TMI Blog2016 (8) TMI 566X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the arm's length price. The directors of the petitioner company, in the aggregate, held more than 20% of the shares in voting power in Writers Publishers Pvt. Ltd. The aggregate of expenditure incurred by the petitioner to such company exceeded ₹ 5 crores. Under the circumstances, we would allow the transfer pricing procedure to carry on further without interjecting at this intermediary stage. The legal contention of the petitioner that in the report of the Assessing Officer dated 08.03.2016, the basis of Section 40A(2)(b) was not taken and therefore, now cannot be raised versus the Revenue's contention, that if on admitted facts on the strength of correct statutory provisions the exercise of powers can be saved the order should not be quashed, are kept open. Likewise, the question whether Section 40A(2)(b) Clause (vi) would cover only the international holding of the director or the relative of the director of the assessee company or the aggregate of the holdings is also not concluded in this petition. - SPECIAL CIVIL APPLICATION NO. 5035 of 2016 - - - Dated:- 10-8-2016 - MR. AKIL KURESHI AND MR. A.J. SHASTRI, JJ. FOR THE PETITIONER : MR S N SOPARK ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r committed a further error in rejecting the petitioner's objections. 4. Both sides have made detailed submissions on the issue of validity of the reference by the Assessing Officer. At the center of much debate has been a detailed report made by the Assessing Officer on 08.03.2016 to the Principal Commissioner suggesting reasons why the petitioner's objections should be rejected. Relevant portion of this report reads as under: The assessee mainly based its objection contending that the related party transactions reported in the audited account is in accordance with AS-18 and such transaction is not a transaction as provided in Section 40A(2)(b) of the Act. The assessee further contended that the specified transaction has been defined in Section 92BA of the Act and the assessee is covered only by clause (I) and (vi) of Section 92BA of the Act. The assessee goes on to say that clause (vi) of Section 92BA of the Act provides any other transaction as may be prescribed. The assessee further submitted that the clause (vi) being any other transactions has not been prescribed, the assessee is required to obtain audited report u/s. 92E of the Act only if the transaction cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 92F(V) of the Act the assessee ought to have taken the transactions of the kind enumerated in clause (v) of Section 92F of the Act in arriving at the quantum of specified domestic transaction. The assessee has entered into with various specified persons/AEs the details of which are as under: No. Name of the Person/AE Nature Amount Remarks 1 R C Printers Rent 12275136 40A(2)(b) as per assessee's submission 2 I Media Corp Ltd. Advertisement Publicity 4303048 Do Interest income from loan to subsidiary 68278000 Loans Advances given/repaid 137198720 3 Sudir Agrawal Salary 6000000 Do 4 Ramesh Chandra Agrawal S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has entered into transactions which has exceed the limit of ₹ 5 crore and as such the assessee was required to obtain a report from an accountant as required u/s. 92E of the Act which the assessee failed to do. In view of the above and keeping in view the CBDT instruction No. 15/2015 dated 16/10/2015, the assessment referred to the TPO, Ahmedabd is inconformity with the provisions of Section 92BA of the Act and 92E of the Act and the objection raised by the assessee has no locus standi and the same is required to be rejected. 5. Taking us minutely through the details of the report of the Assessing Officer with a special focus on the above noted portion thereof, learned counsel Mr. Soparkar for the petitioner submitted that the petitioner had not entered into any international transaction with associated enterprise. Attempt on part of the Assessing Officer, therefore, to bring the petitioner's case within the transfer pricing wholly erroneous. He submitted that the reasons cited by the Assessing Officer in the said report dated 08.03.2016 only referred to the associated enterprise, particularly, with respect to item No. 11 i.e. the transactions of the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad filed necessary declarations for transfer pricing. In the present case, there was no such need, and the petitioner had, therefore, correctly not made any such declaration. 8. Counsel lastly submitted that when the basic facts necessary to bring the case of the petitioner within Section 92CA of the Act are missing, any reference by the Assessing Officer to the TPO would be wholly erroneous and without jurisdiction. He, therefore, submitted that the reference to the TPO be quashed. 