TMI Blog2016 (8) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter. Thus the Court is of the view that the three references made by the AO to the TPO on the question of determination of ALP of the alleged international transactions involving the Petitioner and its AE have been made without affording the Petitioner an opportunity of being heard as was required by law. This, as explained by the Bombay High Court in Vodafone India Services (P) Limited v. Union of India (2013 (12) TMI 547 - BOMBAY HIGH COURT ), and reaffirmed by the CBDT’s Instruction No. 3 of 2016, is a procedural requirement implicit in Section 92 CA (1) of the Act. Accordingly, the said three references made by the AO to the TPO for determination of the said question for the AYs 2011-12, 2012-13 and 2013-14 are hereby set aside. - W.P.(C) 6422/2013 & CM No.14002/2013 (Stay), W.P.(C) 4558/2014, W.P.(C) 12072/2015, - - - Dated:- 25-7-2016 - S. MURALIDHAR NAJMI WAZIRI JJ. Petitioner Through: Mr. Ajay Vohra, Senior Advocate with Ms. Kavita Jha and Mr.Vaibhav Kulkarni, Advocates. Respondents Through: Mr. Ashok K. Manchanda, Senior Standing Counsel. O R D E R Dr. S. Muralidhar, J. 1. These three writ petitions involve a common but interesting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upport of the above stand, it also submitted an independent legal opinion dated 19th February 2013. 5. The Petitioner states that thereafter nothing was heard from Respondent No. 2 nor any further query raised. By a letter dated 31st March 2013, the AO informed the Petitioner that its case had been referred to TPO, i.e., Respondent No. 1 for determination of ALP in relation to the international transactions undertaken by the Petitioner with AEs during AY 2010-11. The letter dated 31st March 2013 issued by the AO reads as follows: Kindly refer the above. Please refer to the 3CD report and the other financial accounts filed by you in this office during the assessment proceedings of AY 2010-11 wherein it is noted that you have not filed the Transfer Pricing report under Section 92E of the I.T. Act, 1961 in this office which was required. Therefore, with the prior approval of the CITIV Delhi, New Delhi your case for AY 2010-11 has been referred to the Transfer Pricing Officer for the determination of the Arms Length Price. 6. The case of the Petitioner is that the above reference is illegal since during the AY in question it did not enter into any international transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices (P) Limited v. Union of India (2014) 361 ITR 531 (Bom) where it was held that such a requirement of giving the Petitioner hearing prior to making a reference under Section 92CA of the Act has to be read into Section 92C A (1) in a case where the very jurisdiction of the AO to make such a reference under Chapter X is challenged by the Assessee. Mr. Vohra pointed out that the Bombay High Court had distinguished the decision to the contrary of the Gujarat High Court in Veer Gems v. Assistant Commissioner of Income Tax (2013) 351 ITR 35 (Guj). Mr. Vohra submitted that CBDT Instruction No. 15 of 2015 issued on 16th October 2015 recognized the necessity of giving the Assessee a hearing. He submitted that for the purpose of reopening of the assessment under Section 147 of the Act, the Supreme Court has in GKN Driveshafts (India) Limited v. Income-tax Officer (2003) 259 ITR 19 (SC) mandated a hearing to an Assessee in regard to the objections filed to the re-opening of the assessment. Likewise, for the purposes of Section 92 CA (1) of the Act the Assessee who has raised an objection ought to be heard by the AO prior to the making of the reference the Petitioner. 10. Count ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, which deals inter alia with the procedure to be followed in the making of a reference by the AO to the TPO reads as under: Section 92CA:- (1) Where any person being the Assessee, has entered into an international transaction or specified domestic transaction in any previous year, and the Assessing Officer considers it necessary or expedient so to do, he may with the previous approval of the Principal Commissioner or Commissioner, refer the computation of the arm s length price in relation to the said international transaction or specified domestic transaction under Section 92C to the Transfer Pricing Officer. (2) Where a reference is made under sub-Section (1), the Transfer Pricing Officer shall serve a notice on the Assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the Assessee may rely in support of the computation made by him of the arm s length price in relation to the international transaction or specified domestic transaction referred to in sub-Section (1). (2A) Where any other international transaction other than an international transaction referred under sub-Section (1), comes to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the TPO. 15. What is referred to the TPO is the determination of the ALP of the said international transaction or specified domestic transaction. Therefore, the satisfaction to be arrived at by the AO regarding the existence of the international transaction or specified domestic transaction, even prima facie, is a sine qua non for making the reference to the TPO. Where such an Accountant's report is submitted by the Assessee in Form 3CEB, then there should be no difficulty for the AO to form an opinion, even a prima facie one, that it is necessary and expedient to make a reference to the TPO on the question of the determination of the ALP of such international transaction involving the Assessee. 