9911796707
TMI Blog2016 (8) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... O of the Petitioner. During the previous year 2009-10 relevant to the Assessment Year ('AY') 2010-11, the Petitioner, Indorama Synthetics (India) Limited ['ISIL'], entered into transactions of import of raw material amounting to Rs. 196.48 crores from Indorama Petrochem Limited (IPL), a company incorporated in Thailand. For the AY 2010-11 the Petitioner filed its return of income on 15th October 2010 declaring 'Nil' income after setting off the brought forward losses. The Petitioner's case was picked up for scrutiny and notices under Section 143 (2) and Section 142 (1) of the Act were issued. In terms of Section 153 of the Act, the assessment proceedings for the AY 2010-11 were required to be completed by the AO by 31st March 2013. If a reference were to be made by the AO to the TPO for determination of the ALP under Section 92CA (1) of the Act, the time limit for completion of the assessment would get extended by a period of nine months, i.e., up to October 2014 instead of March 2013. 3. The Petitioner states that during the course of assessment proceedings, the Petitioner submitted voluminous information/details to the AO. In the month of February 2013, the AO required the Petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reference dated 31st March 2013 by which the AO referred to the TPO on the question of determination of ALP of the alleged international transaction between the Assessee and IPL for the AY 2010-11, Writ Petition (Civil) No. 4588 of 2014 challenges a similar reference made by the AO under Section 92CA of the Act of the same international transaction and the consequent notice dated 5th May 2014 issued by the TPO to the Petitioner in that regard. Writ Petition (Civil) No. 12072 of 2015 likewise challenges the notice dated 15th July 2015 issued by the TPO to the Petitioner under Section 92CA (2) and 92D (3) of the Act. The issue in all the writ petitions is common. Submissions of learned counsel 8. Referring to Instruction No. 3 of 20th May 2003 issued by the Central Board of Direct Taxes ('CBDT'), Mr. Ajay Vohra, learned Senior counsel appearing for the Petitioner, submits that the AO was required to arrive at a prima facie determination on the basis of the details provided in the Accountant's report in Form 3 CEB containing the basic details of the international transaction. It is pointed out by Mr. Vohra that in the instant case with the Assessee having taken a specific stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a reference to the TPO does not itself record that the AO considers it "necessary or expedient' to make a reference, it must be taken that the AO had come to that conclusion. Further, there was no need, according to Mr. Manchanda, for the AO to deal with the objections raised by the Assessee. He submitted that no prejudice would be caused to the Assessee if the TPO were to proceed with the reference made by the AO. The Assessee would in any event be heard by the TPO. If the Assessee was aggrieved by the report of the TPO and consequential draft or final assessment order of the AO, the Assessee would have other remedies in accordance with law. Mr. Manchanda pointed out that the CBDT's Instruction No. 3 did not envisage any hearing being given to the Assessee. He relied on the decision of the Gujarat High Court in Veer Gems (supra). He further submitted that CBDT's Instruction No. 15 of 2015 was prospective and would not invalidate the AO's order dated 31st March 2013. Discussion and Reasons 12. To begin with it is required to be noticed that Chapter X contains provisions regarding determination of ALP of international transactions and specified domestic transactions. While S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-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. (3) On the date specified in the notice under sub-Section (2), or as soon thereafter as may be, after hearing evidence as the Assessee may produce, including any information or documents referred to in subsection (3) of Section 92D and after considering such evidence as the Transfer Pricing Officer may require on any specified points and after taking into account all relevant materials which he has gathered, the Transfer Pricing Officer shall by order in writing, determine the arm's length price in relation to the international transaction or specified domestic transaction in accordance with sub-section (3) of Section 92C and send a copy of his order to the Assessing Officer and to the Assessee." 14. Section 92CA reveals that there are certain jurisdictional perquisites for the making of a reference by the AO to the TPO. In the first pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons have to be explicitly mentioned in the letter of reference. The very nature of this exercise is such that the AO will first put the Assessee on notice of his proposing to make a reference to the TPO and seek information and clarification from the Assessee. If at this stage, the Assessee raises an objection as to the very jurisdiction of the AO to make the reference, then it will be incumbent on the AO to deal with such objection on merits. 17. While Section 92CA (1) does not itself talk about a hearing having to be given to the Assessee upon the latter raising an objection as to the jurisdiction of the AO to make a reference, such requirement appears to be implicit in the very nature of the procedure that is expected to be followed by the AO. As already noticed, the AO has to record that he considers it necessary and expedient to make a reference. The AO has to deal with the objections raised by the Assessee. It is only thereafter that the AO can come to the conclusion, even prime facie, that it is necessary and expedient to make the reference. This has to be done prior to making a reference. 18. The further issue as far as the procedure to be followed is whether the AO is ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter X of the Act and in particular Section 92CA thereof, the Bombay High Court observed as under: "32. It is clear that in view of Section 92 (1), there must be income arising and/or affected or potentially arising and/or affected by an International Transaction for the purpose of application of Chapter X. This would appear to be in the nature of jurisdictional requirement and the Assessing Officer must be satisfied that there is an income or a potential of an income arising and/or being affected on determination of an ALP before he proceeds further in determining the ALP or referring the issue to the TPO to determine the ALP. In this case, we find that the Petitioner has from the very beginning been challenging the jurisdiction to apply Chapter X on the ground that no income arises and/or is affected or potentially arises and/or is affected on account of issue of its shares to its holding company. The Assessing Officer does not deal with this objection/issue before referring the matter to the TPO. The TPO does not deal with the above objection on the ground that in terms of Section 92CA, his mandate is only to compute the ALP in relation to the International Transaction. The TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered at the very threshold by the Assessing Officer, it could save an elaborate exercise of determining the ALP which may turn out to be entirely academic." It is in the above circumstances, the Bombay High Court concluded that "grant of personal hearing before referring the matter to the TPO has to be read into Section 92CA (1) in cases where the very jurisdiction to tax under Chapter X is challenged by the Assessee." 19.6. While disagreeing with the view of the Gujarat High Court in Veer Gems (supra), the Bombay High Court set aside the order passed by the AO making a reference to the TPO. The Bombay High Court further explained the consequence of hearing being given to the Assessee by the AO before making a reference to the TPO and observed in para 40, as under: "40. In our view, once the AO gives hearing to the Assessee before making a reference to TPO, the TPO would be bound by formation of opinion of AO that there was international transaction in the relevant year and that income arises or is affected by the international transaction and the TPO is bound to determine the ALP of the international transaction under consideration, since ultimately it is the duty and responsibi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s undertaken by it come to the notice of the AO; (b) where the taxpayer has not declared one or more international transaction or specified domestic transaction in the Accountant's report filed under Section 92E of the Act and the said transaction or transactions come to the notice of the AO; and (c) where the taxpayer has declared the international transactions or specified domestic transactions in the Accountant's report filed under Section 92E of the Act but has made certain qualifying remarks to the effect that the sais 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 [Section 92 to 92F] of the Act to these three situations, then the 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 applicability of Chapter X [Section 92 to 92F] to these three situations is objected to by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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