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TMI Blog2014 (2) TMI 673X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to the file of the Assessing Officer for referring the matter to the TPO and making a fresh assessment. The Assessing Officer proceeded to complete the reassessment under section 143(3) of the I.T. Act as per the directions of the Commissioner of Income-Tax. As per the directions contained in the order of the CIT passed under section 263, the Assessing Officer referred the matter of determining the ALP to the TPO with regard to the technical know-how fees paid. The TPO, thereafter, passed an order under section 92CA(3) dated 23-10-2009. He held that the international transaction is sham and, therefore, the technical fees paid and the reimbursement of the expenses should not be allowed. He accordingly determined the ALP in respect of fees paid to LGE and the amount paid towards reimbursement of expenses at Rs. NIL. 2. The Assessing Officer, while completing the assessment, added the amount paid towards fee for technical consultation of Rs.6,39,31,000/- and the reimbursement expenses claimed of Rs.48,41,458/-. The assessee filed an appeal before the CIT (A)-III, Hyderabad and the learned CIT (A) vide order in ITA No.0056/CIT(A)-III/10-11 dated 31-12-2010 confirmed the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been referred to him by the Assessing Officer, he will have to take up the matter with the Assessing Officer so that fresh reference is received with regard to such transactions. It may be noted that the reference to the TPO is transaction and enterprise specific". 6. The transfer price has to be determined by the TPO in terms of section 92C. The price have to be determined by anyone of the methods stipulated in sub-section (1) of section 92C and by applying the most appropriate method referred to in section (2) thereof. There may be occasions where application of the most appropriate method provides results which are different but equally reliable. In all such cases, further scrutiny may be necessary to evaluate the appropriateness of the method, the correctness of the data, weight given to various factors and so on. The selection of the most appropriate method will depend upon the facts of the case and the factors mentioned in rules contained in rule 10C. The TPO after taking into account all relevant facts and data available to him shall determine arm's length price and pass a speaking order after obtaining the approval of the DIT (TP). The order should contain the details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the ground that the TPO has held that the transaction of royalty was a sham one and that the motive behind the same was to shift the profits of the assessee company out of the country since the necessity of making the impugned payment and also, the viability of the same, are the decisions of the management; as there was a business necessity for the assessee to make the impugned royalty payment to its AE, decisions of TPO/DRP in holding that the impugned royalty payment transaction was a sham transaction was without any merit; since the TPO did not examine the ALP of the impugned royalty payment in accordance with the provisions of s. 92C and also did not call for any objection from the assessee against the proposal to treat the transaction as a sham one, the order of Assessing Officer/TPO/DRP is set aside for fresh examination". 9. Following the ratio of decision in L.G. Polymers India (P) Ltd. (supra), we allow assessee's appeal. We are of the opinion that TPO is not empowered to hold the transaction as sham transaction. He has jurisdiction to decide a method and arrive at the ALP and nothing more. Hence, the order of the TPO is quashed and the assessee's ground No.3 is allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 143(3) on 6.3.2006 and disallowed the technical consultation charges paid in accordance with the above agreement at Rs.21,11,00,000/-by other provisions of section 40(a)(i) of the I.T. Act. It was submitted that while doing so, he considered all the aspects and concluded that the said amount is not allowable in view of the provisions of section 40(a)(i) of the I.T. Act. The assessee had filed all details required before the Assessing Officer and hence, it is merely a change of opinion on the part of the Assessing Officer and all the necessary information for determining the total income was submitted by the assessee before the Assessing Officer. 16. As regards the jurisdiction of the Assessing Officer we find that as the reopening was beyond 4 years from the end of the assessment year in appeal and the assessment under sec. 143(3) has been made, the Assessing Officer while recording the reasons for reopening should indicate what the assessee has omitted to furnish at the time of original proceedings which resulted in escapement of income. The Assessing Officer, however, proceeded to complete the assessment under sec. 144 read with section 147 of the I.T. Act. The Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year: Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1.- Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all also be applicable for any assessment year beginning on or before the 1st day of April, 2012." 19. Section 149 prescribes time limit for issue of notice which reads as follows: "Time limit for notice.- (1) No notice under section 148 shall be issued for the relevant assessment year,- (a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); (b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. (c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment. Explanation.- In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Arthur Anderson and Co. v. Asstt. CIT 324 ITR 240 wherein it was held that re-assessment beyond four years is a condition precedent i.e., failure to disclose material facts necessary for assessment by the assessee. When the assessee made full disclosure and the A.O. examined the issue by raising queries, the assessment cannot be reopened. 22. Further, the information that payment was made to a non-resident partner was available before the Assessing Officer and at the time of completion of regular assessment, a reference was not made to the TPO and consequently, the said amount was disallowed by applying the provisions of section 40(a)(i) of the I.T. Act. In these circumstances, there is no escapement of income or non-furnishing of any particulars by the assessee. Therefore, the Assessing Officer is not justified in initiating the proceedings under section 147 of the I.T. Act. 23. Since the legal ground, which is against reopening of assessment made by Assessing Officer u/s. 147, itself is allowed by quashing the assessment order, therefore, we do not feel necessary to go to the other grounds raised by the assessee in his appeal. 24. In the result, ITA.No.281/Hyd/2012 and ITA. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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