TMI Blog2016 (10) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the said transactions are international transactions or not. If they come to the conclusion that they are not international transactions, certain consequences may follow which we keep open for the petitioner to take before the DRP or the CIT(A) as the case may be. We clarify that in the event of the CIT(A) or the DRP coming to the conclusion that they are international transactions, it would not be necessary for them to stall the proceedings and they may proceed to decide them finally. The penalty proceedings under section 271(G) have been initiated on the basis that the provisions of Chapter-X and in particular Sections 92D and 92E have not been complied with. As we noted earlier the petitioner did not have an opportunity of representing its case to the effect that these transactions are not international transactions. It is only fair then that while the penalty proceedings may continue the order imposing penalty, if any, shall not be implemented till the decision of the DRP or the CIT(A) as the case may be on the preliminary issue as to whether it is an international transaction or not. - Civil Writ Petition No. 13613 of 2016 (O&M) - - - Dated:- 3-10-2016 - MR. S.J.VAZ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrol or capital of the other enterprise. 6. The first respondent by a notice dated 19.03.2016 called upon the petitioner to show cause why its cases for the assessment years 2011-12 to 2014-15 be not transferred to the TPO. The notice granted the petitioner a hearing. The notice referred to the earlier questionnaire issued by the Department in connection with the assessment proceedings under sections 153A, 153C and 142(1) of the Act and stated that during the course of a survey of the petitioner s premises various documents were found and impounded. The notice further stated that the petitioner had made sales to its group companies M/s Haryana Trading Company, Dubai managed by one Kushal Mittal and M/s Indian Treat Pvt. Ltd. Singapore managed by one Sunny Mittal; that the sales to the sister concern were under invoiced with a view to evading tax and that profits from India were diverted to tax havens which were remitted back to India for investing in properties by said Kushal Mittal and his family members. The notice further stated that the Accountant s report under section 92E in Form No. 3CEB was not furnished by the petitioner. 7. The petitioner by its letter dated 21.03. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s letter dated 27.05.2016 addressed to the TPO, which was in continuation of the earlier letter dated 30.04.2016 referred to its objections to the show cause notice, the contentions raised therein and requested for a copy of the reference by the first respondent to him and a personal hearing. 11. Respondent No.1 under the cover of a letter dated 06.05.2016 forwarded the reasons/satisfaction recorded by him before referring the matter to the TPO. The reasons/satisfaction note is titled; Reasons/Satisfaction note for transfer the case of M/s Shri Vishnu Eatables (India) Ltd. PAN: AABCS4831R to Transfer Pricing Officer, New Delhi . The satisfaction note referred to the search and seizure operation under section 132 of the Act carried out at the petitioner s premises and the incriminating documents found and seized during the search. The satisfaction note further records as follows. ₹ 33 crores were surrendered. However, complete taxes on the said undisclosed income had not been paid. The petitioner and its group were not cooperating in the assessment proceedings. The petitioner had under invoiced its sales to its said group companies/sister concerns with a view to evading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r for the determination of the arm s length price of the transactions. He sought the approval of the Principal, Commissioner of Income Tax for the same in respect of the assessment years 2008-09 to 2014-15. The Principal, Commissioner of Income Tax by his letter dated 28/29.03.2016 gave the necessary permission. 14. Ms. Suri s submissions are as follow:- I) In terms of the instructions given by the CBDT circular dated 10.03.2016, the requirement of passing a reasoned order on the objections regarding whether a transaction is an international transaction or not and the service of the order upon the assessee is a condition precedent to the Assessing Officer making a reference to the Transfer Pricing Officer. II) Non-compliance with either or both the above mandatory conditions render the reference to the Transfer Pricing Officer void. 15. While the first submission is well founded, the second is not. 16. In support of the first submission Ms. Suri relied upon a judgment of the Bombay High Court in Vodafone India Service Pvt. Ltd. v. Union of India and others [2014] 361 ITR 531 (Bombay) where it is held:- 50. We have mentioned herein above that it is necessary for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a party) held that where a reference is made under section 92CA(1), the Transfer Pricing Officer must determine the arm s length price of the transaction and in doing so he would not be entitled to consider the question as to whether the transaction referred to him is an international transaction or not. It was held:- 65. The Advocate General submitted that the AO is not bound by the TPO's order in any respect and is entitled to decide the questions determined by the TPO on his own. Mr. Salve, on the other hand, rightly submitted that the AO is not entitled to revisit or to even question any part of the order of the TPO determining the arm's length price, including the question whether the transaction is an international transaction or not. 66. The AO has jurisdiction to consider any international transaction and to determine the arm's length price thereof. This is clear from sections 92C and 92CA. The AO has the power to tax all income under section 4 of the Act. He has the power to determine whether a transaction is an international transaction and to determine the arm's length price thereof under section 92C(1) and (3). He is not bound to refer the compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner, the power to sit in appeal over a decision of a Commissioner. In this regard, we are in respectful agreement with the judgment of a Division Bench of the Gujarat High Court in Veer Gems v. Assistant Commissioner of Income Tax (2012) 246 CTR (Guj.) 352. 