the Transfer Pricing Officer. (2) Where a reference is made under sub-Section (1), the Transfer Pricing Officer shall serve a notice on the Assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the Assessee may rely in support of the computation made by him of the arm‟s length price in relation to the said internationals length price in relation to the international transaction or specified domestic transaction referred to in sub-Section (1). (2A) Where any other international transaction other than an international transaction referred under sub-Section (1), comes to the notice of the Transfer Pricing Officer during the course of the proceedings before him, the provisions of this Chapter shall apply as if such other international transaction is an ....
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....transaction or specified domestic transaction. Therefore, the satisfaction to be arrived at by the AO regarding the existence of the international transaction or specified domestic transaction, even prima facie, is a sine qua non for making the reference to the TPO. Where such an Accountant's report is submitted by the Assessee in Form 3CEB, then there should be no difficulty for the AO to form an opinion, even a prima facie one, that it is necessary and expedient to make a reference to the TPO on the question of the determination of the ALP of such international transaction involving the Assessee. 16. CBDT's Instruction No. 3 of 2003 categorically states that in order to make a reference to the TPO, the AO has to satisfy himself that the Assessee has entered into an international transaction with its AE. One of the sources from which the factual information regarding the international transaction can be gathered is Form No. 3 CEB filed with the return which is in the nature of an Accountant's report containing the details of the international transaction entered into by the taxpayer during the AY in question. Where no such report in Form 3 CEB is filed by the Assessee....
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.... an AE) was declared as an international transaction. Also the ALP of the shares so issued, was determined. However, a notice was appended by the Accountant stating that the transaction of issue of equity shares did not affect the income of the Assessee and was being reported only as a matter of abundant caution. 19.2 The return was picked up for scrutiny by the AO. Thereafter, the AO, after obtaining the previous approval of the Commissioner of Income Tax ("CIT‟s length price in relation to the said international) referred all the transactions reported in Form 3 CEB to the TPO under Section 92CA (1) of the Act. The TPO then issued a show-cause notice (SCN) to VISPL on 14th December 2012, inter alia asking it to show cause why the issue price (including the premium) of the equity shares to its holding company as declared by VISPL should be accepted for the purposes of computing ALP under the Act. 19.3 In reply VISPL contended that the notice was completely without jurisdiction on the ground that provisions of Chapter X did not apply to issue of equity shares. Without prejudice, VISPL contested the SCN on merits. The TPO passed an order on 28th January 2013 n....
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....d 22nd March 2013 on the ground that in view of Section 92CA (4), the Assessing Officer is obliged to pass an order in conformity with the ALP determined by the TPO. This jurisdictional issue has to be dealt with either by the TPO or the Assessing Officer when specifically raised by the Petitioner/Assessee. 33. Normally when an accountant reports an international transaction under Section 92E there may be no dispute that there is an income arising and/or being affected or a potential of an income arising and/or being affected by an international transaction on determination of ALP. However when an Assessee challenges the above premise, then the issue must be decided. Such an issue must be dealt with at the very threshold that is before determination of ALP. This is so because in case it is held that in the International Transaction there is no income or potential of any income arising and/or being affected on determination of an ALP, the entire exercise of determining the ALP would become academic. In terms of Section 92CA (4), the Assessing Officer is bound to pass an order in conformity with the ALP determined by the TPO as held by another Division Bench of this Court in....
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....3;s length price in relation to the said internationals report under Section 92E the applicability of Chapter X may be an admitted position. However we may add a caveat and that is: where the Assessee objects to the jurisdiction under Chapter X being exercised then hearing is required to be given by the Assessing Officer to the Assessee to consider whether it is necessary and expedient to refer the matter to the TPO as otherwise this objection would never be considered, as pointed out above and as in fact has happened in this case. In such cases where the applicability of Chapter X to the facts of the Assessee‟s length price in relation to the said internationals case is objected to, a hearing should be given to consider the Assessee‟s length price in relation to the said internationals objection but not otherwise." 19.7. However instead of remanding the matter to the AO, the Bombay High Court was of the view that the question must be considered by the DRP on merits. 20. This Court concurs with the view expressed by the Bombay High Court in Vodafone India Services (P) Limited v. Union of India (supra). It appears that the CBDT has specifically accepted....
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....licability of Chapter X [Section 92 to 92F] to these three situations is objected to by the taxpayer, the AO must consider the taxpayer‟s length price in relation to the said internationals 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 approval of the PCIT or CIT." 31 Thus, it appears that the Delhi High Court disagreed with the decision of this High Court rendered in the case of M/s. Veer Gems (supra) on the issue whether the A.O. must provide an opportunity of being heard to the taxpayer before recording his satisfaction or otherwise. The Delhi High Court relying on the decision of the Bombay High Court in Vodafone India Services (P) Ltd (supra) held that an opportunity of hearing must be given. Whereas, this High Court in M/s. Veer Gems (supra) took the view that having regard to the provisions under Chapter X, the A.O. is not obliged in any manner to hear the assessee. The only obligation on the part of the A.O. is to consider the objections of the assessee and only thereafter....
