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2015 (5) TMI 419

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..... .K. Chand ORDER Per N.K. Billaiya, AM: This appeal by the assessee is directed against the order of the Ld. CIT(A)-IV, Mumbai dt. 16.2.2009 pertaining to assessment year 2005-06. 2. The assessee has raised inasmuch as 11 grounds of appeal. With ground No. 11, the assessee has challenged the jurisdiction of the AO in making the assessment without referring the matter to the Transfer Pricing Officer where the value of international transactions exceeded ₹ 5 crores. The assessee claims that this act of the AO is in contradiction to the provisions of Instruction No. 3 of 2003 issued by the Central Board of Direct Taxes . The assessee is aggrieved by the fact that the Ld. CIT(A) accepted such order of the AO. 3. Before going into the merits of the case, we heard the rival parties on this ground of validity of the assessment. 4. The assessee company is engaged in brokering and dealing in shares and other securities. Return of income was filed on 31.10.2005 declaring total income at ₹ 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 iss .....

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..... gnizable basis giving no room for confusion. Transactions of a high value require a careful examination to determine if the declared price is in fact an acceptable ALP. It may not be expedient for the Assessing Officer to efficiently deal with the assessment involving such an exercise. In that sense it achieves the expeditious disposal of the assessment by the Assessing Officer if the exercise is referred for a specialised determination by the Transfer Pricing Officer. The classification certainly bears a nexus to this objective. We are of the considered view that the challenge to the impugned instruction on the ground of suspect classification must fail. 10. Prior to this decision of the Hon ble High Court of Delhi, the matter was considered by the Special Bench of the Tribunal Bangalore Bench in the case of Aztec Software Technology Services Ltd Vs ACIT 294 ITR (AT) 32. The Special Bench has considered the following question 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 .....

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..... n of the Income-tax Act. Authorities are duty bound to observe and execute orders, instructions and directions of the Board. Under sub-section (2) clause (a) it is provided that where the Board considers it necessary and expedient for purpose of proper and efficient management of the work of assessment and collection of revenue, it may issue orders and directions in respect of any class of income or class of cases setting forth directions or instructions so as to guidelines, principles or procedures to be followed by the income-tax authorities. As is clear from the circular, the idea of issuing instructions under reference is to avoid selection of small cases with international transaction less than ₹ 5 crores for scrutiny of transfer price and to avoid arbitrariness in the application of the provision. All cases where the aggregate value of international transactions exceed ₹ 5 crores, are required to be referred to the TPO by the Assessing Officer. The limit has now been increased to ₹ 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 A .....

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..... on'ble Delhi High Court in the case of Sony India P. Ltd. [2007] 288 ITR 52. Their Lordships have also upheld the validity of the directions of the Central Board of Direct Taxes. In the light of above discussions, we do not find any illegality in the directions issued by the Central Board of Direct Taxes (CBDT). This question is also answered against the assessee. Observations of the learned Commissioner of Income-tax (Appeals) holding the contrary are set aside. 12. A similar issue was also considered by the Tribunal Delhi Bench in the case of Ranbaxy Laboratories Ltd. Vs ACIT 110 ITD 428 at para 65 of its order and at para-67, the Tribunal had to consider the following: It was accordingly contended that decision of Special Bench of ITAT in the case of Aztec Software Technology Services Ltd.';s (supra) is contrary to the decision of Hon';ble Delhi High Court in the case of Sony India (P.) Ltd. (supra) and that power of the Assessing Officer to carry out exercise and 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 d .....

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..... ion. Transactions of a high value require a careful examination to determine if the declared price is in fact an acceptable ALP. It may not be expedient for the Assessing Officer to efficiently deal with the assessment involving such an exercise. In that sense it achieves the expeditious disposal of the assessment by the Assessing Officer if the exercise is referred for a specialized determination by the Transfer Pricing Officer. The classification certainly bears a nexus to this objective. We are of the considered view that the challenge to the impugned instruction on the ground of suspect classification must fail. It is clear from above that validity of instruction was upheld, reason and need for making reference to TPO of international transaction exceeding ₹ 5 crore was emphasized. and at para 71 inter alia the Tribunal observed as under: It is not possible for us to hold that Instructions issued by CBDT under section 119 of Income-tax Act to regulate assessment proceeding can be treated as a waste paper 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 admin .....

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..... onfirmed by the Hon ble High Court of Delhi in 345 ITR 193. While confirming the decision of the Tribunal, the Hon ble Court observed as under: We thus agree with the view taken by the Tribunal that the judgment of the Special Bench in Aztec Software (supra) is not in conflict with Sony India (supra) once the validity of the said instruction is upheld by this court. The followup thereof is that the Assessing Officer was supposed to refer the matter to the Transfer Pricing Officer having regard to the fact that specialized cell was created by the Revenue Department to deal with the complicated and complex issues arising out of the transfer mechanism. The Tribunal was right in holding that even the instant case itself provides a good example for need to refer the matter to the Transfer Pricing Officer in such cases. When circular is issued under section 119 of the Act and its validity is upheld it is binding on the Assessing Officer. Not taking recourse thereto and passing the order amounted to making assessment without conducting 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 ho .....

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