9. Learned counsel Mr. Bhatt for the department opposed the petition contending that the petitioner had entered into international transaction with associated enterprise. In addition, it had also to having made payments referred to in Section 40A(2)(b) of the Act which aggregated more than ₹ 5 crores and therefore, the case of the petitioner would fall within the meaning of specified domestic transaction, as referred to in Section 92A(2)(b) of the Act. The Assessing Officer had the power to make a reference in terms of the sub section (1) of Section 92C of the Act. In this context, the counsel relied heavily on Clause (vi) of Section 40A(2)(b) of the Act and submitted that the provision nowh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of clause (i) of Section 92BA thus, in case of any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of sub section (2) of Section 40A and where the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of Rs. than 5 crores would be a specified domestic transaction. It is in this context we may refer to Section 40A(2)(b). Section 40A(2)(a) refers to a case where assessee incurs any expenditure in respect of which payment has been made or is to be made to any person referred to in clause (b). In such a situation, if the Assessing Officer is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made, it is open for the Assessing Officer to make deduction. Relevant portion of the clause (b) of Section 40A(2) reads as under: (b) The persons referred to in clause (a) are the following, namely:- (vi) any person who carries on a business or profession,- (A) where the assessee being an individual, or any relative of such assessee, has a substantial interest in the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ramesh chandra Agarwal 4.52 Namita Agarwal 1.83 Jyoti Agarwal 3.95 Nikita Agarwal 0.97 Total 25.98 2. I humbly submit that as can be seen from the above, the directors of D.B.Corp. Ltd. and relatives of such directors hold more than 20% of the voting power in Writers and Publishers Pvt. Ltd. 15. To these factual aspects, the petitioner has raised no objection. In that view of the matter, the question would be, would the exceeding of 20% of share holding by the directors and relatives of the petitioner-company in the aggregate in Writers Publishers Pvt. Ltd satisfy the requirement of clause (vi) of Section 40A(2)(b)? 16. In case of Veer Gems vs. Assistant Commissioner of Income Tax and anr (supra) this Court had examined the provisions of transfer pricing with the focus on the reference by the Assessing Officer. It was held that when a reference is made by the Assessing Officer to the TPO, the TPO would not be competent to decide the issue of correctness of the refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee that, in fact, there had been no international transaction between the assessee and any other person. If the assessee succeeds in establishing such fact, naturally the Assessing Officer would have to drop the entire proceedings in connection with the international transaction. 18. The assessee has one more opportunity to contest the question of presence or absence of an international transaction. Under Section 144C of the Act, the Assessing Officer has to forward a draft of the proposed order of assessment to the eligible assessee. The eligible assessee, includes any person in whose case, variation arises as a consequence of the order of the TPO passed under sub-section (3) of Section 92CA of the Act. Thus, in every case of variation of income pursuant to such order of the TPO, the Assessing Officer has to, at the first instance, forward a draft of the proposed order of assessment to the assessee. Under sub-section (2) of Section 144C of the Act, on receipt of such a draft order, the assessee has an option either to file his acceptance of the variation of the assessment or file his objection to any such variation with the Dispute Resolution Panel and also the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21. This is not to suggest that the Assessing Officer can, without any basis or wholly arbitrarily at his whim or caprice, make a reference of any transaction to the TPO for computation of the arm s length price. He is expected to exercise his discretion on the basis of available material on record. Such decision is subject to approval by the Commissioner. At the time of framing final assessment even the assessee will have right to point out that there had been, in fact, no international transaction between the assessee and the associated enterprise. 24. We are of the opinion that in view of above facts, it is not necessary or appropriate for us to judge, in the present petition, whether there was any international transaction between the petitioner and the associated enterprise during the previous year relevant to the assessment year 2008-09 and such issue must be left to be judged by the competent authority while framing final assessment. 17. As noted, in the present case, there is prima facie material suggesting that the directors of the petitioner company, in the aggregate, held more than 20% of the shares in voting power in Writers Publishers Pvt. Ltd. The aggregat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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