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2016 (7) TMI 1633
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....a Pvt. Ltd. During the course of survey u/s 133A on Honda Seil Cars India Ltd on 24.06.2010 certain documents were found wherefrom the revenue has formed a belief that appellant has a permanent establishment in India. It has also entered into international transactions with its associated enterprises. The return of income was filed by the assessee/ appellant on 20.8.2010 showing income of Rs. 20698486/-. Based on the above information the matter was referred u/s 92CA (3) to Transfer Pricing Officer [hereinafter referred to as "The TPO"] for determination of Arm's length price [hereinafter referred to as "ALP"] of international transaction on 28.12.2011. Meanwhile assessee approached Authority for Advance Ruling {hereinafter referred to as "AAR"] on 29.06.2011 and vide ruling dated 15.05.2012 the application of the assessee was rejected. A further reference on 11.12.2013 was made for seeking information in terms of Article- of Indo Thailand Double Taxation Avoidance Agreement [In short "DTAA"] reply for which was received on 07.11.2014 and due to above the time limit for passing draft assessment order u/s 144C read with Section 143(3) was extended up to 26.01.2015 with the consent o....
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....That on the facts and in law, the TPO/DRP miserably failed to appreciate that the transaction relating to sale of raw material to associated enterprises in India along with the applicable interest on delayed payment had been found to meet the ALP test by applying the combined transaction approach in the assessment proceeding of Indian associated enterprises and as such no adjustment could be made in the hands of the Appellant company. Ground 7: That on the facts and in law, the TPO/DRP fail to appreciate that it was not within their jurisdiction to question the commercial expediency of the transaction where the Appellant had selected to apply SIBOR on the transaction under consideration and it was not for the TPO to impose that LIBOR not being the commercial between the parties. Ground 8: Without prejudice, that on facts and in law, the TPO/ DRP erred in not considering that the risk/reward matrix, commercial rational and the business expediency existed in case of charging interest on business credit extended to the AE in the normal course of business is completely different from the case where the loan is extended by bank in typical financing transaction. The TPO....
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....n para no. 6.1 to 8 under caption heading "B" at page no 35 to 46 of that order. He also submitted a chart showing sequence of events to demonstrate his point of view. 6. The ld. DR submitted that the order passed by the TPO is not barred by the limitation and even otherwise he relied upon the order of Hon'ble Supreme Court in case of Deepak Agro Foods Vs. State of Rajasthan dated 11.07.2008 and submitted that such illegality is capable of being cured and it is merely a case of irregularity in assessment proceedings by the ld. AO and TPO who were not bereft of the authority to assess the appellant and therefore the Tribunal is duty bound to cure this defect. However he did not dispute the dates and facts mentioned in the chart submitted by the ld. AR. 7. We have carefully considered the rival contentions. Firstly we look at the various provisions which are cited before us. 8. According to the provisions of section 92CA (3A) of the act "[(3A) Where a reference was made under sub-section (1) before the 1st day of June, 2007 but the order under sub-section (3) has not been made by the Transfer Pricing Officer before the said date, or a reference under sub-section (1)....
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....ave effect as if for the words "two years", the words "thirty-three months" had been substituted:] ^42b[Provided also that in case the assessment year in which the income was first assessable is the assessment year commencing on the 1st day of April, 2009 or any subsequent assessment year and during the course of the proceeding for the assessment of total income, a reference under sub-section (1) of section 92CA- (i) is made before the 1st day of July, 2012, but an order under sub-section (3) of that section has not been made before such date; or (ii) is made on or after the 1st day of July, 2012, the provisions of clause (a) shall, notwithstanding anything contained in the first proviso, have effect as if for the words "two years", the words "three years" had been substituted.] [Extracted from taxmann.com as amended by the Finance Act 2012] Therefore accordingly the order u/s 143(3) for AY 2009-10 should have been passed by 31.3.2013 and further extended by the time taken for various reasons as per explanation (1) to section153 of the act. 10. Based on the facts narrated above we hereby tabulate the relevant dates pertaining to the proceed....
