TMI Blog2017 (11) TMI 1137X X X X Extracts X X X X X X X X Extracts X X X X ..... erein below:- GROUNDS OF APPEAL The grounds of appeal set out below are without prejudice to each other: 1.1 On the facts and in the circumstances of the case and in law, learned Transfer Pricing Officer (TPO)/Assessing Officer (AO) and Dispute Resolution Panel (DRP) [the authorities below] erred in re-characterising share application money pending allotment as 'loan' and thereby e e in Maingan upward transfer pricing adjustment of ₹ 7,80,74,2921- u/s. 92CA of the Income Tax Act, 1961 towards interest chargeable on Share Application Money Pending Allotment with AEs, and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, provisions of the Income Tax Act, 1961 and Rules made thereunder. 1.2 On the facts and in the circumstances of the case and in law, the authorities below erred in making an upward transfer pricing adjustment in respect of interest chargeable on Share Application Money Pending Allotment without appreciating the fact that said transaction being capital in the nature, no additions could be made which is wrong and contrary to the facts and circumstances of the case, provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome from Other Sources' instead of assessing it under the head business income and the reasons assigned by them for doing so are wrong and contrary to the facts and circumstances of the case, provisions of the Income Tax Act, 1961 and Rules made thereunder. 3.0 On the facts and in the circumstances of the case and in law the learned Assessing Officer erred in charging interest of ₹ 90,524/- u/s 234D which is wrong and contrary to the provisions of Income Tax Act 1961, and Rules made there under. The appellant craves leave to add, alter, amend and/or modify all or any of the above grounds of appeal on or before the date of hearing. 2. The brief facts of the case are that the assessee company is engaged in exploration, extraction, production of all kinds of oils including petroleum crude oil. For the year under consideration, the assessee has no business activity except receipt of interest income. In the assessment proceedings, a reference under section 92CA(1) of I. T. Act, 1961 was made to the Transfer Pricing Officer, Mumbai for the determination of Arm's Length Price in relation to the international transactions entered into by the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of the Income Tax Act, 1961 and Rules made thereunder. 1.8 On the facts and in the circumstances of the case and in law, the authorities below erred in computing the Arm's Length Price of ₹ 7.80 crores and making an upward adjustment uls 92CA(4) r.w.s. 92C without establishing that there was an arrangement for advancing funds to its Associated Enterprise at a 'price' without appreciating that computation of Arm's Length Price cannot determine the existence of an 'International Transaction' at a price and as such doing so is wrong and contrary to the facts and circumstances of the case, provisions of the Income Tax Act, 1961 and Rules made there under. 1.9 On the facts and in the circumstances of the case and in law, the action of learned Assessing Officer (AO) of making reference to TPO is bad in law as the Ld. AO has not dealt with the appellants objection that the transaction in question is not an international transaction and without reaching to a finding that the transaction in question is an International Transaction and he thereby erred in making an upward adjustment of ₹ 7.80 crores on the basis of TPO's order which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The purpose of assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law . 7. Considering the arguments of the parties as well as factual position and while taking into consideration the above mentioned judicial pronouncements, we allow the assessee to raise additional grounds of appeal and thus the additional grounds raised by the assessee are admitted for disposal on merits. Both the parties had filed their respective exhaustive written submissions. Ld. AR has precisely raised all the grounds thereby challenging the validity of the impugned order by raising the following grounds:- I.There is no income arising from an international transaction II.Income which could have, but was not earned is not chargeable to tax. III.Chapter X is not a charging provision, it is a machinery provision. IV. There is no international transaction for a price. V. There is lack of Jurisdiction. VI. The satisfaction of the CIT for granting approval for the reference to the TPO not having been produced is bad in law. In the alternative it is mechanical and bad in law for that reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scope of transfer pricing provisions. Reliance is placed on circular No. 14 dated 22/11/2011. Reliance is also placed on the decision of AAR in Amiantit International Holdings Ltd. (2010) 322 ITR 678 (AAR). 2. Capital financing will cover borrowing, lending or guarantee transactions. Acquisition of shares/ Share Application Money is not covered under capital financing. 3. Thus, Amount remitted as Share Application Money is a capital transaction and accordingly, provisions of section 92B are not applicable to the said remittance and in the absence of any income from the transaction, transfer pricing provisions are not applicable. 10.1 Ld. AR further submitted that during the course of assessment, reference was made by AO u/s. 92CA(1) to Addl. Commissioner of Income Tax [CIT] - Transfer Pricing Officer (TPO) on 17.03.2015. The assessee vide its letter dated 13.06.2017 has requested the AO to provide the copy of reference made to Transfer Pricing Officer [TPO] u/s 92CA(1), satisfaction recorded by AO and approval of CIT for making said reference, especially when the assessee had objected to consider the transaction as International Transaction . As per learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... US$ Rate Amount in Rs. 14/09/2010 3,50,00,000 46.38 162,33,00,000 22/09/2010 50,00,000 45.58 22,79,00,000 04/10/2010 45,00,000 44.63 20,08,35,000 08/11/2010 50,00,000 44.43 22,21,50,000 18/11/2010 85,00,000 45.30 38,50,50,000 07/02/2011 1,00,00,000 45.49 .45,49,00,000 Exchange Fluctuation -4,46,15,000 6,80,00,000 306,95,20,000 11.2 The Ld. DR further submitted that in the course of transfer pricing proceedings the TPO asked the assessee to state whether any shares have been allotted against the above mentioned su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unity before making reference, it was submitted by learned DR that though the Assessing Officer did not provide an opportunity before making the reference, the transfer pricing officer had provided full opportunity to the assessee before making the transfer pricing adjustment. 