TMI Blog2011 (11) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1961. - Decided against the revenue. - ITA 938/2011 - - - Dated:- 28-11-2011 - MR BADAR DURREZ AHMED MS.VEENA BIRBAL JJ. Represented by: For the Appellant : Ms Suruchi Aggarwal For the Respondent : Mr M.S. Syali, Sr. Advocate with Mr Mayank Nagi Ms Husnal Syali BADAR DURREZ AHMED, J 1. The present appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the said Act) has been preferred by the Revenue against the judgment dated 18.02.2011 of the Income Tax Appellate Tribunal, Delhi Bench-A, New Delhi, delivered in ITA No. 5203/DEL/2010 pertaining to the assessment year 2006-07. The substantial question of law which arises for our consideration is as under:- Whether, on the facts and circumstance of the case, the Income Tax Appellate Tribunal erred in deciding that the Transfer Pricing Officer (TPO) could not take cognizance suo moto of any international transaction for adjustment in the Arms Length Price (ALP) under Section 92CA of the Income-tax Act, 1961. 2. The facts of the case are that the assessee, which was incorporated on 26.07.1999 as a joint venture company between M/s Radha Bhatia and family and Ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tecsoft Limited and Geometric Limited. The Transfer Pricing Officer computed the average AMP percentage of these three companies at 12.16% and concluded that any expenditure over and above 12.16% would be considered as more than routine AMP expenses. The Transfer Pricing Officer computed the AMP percentage of the assessee at 40.87%, which was much above the AMP percentage computed for the said three companies at 12.16%. As such, an adjustment was made to the AMP expenses to the extent of ₹ 29,93,48,718/-. 4. The main point of discussion before the Income Tax Appellate Tribunal was whether the Transfer Pricing Officer could have determined the arm s length price in respect of an international transaction which had not been specifically referred to him by the Assessing Officer. In this context, it was argued on behalf the assessee that the issue of determining the arm s length price in respect of AMP expenses had not been referred by the Assessing Officer to the Transfer Pricing Officer as an international transaction. In fact, what had been referred was only that which found mention in Form 3CEB which pertained to services provided and services received, as mentioned in para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 92E of the Act . * TPO in his order did not propose any adjustment to the income of assessee in respect of international transactions disclosed in its TP report. 1.2 The above facts have not been disputed by the department (kindly refer submissions filed by the Ld. CIT (DR) relevant at page 2, last para). However in the same paragraph it is noted by the Ld. CIT (DR) that the Transfer Pricing Officer noticed that expenditure in respect of AMP expenses incurred by the assessee were also within the realm of international transaction and he accordingly determined the arm s length price of these expenses in his order. 6. The impugned judgment also records, in paragraph 8 thereof, that as far as the primary facts are concerned, there is no dispute between the parties and the only dispute before the Tribunal was whether the Transfer Pricing Officer could suggest adjustments to the Assessing Officer in respect of an international transaction which had not been referred to him by the Assessing Officer under Section 92 CA(1) of the said Act. 7. The Income Tax Appellate Tribunal thereupon considered the rival contentions of the parties and embarked upon the interpretati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is found that there are certain other transactions which have not been referred to him by the Assessing Officer, he will have to take up the matter with the Assessing Officer so that a fresh reference is received with regard to such transactions. It may be noticed that the reference to the TPO is transaction and enterprise specific. 8. It is in this backdrop that the question framed has to be considered by us. 9. Ms Suruchi Aggarwal, the learned counsel for the Revenue contended that when a reference is made by an Assessing Officer to the Transfer Pricing Officer, the reference includes the entire gamut of transactions between the assessee and its associated enterprise. The provisions of Section 92CA cannot be read in a restrictive manner so as to confine it only to specific international transactions or elements of said transactions for the purposes of determination of the arm s length price. According to the learned counsel for the Revenue, it is Section 92 of the said Act which provides the basis for determination of an arm s length price of any international transaction, however, when the Assessing Officer feels that it would be necessary for a specialist such as a Trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he requisite approval of the Commissioner of Income Tax, but, he of his own, could not have entered into the consideration of this aspect of the matter and could not have computed the arm s length price. 11. Mr Syali also referred to instruction no.3 of 2003, issued by the Central Board of Direct Taxes on 20.05.2003 which is to the following effect:- (ii) Role of Transfer Pricing Officer: The role of the Transfer Pricing Officer begins after a reference is received from the Assessing Office. In terms of section 92CA this role is limited to the determination of arm s length price in relation to the international transaction(s) referred to him by the Assessing Officer. If during the course of proceedings before him it is found that there are certain other transactions which have not been referred to him by the Assessing Officer, he will have to take up the matter with the Assessing Officer so that a fresh reference is received with regard to such transactions. It may be noted that the reference to the Transfer Pricing Officer is transaction and enterprise specific. 