TMI Blog2018 (5) TMI 1266X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the Assessing Officer to the TPO in the present case is quashed - Special Civil Application No. 19073 of 2017 - - - Dated:- 6-3-2018 - MR. AKIL KURESHI AND MR. B. N. KARIA, JJ. For The Petitioner : Mr Manish J Shah For The Respondent : Advocate Name Deleted(26) And Mr.Manish Bhatt , Sr Counsel With Mr Varun K.Patel ORAL JUDGMENT ( PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner has challenged a reference made by respondent no.1 Deputy Commissioner of Income Tax to respondent no.2 Transfer Pricing Officer ( TPO for short) in case of the petitioner and consequential order dated 15.9.2017 passed by the TPO in which he made no upward adjustment on the specified domestic transactions of the petitioner. 2. Brief facts are as under. The petitioner is a District level Cooperative Milk Producers' Union and is engaged in collection and processing of milk from the member societies who in turn would be cooperative milk societies at Village and Taluka levels. For the assessment year 2014-2015, the petitioner filed return of income on 29.9.2015. Since the petitioner had entered into certain specified domestic transactions and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner wrote to the TPO and pointed out that the petitioner had opted for safe harbour, a copy of application filed by the petitioner for such purpose under the prescribed form was attached and requested the TPO to take the same into account. 10. On 19.6.2017, the TPO once again wrote to the petitioner asking the petitioner to provide necessary information latest by 10.7.2017 for computation of arm's length price. Eventually, TPO passed the impugned order dated 15.9.2017 making no adjustments for the arm's length price of the petitioner's specified domestic transactions. 11. Case of the petitioner is that the action of respondent Assessing Officer of referring the petitioner's case to the TPO itself was wholly illegal and invalid when the petitioner had applied for safe harbour and when such application was deemed to have been accepted in terms of the relevant rules. The petitioner's further contention is that the Assessing Officer had made such a reference merely to ensure extended period of limitation for completing the assessment. Our attention was drawn to the sequence of events noted above. It was pointed out that at the fag end of the period for framing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be gathered from CBDT circular no.5/2010 dated 3.6.2010 in order to reduce the number of transfer pricing audits and prolonged disputes, since number of cases identified for audit and the transfer pricing adjustments which were locked up in disputes have increased, section 92CB was inserted to the Act to provide for safe harbour rules. 16. Section 92CB which pertains to power of Board to make safe harbour rules reads as under : 92CB (1) The determination of arm's length price under section 92C or section 92CA shall be subject to safe harbour rules. ( 2) The Board may for the purposes of subsection( 1), make rules for safe harbour. ExplanationFor the purposes of this section safe harbour means circumstances in which the incometax authorities shall accept the transfer price declared by the assessee. 17. In terms of section 92CA, Part DC to Chapter II to the Income Tax Rules, 1962 ( the said Rules for short) pertaining to Safe Harbour Rules for specified domestic transactions was inserted by Income Tax (Second Amendment) Rules, 2015 with effect from 4.2.2015. Rule 10THA of the said Rules, specifies an 'eligible assessee' as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The price of milk or milk products is determined at a rate which is fixed on the basis of the quality of milk, namely, fat content and Solid Not Fat (SNF) content of milk; and ( a) the said rate is irrespective of (i) the quantity of milk procured; (ii) the percentage of shares held by the members in the cooperative society; (iii) the voting power held by the members in the society; and (b) such prices are routinely declared by the cooperative society in a transparent manner and are available in public domain ( 3) No comparability adjustment and allowance under the second proviso to subsection( 2) of section 92C shall be made to the transfer price declared by the eligible assessee and accepted under subrule( 1). ( 4) The provisions of sections 92D and 92E in respect of a specified domestic transaction shall apply irrespective of the fact that the assessee exercises his option for safe harbour in respect of such transaction. 20. Rule 10THD lays down the procedure for safe harbour and reads as under : lOTHD. ( 1 ) For the purposes of exercise of the option for safe harbour, the assessee shall furnish a Form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordance with the circumstances specified in sub rule (2) of rule lOTHC, the Assessing Officer shall, by order in writing, declare the option exercised by the assessee under subrule (1) to be invalid and cause a copy of the said order to be served on the assessee: Provided that no order declaring the option exercised by the assessee to be invalid shall be passed without giving an opportunity of being heard to the assessee. ( 5) If the assessee objects to the order of the Assessing Officer under subrule (4) declaring the option to be invalid, he may file his objections with the Principal Commissioner or the Commissioner or the Principal Director or the Director, as the case may be, to whom the Assessing Officer is subordinate, within fifteen days of receipt of the order of the Assessing Officer. ( 6) On receipt of the objection referred to in subrule (5), the Principal Commissioner or the Commissioner or the Principal Director or the Director, as the case may be, shall after providing an opportunity of being heard to the assessee, pass appropriate orders in respect of the validity or otherwise of the option exercised by the assessee and cause a copy of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecific domestic transaction with respect to which the petitioner desired to opt for safe harbor was eligible specified domestic transaction in terms of rule 10THB. Subrule 10THC provides that where an eligible assessee has entered into an eligible specified domestic transaction in any previous years relevant to the assessment year and the option exercised by said assessee is treated to be validly exercised, the transfer price declared by the assessee in respect of such transaction for that particular assessment year shall be accepted by the incometax authorities, if it is in accordance with the circumstances as specified in subrule( 2). The petitioner's contention is that the petitioner's case would fall under second clause of subrule( 2) pertaining to purchase of milk or milk products referred to in clause (iv) of rule 10THB, since the petitioner satisfied all the circumstances under 3rd column of the table below subrule( 2) of rule 10THC. The Revenue has not pointed out anything to the contrary. In other words, it is not even the case of the Assessing Officer that in case of the petitioner, the circumstances referred to in subrule( 2) of rule 10THC were not satisfied and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , i.e. application for safe harbour in prescribed form, is received by him and further an order under subrule (6) shall be passed by concerned authority within a period of two months from the end of the month in which the objection filed by the assessee under subrule (5) is received by him. Subrule (8) further provides that if the Assessing Officer or the Principal Commissioner or the Commissioner or the Principal Director or the Director, as the case may be, does not pass an order within the time specified in subrule (7), then the option for safe harbour exercised by the assessee shall be treated as valid. 24. Subrule (7) of rule 10THD thus lays down the time limit for the Assessing Officer to pass an order under subrule( 4) and for the concerned competent authority to pass an appropriate order under subrule( 6). We may recall under subrule( 4), the Assessing Officer may declare that the option exercised by the assessee for safe harbour was invalid. Under subrule( 6), the concerned authority would dispose of the assessee's objection to any such order that the Assessing Officer may have passed under subrule( 4). The rules do not rest at merely laying down such time limit. Su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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