TaxTMI 
TaxTMI 
2024 (4) TMI 145
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.... assessee's mobile security division got demerged into the Giesecke & Devrient MS India on a going concern basis. Both the assessee and Giesecke & Devrient MS India are the wholly owned subsidiaries of Giesecke & Devrient MS GmbH, a company incorporated in Germany. The assessee filed its Income Tax Return ["ITR"] for assessment year ["AY"] 2017-18 on 30 November 2017 declaring an income to the tune of INR 18,15,98,120/-. Thereafter, the assessee's case was picked up for scrutiny and notices under Sections 143(2) and 142(1) of the Act were issued to the assessee. 3. It may be noted that since the assessee had entered into international transactions during the relevant AY, which is also duly reflected in Form 3CEB filled by the assessee in accordance with Section 92E of the Act, therefore, a reference was made by the AO to the Transfer Pricing Officer ["TPO"] for determination of Arm's Length Price ["ALP"] of the said international transactions. 4. Thereafter, upon considering the reply of the assessee, the TPO passed an order under Section 92CA(3) of the Act on 31 January 2021 and vide this order, the TPO determined a transfer pricing adjustment of INR 25,58,68,79,196/-. Howev....
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....PO examined the international transaction related to the demerger. He further argued that the TPO computed the ALP of the said international transactions and the AO computed the total income of the assessee in conformity with the ALP ascertained by the TPO. Alternatively, he argued that this Court may consider sending the matter back to the file of AO to consider the case afresh. 8. We have heard the learned counsels appearing on behalf of the parties and perused the record. 9. In light of the aforenoted facts and submissions advanced, the short question before us is whether the AO can proceed to make transfer pricing adjustment beyond the ALP determination by the TPO in light of the mandate of Section 92CA of the Act. 10. Before adverting to the merits of the case, it is pertinent to refer to Section 92CA of the Act. The relevant extracts of Section 92CA of the Act are reproduced herein for reference:- "[92-CA. Reference to Transfer Pricing Officer.-(1) Where any person, being the assessee, has entered into an [international transaction or specified domestic transaction] in any previous year, and the Assessing Officer considers it necessary or expedient so to do, he may, with....
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....sing the liability of the assessee under Section 154, for any assessment year, proceedings for which have been completed before the 1st day of July, 2012.] [(3-A) 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) is made on or after the 1st day of June, 2007, an order under sub-section (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, or as the case may be, in Section 153-B for making the order of assessment or reassessment or recomputation or fresh assessment, as the case may be, expires:] [Provided that in the circumstances referred to in clause (ii) or clause (x) of Explanation (1) to Section 153, if the period of limitation available to the Transfer Pricing Officer for making an order is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to have been extended accordingly.] [(4) On receipt of the order under sub-section (3), the Assessing Offi....
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....single case that he must refer the issue of computation of the arm's length price to the TPO [Transfer Pricing Officer]. 6. However, the following expressions employed in Instruction No. 3/2003 put the matter in a different perspective: "... The assessing officer can arrive at prima facie belief on the basis of these details whether a reference is considered necessary. No detailed enquiries are needed at this stage and the assessing officer should not embark upon scrutinising the correctness or otherwise of the price of the international transaction at this stage.... If there are more than one transaction with an associated enterprise or there are transactions with more than one associated enterprise the aggregate value of which exceeds Rs 5 crores, the transactions should be referred to TPO.... Since the case will be selected for scrutiny before making reference to TPO, the assessing officer may proceed to examine other aspects of the case during pendency of assessment proceedings but await the report of the TPO on the value of international transaction before making final assessment. *** (vi) Role of the assessing officer after receipt of "arm's length price":....
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....available with the jurisdictional AO. Thus, if the reason or one of the reasons for selection of a case for scrutiny is a TP risk parameter, then the case has to be mandatorily referred to the TPO by the AO, after obtaining the approval of the jurisdictional PCIT or CIT. 3.4 For cases to be referred by the AO to the TPO in accordance with paragraphs 3.2 and 3.3 above, in respect of transactions having the following situations, the AO must, as a jurisdictional requirement, record his satisfaction that there is an income or a potential of an income arising and/or being affected on determination of the ALP of an international transaction or specified domestic transaction before seeking approval of the PCIT or CIT to refer the matter to the TPO for determination of the ALP: * where the taxpayer has not filed the Accountant's report under Section 92E of the Act but the international transactions or specified domestic transactions undertaken by it come to the notice of the AO; * where the taxpayer has not declared one or more international transaction or specified domestic transaction in the Accountant's report filed under Section 92E of the Act and the said transaction ....
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.... Act, this Court has also observed that the AO is obliged to compute the total income of the assessee in conformity with the determination made by the TPO. Paragraphs No. 13 and 14 of the said order read as under:- "13. As we construe the scheme underlying Section 92CA read along with Section 144C of the Act, the following position emerges. Section 92CA pertains to a situation where a person being an assessee has entered into an international or specified domestic transaction to submit a return. On receipt thereof and where the AO considers it necessary or expedient so to do, it may refer the same for the purposes of computation of the Arm's Length Price to the TPO. The TPO thereafter upon affording an opportunity of hearing to all concerned proceeds to determine the ALP in relation to the international or specified domestic transaction and transmits that order to the concerned AO in terms of Section 92CA(3) of the Act. Further, in terms of sub-section (4) to Section 92 CA of the Act, the AO is obliged to compute the total income of the assessee in conformity with the determination made by the TPO. 14. The determination which the AO makes in the first instance is recognized to....
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....8,68,79,196/- (Rs. 16,84,51,531/- + Rs. 2541,84,27,665/-) is proposed to be added to the total income of the assessee. [Proposed Addition Rs. 2558,68,79,196/-] Penalty proceedings u/s. 270A of the Act is initiated separately for under reporting of income. Subject to above remarks the total income of the assessee is computed as under: Total income as per Return Add: (as discussed above) Rs. 18, 15,98,120/- On account of TPO adjustments and Demerged business income. Rs. 2558 ,68,79,196/- Total Income Rs. 2576,84,77 ,316/- Rounded off Total Income Rs. 2576,84,77,320/- 6. Proposed to assessed at income of Rs. 2576,84,77,320/-. The assessment of income is completed under section 144C(1) r.w. section 143(3) r.w. section 144B of the income tax Act and computation sheet and demand notice are annexed to this Order. Penalty under section 270A of the income tax Act is issued." [Emphasis added] 17. The AO while passing the impugned order, under Section 144C read with Sections 143(3) and 144B of the Act, proposed to add an amount of INR 25,58,68,79,196/-. The AO noted the TPO order dated 31 January 2021 and computed the total income of the assessee by adding the am....