12. He also relied upon the decision of this court in Sony India P. Ltd v. Central Board of Direct Taxes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer in this case. 14. Let us examine the relevant provisions of the said Act. Section 92 (1) of the said Act stipulates that any income arising from an international transaction shall be computed having regard to the arm s length price. Section 92 B gives the meaning of an international transaction for the purposes of Section 92, 92C, 92D and 92E. The said provision reads as under:- 92B. Meaning of international transaction. (1) For the purposes of this section and sections 92, 92C, 92D and 92E, international transaction means a transaction between two or more associated enterprises, either or both of whom are nonresidents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne the arm s length price in relation to the said international transaction in accordance with sub-sections (1) and (2), on the basis of such material or information or document available with him: Provided that an opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the arm s length price should not be so determined on the basis of material or information or document in the possession of the Assessing Officer. (4) Where an arm s length price is determined by the Assessing Officer under sub-section (3), the Assessing Officer may compute the total income of the assessee having regard to the arm s length price so determined: Provided that ..: Provided further that ..... 16. From the above provisions, it is apparent that it is primarily the duty of the Assessing Officer to compute the arm s length price in relation to an international transaction in accordance with the most appropriate method specified in Section 92C (1). However, where the Assessing Officer requires the arm s length price to be computed by a specialist, a reference may be made to the Transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to in section 153, or as the case may be, in section 153B for making the order of assessment or reassessment or recomputation or fresh assessment, as the case may be, expires.] [(4) On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assesse under sub-section (4) of section 92C in conformity with the arm s length price as so determined by the Transfer Pricing Officer.] xxxx xxxx xxxx xxxx xxxx 17. A plain reading of Section 92CA makes it clear that the Assessing Officer, if he considers it necessary or expedient so to do, may, with the previous approval of the Commissioner, refer the computation of the arm s length price in relation to an international transaction under Section 92C to the Transfer Pricing Officer. At this juncture, we may reiterate that it is primarily the duty of the Assesing Officer to compute any income arising from an international transaction having regard to the arm s length price. He may determine the arm s length price of an international transaction himself or, if he feels that it is necessary or expedient so to do, he may seek the approval of the Commissioner and, thereafter, refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nasmuch as the amendment changed the position and imposed a substantive liability on a dealer and that it was also one which conferred jurisdiction on an officer in a particular state to levy a tax which he otherwise did not have. Consequently, the Supreme Court held that the amendment in question was a substantive provision and could not be treated as procedural and, therefore, did not have retrospective effect. The actual words used by the Supreme Court are as under:- 9. The contention that the amendment is purely procedural is also misconceived. Assuming the correctness of the contention that a purely procedural amendment should ordinarily be construed to be retrospective, we are unable to agree that the present amendment is of such nature. The decision of this Court in Kasturi Lal's case [1987 (3) JT 234] had held that an unregistered dealer is not taxable under the proviso. The amendment changes this position and imposes a substantive liability on such a dealer. It is also one which confers jurisdiction on an officer in a particular State to levy a tax which he otherwise cannot. It is thus a substantive provision. That apart, even the question whether a charge to tax can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the tax payer has entered into an international transaction with an associated enterprise. One of the sources from which the factual information regarding international transactions can be gathered is Form No.3CEB filed with the return which is in the nature of an accountant's report containing the basic details of an international transaction entered into by the tax payer during the year and the associated enterprise with which such transaction is entered into, the nature of documents maintained and the method followed. It further prescribes that the primary details regarding such international transactions would normally be available in the accountant s report. 22. Clause (d) of the said Instruction itself records that 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 the Transfer Pricing Officer. This clause of the said instruction clearly recognizes the fact that there can be more than one international transaction with an associated enterprise. Reading the instructions and the provisions together, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in support to the computation of the arm s length price in relation to an international transaction. Thereupon, the TPO after considering such evidence, as the assessee may produce, including the documents referred to in Section 92D of the Act, has to pass an order in writing determining the arm/s length price after permitting the assessee to produce relevant documents on record. At that stage, the statutory provisions do not require or even permit the TPO to deliberate on the question whether there had been any international transaction during the period under consideration. In addition to the statutory provisions we have noticed, we are further of the opinion that the TPO whose primary task is to determine the arm s length price of an international transaction upon a reference being made in this regard by an Assessing Officer, would have no jurisdiction to decide the validity of any such reference. His jurisdiction to act in accordance with provisions contained in Section 92CA of the Act and in particular, sub-section (2) and (3) thereof, would commence only upon a reference being made to him for computation of arm s length price of an international transaction by the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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