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TMI Blog2015 (5) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... nd dealing in shares and other securities. Return of income was filed on 31.10.2005 declaring total income at Rs. 24,31,82,750/-. The return of income was accompanied with the relevant audit report. The return was selected for scrutiny assessment, accordingly statutory notices were issued and served upon the assessee. 4.1. During the course of the assessment proceedings, the Assessing Officer noticed that the assessee has entered into International transaction with following associated enterprises. 1) SG Paris 2) SG Indian Branch 4.2. It is seen that SG Indian Branch is an assessee under the Income Tax Act and profit and gains earned are subject to taxation in India, hence transactions involving SG Asia and SG Paris are considered for the purpose of determining arms length price. SG Asia provides broking and clearing services to associated and unassociated enterprises. The AO has made adjustments in respect of brokerage/commission. 5. The assessee has challenged the validity of the jurisdiction of the AO before the Ld. CIT(A) also. The same has been considered by the Ld. CIT(A) at page-6 of his order and at page-8 vide para xii, the ld. CIT(A) dismissed this claim of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion inter alia with other issues. Q. What is the legal effect of Instruction No. 3 of 2003 issued by Central Board of Direct Taxes on Transfer Pricing proceeds? 11. The Tribunal held as under: Now, we proceed to answer question No. 6 to see the legal effect of Instruction No. 3 dated May 20, 2003, issued by the Central Board of Direct Taxes on transfer pricing. As per the above instruction, the Central Board of Direct Taxes has directed all officers of the Department where the aggregate value of international transaction and transactions exceed Rs. 5 crores, to refer the matter of determination of ALP to TPO. The relevant portion of Circular is as under ([2003] 261 ITR (St.) 51, 53) : " In the initial years of implementation of these provisions and pending development of adequate database, it would be appropriate if a small number of cases are selected for scrutiny of transfer price and these are dealt with effectively. The Central Board of Direct Taxes, therefore, have decided that wherever the aggregate value of international transaction exceeds Rs. 5 crores, the case should be pricked up for scrutiny and reference under section 92CA be made to the TPO. If there are more than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limit has now been increased to Rs. 15 crores. Having regard to the object stated in the circular, no fault is found nor any illegality seen in the instructions. In the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706, their Lordships of the Supreme Court have observed as under (page 730) : " Apart from sub-section (1), sub-section (2) of section 119 also enables the Central Board of Direct Taxes ' for the purpose of proper and efficient management of the work of assessment and collection of revenue, to issue appropriate orders, general or special in respect of any class of incomes or class of cases, setting forth directions or instructions (not being prejudicial to assessees) as to the guidelines, principles or procedures to be followed by other income-tax authorities in the work relating to assessment or collection of revenue or the initiation of proceedings for the imposition of penalties'. In our view, the High Court was not justified in reading the circular as not complying with the provisions of section 119. The circular falls well within the parameters of the powers exercisable by the Central Board of Direct Taxes under section 119 of the Act." Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determine Arm';s Length Price has remained unaffected and, therefore, assessment without making reference to TPO could not be termed as illegal." 13. After considering the facts and the decisions, the Tribunal came to the following conclusion: "On careful consideration of decision of Sony India (P.) Ltd. (supra) and that of Special Bench in the case of Aztec Software & Technology Services Ltd. (supra), we do not find any good reason to accept the argument of Shri Vohra and interpretation he has put on the decision in the case of Sony India (P.) Ltd. (supra) leading to his inference that it is not necessary for Assessing Officer to make a reference to T.P.O. even when value of international transaction exceeds Rs. 5 crores. The constitutional validity of above Instructions dated 20-5-2003 was challenged under article 226/227 of the Constitution and contentions of the petitioner are recorded at page 59 of the report. It was claimed that classification of international transaction into two categories, those of value exceeding Rs. 5 crore and others less than Rs. 5 crores was not based on any intelligible differentia and, therefore, such instructions were violative of article 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r by officers functioning under the Board (CBDT). If such a view is taken, it would lead to chaos in the country. If various guidelines issued by CBDT for administration of Income-tax Department and for regulation of assessment etc. are not adhered to or made optional, then all schemes of assessment may fail and jeopardize the working of the department. This is neither the law of land nor there is any justification to accept such an argument. We are therefore of the view that Assessing Officer, in the light of instruction of CBDT, was duty bound to refer the matter to the TPO, having regard to the purpose of specialized cell created by the revenue department to deal with complicated and complex issues arising under the transfer pricing mechanism. This case itself is a good example as to how department can be hoodwinked unless case is properly examined by persons having knowledge of principles of transfer pricing. The contention of Shri Vohra is accordingly rejected. We are also not convinced that in not referring the question of determination of Arm's Length Price to the TPO, the Assessing Officer merely committed a procedural error and, therefore, legality of assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng proper inquiry and investigation as enjoined by law which was also warranted in the facts of this case and, therefore, the Commissioner was right in holding that such assessment was erroneous and prejudicial to the interests of the Revenue in the light of the law laid down by the apex court in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC)." 15. The Ld. Departmental Representative has also relied upon the decision of the Hon'ble Supreme Court in the case of Kapurchand Shrimal Vs CIT 131 ITR 451, decision of the Tribunal Delhi Bench in the case of DCIT Vs M/s. Jindal Dyechem Industries Pvt. Ltd. In ITA No. 2877/Del/2009, ACIT Vs UE Trade Corpn. (India) (P) Ltd. In ITA Nos. 4405 & 4460(Del) of 2009. 16. We have carefully gone through these decisions and we find that in none of these decisions the question of jurisdiction was challenged. Therefore, the decisions relied upon by the Ld. DR would do no good to the Revenue. Moreover in the case of M/s. Jindal Dyechem Indus (supra), the Special Bench decision in the case of Aztec Software & Technology Services Ltd (supra) and the decision of the Delhi High Court in the case of Sony India Pvt. Ltd (supra) were not considered nor th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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