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....ted by the TPO under sub-section (3) of Section 92CA of the Act, there is nothing to prevent the Assessing Officers from considering the objections of the assessee that, in fact, there had been no international transaction between the assessee and any other person. If the assessee succeeds in establishing such fact, naturally the Assessing Officer would have to drop the entire proceedings in connection with the international transaction. 16. Counsel for the assessee, however, submitted that by virtue of newly substituted sub-section (4) of Section 92CA of the Act, the order passed by the TPO under sub-section (3) of Section 92CA of the Act, is now binding on the Assessing Officer and the Assessing Officer has to proceed to compute the total income in conformity with the arm's length price so determined by the TPO. He pointed out that previously sub-section (4) of Section 92CA of the Act only required the Assessing Officer to compute the total income of the assessee having regard to the arm's length price determined under sub-section (3) of Section 92CA of the Act by the TPO. 17. To our mind, this statutory change has no significant effect on our interpretation rec....
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....eipt of directions issued under sub-section (5) of Section 144C of the Act, the Assessing Officer shall in conformity with the directions complete the assessment proceedings. Section 144C of the Act, thus, provides for complete dispute resolution mechanism to an eligible assessee. He has an option either to accept the variation proposed by the Assessing Officer or to raise objections before the Dispute Resolution Panel. The Dispute Resolution Panel has wide powers of issuing directions under subsection (5) of Section 144C of the Act and to confirm, reduce or enhance the variations proposed under subsection (8) of Section 144C of the Act. Under subsection (13) of Section 144C of the Act, such directions are binding upon the Assessing Officer." 33 It goes without saying as judicial decorum and propriety demand that the judgement rendered by a Coordinate Bench of this Court is binding to us. It would not have taken a minute for us to reject the contention raised by Mr. Soparkar as regards the opportunity of hearing not being given to his client by following the dictum as laid by this High Court in M/s. Veer Gems (supra). However, we take notice of something in the judgement rendere....
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....rence to the above cited subject, I am directed to draw your attention to the decision of the High Court of Bombay in the case of Vodafone India Services Pvt Ltd for AY 2009-10(WP No.871/2014), wherein the Court has held, inter alia, that the premium on share issue was on account of capital account transaction and does not give rise to income and hence, not liable to transfer pricing adjustment. 2 It is hereby informed that the Board has accepted the decision of the High Court of Bombay in the above mentioned Writ Petition. In view of the acceptance of the above judgment, it is directed that the ratio of decidendi of the judgment must be adhered to by the field officers in all cases where this issue is involved. This may also be brought to the notice of the ITAT, DRPs and CsIT (Appeals). 3 This issues with the approval of Chairperson CBDT. (Anchal Khandelwal) Under Secretary to the Govt. of India" 36 Having answered the first question posed by us in favour of the assessee, we could have close the judgement at this stage and remitted the matter to the A.O. to consider all the questions a fresh after giving an opportunity of hearing to the assessee. However, we w....
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....ction or specified domestic transaction to the TPO or proper administration of the Income-tax Act, the Board has decided that the AO shall henceforth make a reference to the TPO only under the circumstances laid out in this Instruction. 3.2 All cases selected for scrutiny, either under the Computer Assisted Scrutiny Selection [CASS] system or under the compulsory manual selection system (in accordance with the CBDT's annual instructions in this regard -for example. Instruction No. 6/2014 for selection in F.Y 2014-15 and Instruction No. 8/2015 for selection in F.Y 2015-16), on the basis of transfer pricing risk parameters [in respect of international transactions or specified domestic transactions or both] have to 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 fact that a case has been selected for scrutiny on a TP risk parameter becomes clear from a of the reasons for which a particular case has been selected and the same are invariably available with the jurisdictional AO. Thus, if the reason or one of the reasons for selection of a case for scrut....
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....rtain 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 approval of the PCIT or CIT." 37 We may now look into the following: "Press Information Bureau Government of India ....
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....1,308.91 crore. In addition, the difference Rs. 1,308.91 crore between the transaction price and the Arm's Length Price was treated as 'deemed loan' given by VISPL to the holding company; and interest that would have been payable on the loan in an arm's length transaction was computed at Rs. 88.35 crore. In total, transfer pricing adjustment of Rs. 1,397.26 crore was proposed by the TPO for Assessment year 2009-10. the matter was agitated by VISPL at the stage of Draft AO itself and therefore the tax payable could not be crystallized. However, the tax rate of 33 percent was applicable for Assessment Year 2009-10. The DRP, on 11.2.2014, held that the premium determined by the TPO, to the extent not received, is an income arising from issue of shares, and that the AO and the TPO have jurisdiction. VISPL filed a 2nd Writ Petition in the High Court of Bombay. The High Court on 10.10.2014, has amongst other things observed: a) "Section 92(2) of the Act deals with a situation where two or more AEs enter into an arrangement whereby they receive a benefit, service or facility then the allocation, apportionment or contribution towards the cost or expenditure is to....
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.... charged only on income and in the absence of any income arising, the issue of applying the measure of Arm's Length Pricing to the transactional value / consideration itself would not arise. [b] If income is noticed, chargeable to tax under the normal provisions of the Act, then, alone Chapter X of the Act could be invoked. 39 We find substance in the contention raised by Mr. Soparkar that the A.O. could be said to have overlooked or rather ignored the jurisdictional requirement of a satisfaction in accordance with para 3.4 of the instruction No.3 of 2016 referred to above that there ought to be an income or potential of an income arising and/or being affected on determination of the A.L.P. of an international transaction or specified domestic transaction. In the absence of such satisfaction being recorded in the order disposing of the objections, the reference to the T.P.O. would also be without jurisdiction. We take notice of the fact that in the objections, a specific plea in this regard was taken, however, we do not find a word in this regard in the order disposing of the objections. On this issue, the only reply of the learned Senior Counsel appearing for the Reven....