TaxTMI 
TaxTMI 
2025 (3) TMI 949
X X X X Extracts X X X X
X X X X Extracts X X X X
....ort "the Act") for Assessment Year 2017-2018. The petitioner has also challenged the notice under section 92CA (2) issued by respondent no. 2 dated 30.12.2019 and approval dated 24.12.2019. Facts of the case: 3. Brief facts of the case are that petitioner is a bank engaged in Financial Service Sector. For Assessment Year 2017-2018, the petitioner filed original return of income on 24.11.2017 at Rs. 14, 068.11 crores. The petitioner filed Accountant Report in From 3CEB dated 15.11.2017 on 22.11.2017. The petitioner thereafter filed revised return of income on 28.03.2019 at Rs.14, 163.69 crores. 4. Case of the petitioner was selected for scrutiny on non-transfer pricing risk parameters and notice under section 143(2) of the Act was issued on 27.09.2018 for which the assessment is going on. 5. On 13.12.2019, respondent no. 1 issued a show cause notice to the petitioner as to why the case of the petitioner should not be referred to the Transfer Pricing Officer. 6. The petitioner replied to said notice vide letter dated 23.12.2019 justifying as to why the case should not be referred. 7. It is the case of the petitioner that satisfaction recorded by respondent no. 1 was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ternational transaction referred to him under sub-section (1). (2B) Where in respect of an international transaction, the assessee has not furnished the report under section 92E and such transaction comes to the notice of the Transfer Pricing Officer during the course of the proceeding before him, the provisions of this Chapter shall apply as if such transaction is an international transaction referred to him under sub-section (1). (2C) Nothing contained in sub-section (2B) shall empower the Assessing Officer either to assess or reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing 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...." Submissions of the petitioner: 13. Learned Senior Advocate Mr. S.N. Soparkar for the petitioner submitted that as per section 92CA (1), the Assessing Officer has to refer the computation of Arm's Length Price (ALP) to Transfer Pricing Officer (TPO) when he considers that it is necessary or expedient so to do. Reference was made to the Instruction No. 3 of 20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsactions 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 approval of the PCIT or CIT." 14. Referring to abo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was nothing but an eyewash. On the same day, the approval was granted by the Principal Commissioner of Income Tax, Ahmedabad to transfer the case to TPO only because for earlier assessment year 2016-2017, the case was transferred to TPO. 20. Learned Senior Advocate Mr. Soparkar therefore, referred to the order passed by TPO for Assessment Year 2016-2017 to point out that TPO has not made any adjustment so far as transaction between the branch office of the petitioner bank outside India with head office of the petitioner in India but has only made adjustment on account of interest on loan only. It was therefore, submitted that the respondent could not have made reference to TPO considering the identical facts to transfer case for Assessment Year 2017-2018 relying upon the order of transfer made for Assessment Year 2016-2017. 21. It was further submitted that there are no two AEs as per section 92B(1) of the Act as branches of the petitioner bank outside India cannot be considered as a separate AE as no income element would be involved in case of transaction between head office of the petitioner in India with the branch of the petitioner outside India as entire income would be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....submitted that letter of approval issued by the Principal Commissioner of Income Tax dated 24.12.2019 produced at Annexure-R3 is without DIN number and therefore, it is null and void document as per Circular No. 19/2019 dated 14.08.2019. 27. Reliance was placed on the decision of Delhi High Court in case of Commissioner of Income-tax (International Arbitration) v. Brandix Mauritius Holdings Ltd. reported in (2023) 456 ITR 34 (Delhi) and decision of Bombay High Court in case of Ashok Commercial Enterprises v. Assistant Commissioner of Income Tax reported in (2023) 459 ITR 100 (BOM). 28. Reliance was also placed on decision of this Court in case of Hitachi Hi Rel Power Electronics Pvt. Ltd. v. The Deputy Commissioner of Income Tax Circle 2(1)(1), Ahmedabad rendered on 19.08.2021 in Special Civil Application No. 23302 of 2019 wherein in similar facts, this Court quashed and set aside the notice as well as order of transfer to TPO remitting the matter to the Assessing Officer for fresh consideration of the matter and issues discussed in the said order after giving opportunity of hearing to the petitioner. It was further submitted that the case of the petitioner does not fall with....