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....he dates mentioned by the ld. AR and computed by us does not make any bearing on the computation of time limit for deciding whether the order passed by the Ld TPO is barred by limitation or not. 12. Now we come to the judicial precedent referred before us by the ld. AR . Identical issue has been decided by the coordinate bench in ITA No. 1132/Del/2015 for AY 2010-11 in Honda Trading Corporation Vs. DCIT dated 15.09.2015 wherein, it has been held that the time limit specified u/s 92CA(3A) is mandatory and not directory and therefore the TPO is bound by the time limit for passing of the order u/s 92CA (3) of the act. Accordingly, in that case time limit as per section 153(1) of the Act was up to 7.06.2014 and TPO passed his order on 31.05.2014 instead of on or before 08.04.2014, hence order passed by the TPO in that case was held to be time barred. The coordinate bench has further held that in such circumstances the final assessment order would be same but the addition on account of transfer pricing adjustment arising from the determination of the ALP of the international transaction by the TPO emanating from his time barred order is unsustainable and therefore the coordinate benc....
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....ended that the use of the word 'may' in this provision for the passing of the order by the TPO within a period of 60 days of the limitation set out in section 153 indicates that the adherence to this time limit is not mandatory. He contended that even if the order is passed after the period of 60 days from the period of limitation as given u/s 153, still it would be treated as having been passed within time. This argument was countered by the ld. AR. 6.5. There is no doubt that the legislature has used the word "may" in sub-section (3A) of section 92CA. There is further no doubt that the ambit of the word 'may' is different from the word 'shall';. Whereas, ordinarily the use of the word 'shall' signifies mandatory compliance, the word 'may' signifies directory compliance. But at times, the word 'may' can also be read as 'shall' and vice versa. In fact, all depends upon the context and the background of the provision in which such a word is used. 6.6. Section 127 deals with the power to transfer cases. Sub-section (1) of this provision provides that : `The Director General or Chief Commissioner or Commissioner may, after giving the assessee a reasonable opportunity....
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....A(1)(b), should be read as `shall'. It held that if the legislative intent had been to accord total discretion to the WTO to make a reference to the Valuation Officer or not in cases which were covered by cls. (a) & (b) of sub-s. (1) of s. 16A of the WT Act, then there was no necessity of providing the guidelines in cl. (a) or in sub-cls. (i) and (ii) of cl. (b) of sub-s. (1) of s. 16A. It was, therefore, held that the legislature by prescribing the contingencies, in which, by implication, it would not be necessary to make a reference, also again by necessary implication be taken to have intended that the reference to Valuation Officer was must if the given contingencies did not exist. In this regard, the Hon'ble High Court observed that : 'There is no doubt about the fact that the use of expression "may" and "shall" to some extent serves an indicia to the intention of the legislature and helps in deciding as to whether the given requirement is directory or mandatory in character, but the use of expression "may" or "shall" is never considered decisive in that regard'. It was thus held that the moment the estimated value exceeded the returned value of the asset by more than....
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....ndent of the time limit given in section 153, there appears some logic in not continuing with the time limit for the passing of the order by the TPO tagged with the time limit given in section 153. It has led to incoherence in the provisions. This position can be set right only with a suitable legislative amendment. 6.10. Having held that the time limit given in sub-section (3A) of section 92CA is mandatory for the passing of the order by the TPO, let us find out the time available with the TPO for the passing of his order. It has been noticed above that the time limit as per section 153(1) read with the third proviso and clause (viii) of the Explanation to the section, comes at 7th June, 2014. Period of 60 days prior to such time limit coming as per section 153, available with the TPO for passing his order, comes to an end on 8th April, 2014. As against this, the order was actually passed by the TPO on 31st May, 2014. Thus, the order passed by the TPO is patently time barred. C. Consequences of valid draft order and TPO's time barred order 7. The ld. AR argued that since the draft order as well as the order of the TPO were time barred, the final assessment ord....