16. CBDT s Instruction No. 3 of 2003 categorically states that in order to make a reference to the TPO, the AO has to satisfy himself that the Assessee has entered into an international transaction with its AE. One of the sources from which the factual information regarding the international transaction can be gathered is Form No. 3 CEB filed with the return which is in the nature of an Accountant s report containing the details of the international transaction entered into by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (which it was undisputedly an AE) was declared as an international transaction. Also the ALP of the shares so issued, was determined. However, a notice was appended by the Accountant stating that the transaction of issue of equity shares did not affect the income of the Assessee and was being reported only as a matter of abundant caution. 19.2 The return was picked up for scrutiny by the AO. Thereafter, the AO, after obtaining the previous approval of the Commissioner of Income Tax ( CIT ) referred all the transactions reported in Form 3 CEB to the TPO under Section 92CA (1) of the Act. The TPO then issued a show-cause notice (SCN) to VISPL on 14th December 2012, inter alia asking it to show cause why the issue price (including the premium) of the equity shares to its holding company as declared by VISPL should be accepted for the purposes of computing ALP under the Act. 19.3 In reply VISPL contended that the notice was completely without jurisdiction on the ground that provisions of Chapter X did not apply to issue of equity shares. Without prejudice, VISPL contested the SCN on merits. The TPO passed an order on 28th January 2013 negativing the above contentions of the Petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risdictional issue has to be dealt with either by the TPO or the Assessing Officer when specifically raised by the Petitioner/Assessee. 33. Normally when an accountant reports an international transaction under Section 92E there may be no dispute that there is an income arising and/or being affected or a potential of an income arising and/or being affected by an international transaction on determination of ALP. However when an Assessee challenges the above premise, then the issue must be decided. Such an issue must be dealt with at the very threshold that is before determination of ALP. This is so because in case it is held that in the International Transaction there is no income or potential of any income arising and/or being affected on determination of an ALP, the entire exercise of determining the ALP would become academic. In terms of Section 92CA (4), the Assessing Officer is bound to pass an order in conformity with the ALP determined by the TPO as held by another Division Bench of this Court in the judgment dated 6th September 2013 in Vodafone II case. However, where the Assessing Officer is himself determining the ALP in terms of Section 94C (3) then in accordance wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercised then hearing is required to be given by the Assessing Officer to the Assessee to consider whether it is necessary and expedient to refer the matter to the TPO as otherwise this objection would never be considered, as pointed out above and as in fact has happened in this case. In such cases where the applicability of Chapter X to the facts of the Assessee s case is objected to, a hearing should be given to consider the Assessee s objection but not otherwise. 19.7. However instead of remanding the matter to the AO, the Bombay High Court was of the view that the question must be considered by the DRP on merits. 20. This Court concurs with the view expressed by the Bombay High Court in Vodafone India Services (P) Limited v. Union of India (supra). It appears that the CBDT has specifically accepted the legal position as explained by the Bombay High Court in the aforementioned decision and has not gone by the decision by the Gujarat High Court in Veer Gems (supra). Instruction No. 15 of 2015 dated 16th October 2015 issued by the CBDT which sets out, inter alia, the procedure to be followed by the AO has since been replaced by Instruction No.3 of 2016 dated 10th March 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mine the ALP under Section 92C (3) of the Act or refer the matter to the TPO to determine the ALP under Section 92CA (1) of the Act in case the Assessee has not declared one or more international transactions in the report filed under Section 92E of the Act. As explained in the above situations in para 3.2, the AO must provide an opportunity of being heard to the taxpayer before recording his satisfaction or otherwise. 22. Although Mr. Manchanda tried to contend that the above instruction of the CBDT was prospective, in the considered view of the Court, the above CBDT s Instruction No. 15 of 2015 as replaced by CBDT Instruction No.3 of 2016 dated 10th March 2016 clarifies the correct legal position and cannot be construed as not applying to the facts on hand. Since it is a procedural aspect and is intended to the benefit to the Assessee, it requires to be applied even in the present case where a reference was earlier made by the AO to the TPO on 31st March 2013 and thereafter. 23. For all the aforesaid reasons, the Court is of the view that the three references made by the AO to the TPO on the question of determination of ALP of the alleged international transactions involvin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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