X X X X Extracts X X X X
X X X X Extracts X X X X
....16-2017 under section 92CA (3) of the Act for the purpose of rebutting all the points raised by the petitioner in its objection dated 23.12.2019 only. It was therefore, pointed out that the petitioner has obtained stay by misleading this Court by suppressing the factum of objections having been considered and disposed off by the respondent no. 1. It was therefore, submitted that only on this count, the petition is liable to be dismissed. 32. Learned Senior Standing Counsel Mr. Patel referred to chronology of events enumerated in para no. 5 of the affidavit in reply to submit that adequate opportunity has been granted to the petitioner and thereafter proposal dated 24.12.2019 was made by respondent no. 1 to Principal Commissioner of Income Tax for approval after recording the satisfaction to the effect that there is an income or a potential of an income arising and/or being affected on determination of ALP of international transaction or specified domestic transaction of the petitioner. 33. It was submitted that the Principal Commissioner of Income Tax-1 had accorded the approval by letter dated 24.12.2019 in accordance with the CBDT Circular No. 3 of 2016 for the purpose of r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsaction which makes the case fit for referring it to the TPO. The said notice cum order disposing objections dated 23.12.2019 was issued through ITBA and duly served upon the Petitioner coupled with the fact that the same was also e-mailed to Shri Prosenjit Choudhuri (F&A)] [Head Tax (prosenjit.choudhuri @axisbank.com) and copy to Rakesh Gupta Shri (rakeshgupta346 @gmail.com) and Shri Lokhandwala (operation head(lokhandwala. operation [email protected]). Therefore, the contention that reference is made without passing a speaking order disposing off the objections does not hold merit and is contrary to the records. I reiterate that satisfaction is recorded on 24.12.2019 to the effect 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. I submit that satisfaction was recorded and detailed report was sent to Pr. CIT-1, Ahmedabad which was also endorsed by the Addl. CIT Range 1(1) Ahmedabad. The office of the Principal Commissioner of Income Tax-1 accorded approval under letter dated 24.12.2019 in accordance with CBDT Instruction no. 3 of 2016 dated 10.3....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsactions between the petitioner's head office and its branches are international transactions and the same were required to be reported under section 92E of the Act and were required to be bench-marked as per the provisions of the Act. 35. It was therefore, submitted that as per the reasons recorded by respondent no. 1 and satisfaction arrived at by respondent no. 1 as per para no. 3.3 of the CBDT Instruction No. 3 of 2016, no interference may be made in the impugned notice and order to refer the matter to TPO for Assessment Year 2017-2018. 36. With regard to the contention raised on behalf of the petitioner in the affidavit in rejoinder with regard to absence of DIN number in approval granted by the Principal Commissioner of Income Tax, it was submitted that it was an internal communication granting approval which does not require any DIN number. Discussion and Findings: 37. Having heard the learned advocates for the respective parties and considering the facts of the case, the petitioner has not disputed that the transactions which were entered into by the petitioner with his branch office for AY 2017-2018 were different than the transactions which were entered for A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ons of sec. 90/91 of the Act, which has nothing to do with the charging provisions of the Act. It is a settled position of law that for any income to be chargeable to tax in India, it is necessary that the same is covered by the charging section. In the absence of any charge, the same cannot become taxable in India. 1.1 There might be an argument that the assessee has to pay the differential rate of tax in India if the tax rate in Sri Lanka (in the given example) is less than the tax rate in India as the income of the branch is consolidated in the accounts of the Head Office. However, this does not capture the complete picture of the transaction as there can be a scenario in which if the tax rate is higher in Sri Lanka, the Indian Government does not get a single penny of tax. If the P.E. of the assessee is considered to be a resident in India, then it is liable to pay tax in India. 1.2 A bare reading of the Act makes it clear that the Permanent Establishment (PE) of an enterprise has been deemed to be an Associated Enterprise (AE) of that enterprise. Therefore, there is a deeming fiction created by the law which makes a PE of an enterprise as a separate legal per....