12. After having heard the counsels for both the parties at length and considering the facts of the present case as well as legal proposition as advanced before us, we are confining our decision by adjudicating the jurisdictional issue raised in ground No.1.9 by the assessee. 12.1 In the instant case there is no dispute to the fact that the assessee vide its letter dated 13.06.2017 has requested Ld. Assessing Officer [AO] to provide the copy of reference made to Transfer Pricing Officer [TPO] u/s 92CA(1), satisfaction recorded by AO and approval of CIT for making said reference, especially when the assessee had objected to consider the transaction as International Transaction and note in Form 3CEB.The assessee was provided by the Id. AO vide letter dated 13.06.2017 following documents: ( i) The copy of reference made to TPO dated 17.03.2015 ( ii) The copy of letter by the office of CIT dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price in relation to the said international transaction or specified domestic transaction under section 92C to the Transfer Pricing Officer. ( '4) On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section ('4) of section 92C having regard to the arm's length price determined under sub-section (3) by the Transfer Pricing Officer. After amendment in section 92CA(4) w.e.f. 01.06.2007 in Finance Act 2007 it reads as under:- ( '4) On receipt of the order under sub-sec/ion ('3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4 of section 92C in conformity with the arm's length price as so determined by the Transfer Pricing Officer. Thus after careful analysis of the above provisions, we find that initially Before amendment, there were two requirements which must be satisfied before the AO can refer the computation of the ALP to the TPO. Firstly , the AO consider it necessary and expedient so to do and secondly the AO will necessarily have to given opportunity to the assessee after r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertaken by it come to the notice of the AO; ( b) where the taxpayer has not declared one or more international 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 transaction or transactions in the Accountant's report filed under section 92E of the Act but has made certainqualifying remarks to the effect that the said transaction or transactions are not international transactions or do not impact the income of the taxpayer. In all the above situations, the AO must provide an opportunity of being heard to the taxpayer before recording his satisfaction or otherwise . We further get support from the landmark judgment of Hon ble Jurisdictional High Court in the case of Vodafone India Services P. Ltd. vs. Union of India Others 361 ITR 531 (Bom) wherein, this principle of jurisdictional requirement has been set out. The relevant observations of Hon'ble Bombay High Court are at para 32-41, which read as under: 32. it is clear that in view of Section 92(1), there must be income arisingand/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92CA (4), the Assessing Q/ficer 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 6 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 with Section 94C(4) he would compute the income, having regard to the ALP. In such cases where the Assessing officer decides the ALP himself; it is open to him to consider the issue qf income arising and/or being affected or not before commencing the proceedings under Chapter X or at the stage ofpassing an assessment order. 34. However, in cases of transaction referred to the TPO, it would be for theAssessing Officer to first determine the issue of any income arising and/or being effected or potentially arising on determination of ALP before referring the transaction to the TPO, when specifically contended by the petitioner/Assessee. This is also indicated in section 92CA(1), which requires an Assessing officer to refer an International transaction for determination to the TPO only if he considers it necessary or expedient ' to refer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g or not from an international transaction is an illegality. Thus, the Hon'ble Bombay High Court holds in above discussed Vodafone case is as under: ( i) The satisfaction of the AO that it is necessary and expedient to refer the matter to the TPO a jurisdictional matter. ( ii) A hearing ought to be given by the AO before making a reference to the TPO. ( iii) If these jurisdictional requirements are not satisfied , then the entire order is illegal (para 46) . The above mentioned conclusion was also reiterated by Bombay High Court in the case of Vodafone India Service (P.) Ltd. 359 ITR 133. Thus as per amendment provisions of section 92CA(1), before making a reference to the TPO the exercise of finding out whether any income arises and/or is affected or potentially arises and/or is affected by the International Transaction would certainly be a factor to determined by the AO by giving opportunity of being heard to the assessee. More particularly where an objection is raised about the applicability of chapter X by an assessee then the requirement for taking a decision after taking on board the objection becomes necessary. Admitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to occurring in both sections 92C(4)and92CA(4). Thus, the conclusion that no hearing was required before referring the matter to the TPO was based on the premise/that the assessee would get a hearing after the TPO passed the order. The AO was empowered to reject the TPO's findings on hearing the assessee and grant relief. But this premise is no longer valid after the amendment to Section 92CA(4) which now reads as follows:- Section 92CA(4) after to amendment in Finance Act ( 4) On receipt of the order under sub-section (3), the Assessing Officer shall1 proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the arm's length price as so determined by the Transfer Pricing Officer. Thus, after the amendment to Section 92CA(4) the AO was not bound to give an opportunity of being heard after receipt of TPO's report. What is the consequence of this change in the law? Prior to the amendment, the AO was obliged to give an opportunity of being heard to the assessee after receipt of order of TPO. Thus, assessee could avail of the opportunity to convince the AO that ALP was not the price determin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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