68. Thus, where a reference is made under section 92CA (1), the TPO must determine the arm's length price of the transaction and in doing so, he would not be entitled to consider the question as to whether the transaction referred to him is an international transaction or not. 19. In a case where the Assessing Officer himself determines the arm s length price, the assessee would be entitled to place his case before him including regarding the question as to whether the transactions are international transactions or not. If the assessee does not accept the Assessing Officer s determination of these issues, he would be entitled to challenge the same before the Commissioner of Income Tax (Appeals) and thereafter before the Income Tax Appellate Tribunal. Both the appellate authorities would have the benefit of the case of the Revenue and of the assessee. However, if the Assessing Officer decides to refer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There is a detailed description of such information and documents in clauses (a) to (m) of sub-rule (1) of Rule 10D. This information is to be kept and maintained for a period of eight years from the end of the relevant assessment year. Section 92E requires that every person who has entered into an international transaction or specified domestic transaction during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner by such accountant and setting forth such particulars as may be prescribed. Rule 10E in turns provides that the report from the accountant required to be furnished under section 92E shall be in Form- 3CEB. 21. The failure to furnish the information invites penal consequences under section 271G of the Act. An assessee who fails to furnish the information or documents as required by section 92D(3) may be directed by the Assessing Officer or the Commissioner (Appeals) to pay by way of penalty a sum equal to two percent of the value of the international transaction or specified domestic transaction for each such failure. 22. It is eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omestic transactions, shall be referred to TPOs only in the following circumstances: (a) where the AO comes to know that the taxpayer has entered into international transactions or specified domestic transactions or both but the taxpayer has either not filed the Accountant s report under Section 92E at all or has not disclosed the said transactions in the Accountant s report filed; (b) where there has been a transfer pricing adjustment of ₹ 10 Crore or more in an earlier assessment year and such adjustment has been upheld by the judicial authorities or is pending in appeal; and (c) where search and seizure or survey operations have been carried out under the provisions of the Income-tax Act and findings regarding transfer pricing issues in respect of international transactions or specified domestic transactions or both have been recorded by the Investigation Wing or the AO. 3.4 For cases to be referred by the AO to the TPO in accordance with paragraphs 3.2 and 3.3 above, in respect of transactions having the following situations, the AO must, as a jurisdictional requirement, record his satisfaction that there is an income or a potential of an income arising and/or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder paragraph 3.3(c) it is not necessary for the Assessing Officer to pass a speaking/reasoned order is not well founded. Paragraph 3.3(c) cannot be read in isolation. It must be read with paragraph 3.4. The opening part of paragraph 3.4 deals with cases to be referred by the Assessing Officer to the TPO in accordance with paragraphs 3.2 and 3.3 in respect of transactions having the following situations meaning thereby the three situations immediately following and identified by the marks . . 27. The circular further provides that in such cases the Assessing Officer must record his satisfaction . The words used are record his satisfaction which indicate firstly that the Assessing Officer must reduce his satisfaction in writing and secondly he must furnish reasons for the same. That the satisfaction is to be in writing is clear from the word record . Moreover paragraph 3.3 expressly states that the Assessing Officer must ..pass a speaking order . 28. We have, however, already held that the satisfaction recorded by the Assessing Officer in the present case contains sufficient reasons. He has indicated the relationship between the assessee and the other parties. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s grievances can be raised in a challenge to the draft assessment order before the Disputes Resolution Panel or the final assessment order before to the Commissioner of Income Tax (Appeals). The requirements of the rules of natural justice and of the said circular dated 10.03.2016 would have been met even if the satisfaction note is furnished subsequently. As we noted earlier, in any event the assessee cannot raise the question as to whether or not the referred transaction is an international transaction before the Transfer Pricing Officer. It is, therefore, sufficient if he is served with the order subsequently even alongwith the draft assessment order or the assessment order as the case may be. 32. The answer to Ms. Suri s question as to what if the satisfaction note is not furnished at all is obvious. The assessee can always apply for the same either before the authorities and failing which by filing a writ petition. 33. The contention that the reference is void ab initio on account of the satisfaction note not having been furnished to the assessee before the reference of the transaction by the Assessing Officer to the TPO is, therefore, rejected. The failure to supply t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue is adverse to the petitioner, it would be open to the petitioner to challenge the order of the DRP on the preliminary issue in a writ petition if a case is made out at that stage that the decision of the DRP is patently illegal, notwithstanding the availability of alternative remedy of filing an appeal before the Income Tax Appellate Tribunal. We see no reason for these authorities to stall the proceedings if they come to the conclusion that the transactions are international transactions. 36. The penalty proceedings under section 271(G) have been initiated on the basis that the provisions of Chapter-X and in particular Sections 92D and 92E have not been complied with. As we noted earlier the petitioner did not have an opportunity of representing its case to the effect that these transactions are not international transactions. It is only fair then that while the penalty proceedings may continue the order imposing penalty, if any, shall not be implemented till the decision of the DRP or the CIT(A) as the case may be on the preliminary issue as to whether it is an international transaction or not. 37. In the circumstances the writ petition is dismissed subject to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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