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s extent. Thus, base erosion is one of the most important considerations / objective of introducing the transfer pricing provisions in India. 1.3 In the aforesaid background, if the provisions of the Act reproduced in para no. 2.6, as referred to hereinabove, are read in conjuction, it follows that the transaction of any assessee with its permanent establishment, that qualifies as an associated enterprise, situated outside the country takes the form of an International Transaction, as defined u/s. 92B of the Act, and is therefore, covered by the provisions of Chapter X that deals with special provisions relating to avoidance of tax. Admittedly, any such international transaction has to be bench marked by the assessee and a report from an accountant in the prescribed form duly signed and verified in the prescribed manner by such accountant and setting forth such particulars as may be prescribed, as mandated u/s. 92E of the Act, should be obtained and furnished before the specified date. The form i.e. referred to herein above is Form 3CEB and as such the assessee was required to include the international transactions entered into with its permanent establishments in such for....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of royalties, fees or other similar payments in return for the use of patents or other sights, or by way of commission for specific services performed or for management, or except in the case of a banking enterprise by way of interest on money lent to the head office of the enterprise or any of its other offices." (emphasis supplied)" A perusal of the above, clearly demonstrates that the P.E in the form of branch office of the assessee company outside India would be an A.E of the assessee which is to be treated as a non resident for the purpose of application of transfer pricing provisions. There is definitely income accruing or arising to the assessee company in these transactions as these are normal banking company transactions. Even the DAA's signed by India creates a deemed allowance of interest payment to the H.O as a deductible expenditure as per Article 7 (3) of the DAA's which also demonstrates clearly that in the case of a banking company, the P.E would be treated as an A.E of the assessee and all the transactions are required to be not only disclosed but also benchmarked in the transfer pricing study. Therefore, in view of the above discussion, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ise to over or under invoice the goods or services to its foreign branch office because by virtue of section 5(1). it is its world income which is going to be charged to tax in India, Which in all circumstances will remain same at Rs. 25 in the above example. This example is not factually correct as the tax rate applicable in the country in which the B.O is situated would make the difference. This is being highlighted by the assessee own example as under : Situation 1 : Over invoicing - If the H.O charges Rs. 110/- instead of Rs. 100/-, in that case, the profits of the B.O would be reduced by Rs. 10/- and profits of H.O. would increase by Rs. 10/-. The increase in the profit of H.O by Rs. 10/- would be entirely taxable in India. However, due to over invoicing, the profit of the B.O are understated in that country and the Indian Tax Department would be directly benefitted in terms of higher taxes in India. Situation 2 : Under invoicing - If the H.O charges Rs. 95/- instead of Rs. 100/-, in that case, the profits of the B.O would be increased by Rs. 5/- and profits of H.O would decrease by Rs. 5/-. The increase in the profit of B.O by Rs. 5/- would be taxable in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... intention would not make a difference to the facts of the case. 6.5 The assessee relied on a number of judicial pronouncements, however, they are not applicable to the facts of this case. In the case of M/s. Aithent Technologies of Hon'ble Delhi ITAT, it was relating to the purchase and sale transactions between the H.O and the B.O which is not the case here. The assessee is a banking company which has mainly interest bearing loan transactions. The same is the case with the judgment of Hon'ble ITAT Mumbai in the case of Elder Exim Pvt. Ltd. 85 Taxmann.com 338. The assessee is a banking company and had entered into transactions of interest bearing loans with its branches during the year. 6.6 The assessee's reliance on the case of Mehta Brothers Exports 33 Taxman.com 504 of Hon'ble ITAT Mumbai judgment regarding non-levy of penalty on the basis of possible alternative view is also not applicable to the facts of the case as the given judgment was having regard to the interplay of section 92A(1) and (2) of the Act which is not the case as per the facts. In this case, the issue is whether the assessee should have reported transactions with its overseas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ermine the market price of the foreign currency. It is a fact that there is maximum variation in the foreign exchange rates. There may not be a profit or loss on the day of the transaction, however, there would definitely be either a profit or a loss depending on the position being taken/foreign currency being traded. Therefore, the arguments of the assessee that mere exchange of foreign currency does not result in any income, is not only farfetched but completely based on the imagination of the assessee without any substance whatsoever. Therefore, the arguments of the assessee that there is no income arising from these transactions has not based on the facts of the case and accordingly rejected. 3. The assessee has relied on a number of judgments in support of its contention, however, all these judgments are relating to the capital account transactions in which admittedly no income arises as per the provisions of the charging section. Therefore, all those judgments are not at all applicable to the facts of the case of the assessee. The reliance of the assessee on CBDT instruction no. 2/2015 dated 29/01/2015 is also not applicable to the facts of this case as this instruct....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e notice dated 23.12.2019 fixing the date of hearing at 24.12.2019. However, in response no one attended and no reply was received. 6. In view of above, the following facts emerges: The assessee has entered into international transactions with overseas branch/ Associated Enterprises Such transactions ought to have been disclosed in the Accountant's report under section 92E / Form 3CЕВ. The assessee has failed to disclose these transactions in Form 3CEВ. As per Para 3, 3 of CBDT Instruction 3/2016, the cases selected for scrutiny on non transfer pricing risk parameters but also having international transactions or specified domestic transactions shall be reported to TPO, where the Assessing Officer comes to know that the tax payer has entered into international transactions or specified domestic transactions or both but the tax payers has either not field the Accountant's report under section 92E at all or has not disclosed the said transactions in the Accountant's report filed, then a reference to Transfer Pricing Officer shall be made to determine the Arm's Length price (ALP) of the transaction. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion or both but has not disclosed the said transaction in the Accountant's report filed, then after recording satisfaction as provided in clause 3.4, can refer the case to the TPO. On perusal of the clauses 3.3 and 3.4, it is apparent that the petitioner failed to disclose the international transaction between the Head Office and branches outside India in 3CEB report of the Chartered Accountant and therefore, after reasons are recorded and objections are considered and after considering the objections raised by the petitioner, approval was granted by the Principal Commissioner of Income Tax by letter dated 24.12.2019. 43. This Court in case of Hitachi Hi Rel Power Electronics Pvt. Ltd.(supra) has considered the following two questions which are also arising in facts of the present case: "[1] Whether it was incumbent on the A.O. to have given the writ applicant an opportunity of being heard before making a reference to the T.P.O. under Section 92CA (1) of the Act? [2] Whether the Assessing Officer could be said to have overlooked the jurisdictional requirement of a satisfaction in accordance with para 3.4 of the instruction No. 3 of 2016 that there ought to be a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 Revenue is that the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Income Tax Act, 1961 read with section 143(3), assessment proceedings would be conducted manually. Annexure Vide show-cause notice dated 13.12.2019 you were asked certain details of international transactions with overseas branches located at Srilanka, Dubai and Singapore which were not reported as required u/s 92E of the I.T. Act, 1961. Besides you were also requested to submit the details of transactions such as currency buy/sell transactions, currency swap transactions and lending/borrowing transactions with these overseas branches during the F.Y. 2016-17. The date for compliance was fixed on 18.12.2019. 2. In response you filed adjournment. Subsequently on 23.12.2019, you have contended that the impugned transactions are not liable to be referred to TPO. In this regard you have also requested for personal hearing. 3. In this regard as per clear and categorical findings of the PO vide order uls 92CA (3) for. AY 2016-17, you have failed to disclose international transactions which were liable to be disclosed in Accountant's report under section 92E. Further as per section 92CA (4) on receipt of order u/s 92CA (3) passed by the TPO, the AO....