TMI Blog2019 (8) TMI 661X X X X Extracts X X X X X X X X Extracts X X X X ..... We, therefore, allow this Appeal to the aforesaid extent and direct that it would now be upto the AO to take appropriate steps in terms of Instruction No.3/2003. - Civil Appeal No. 6144 of 2019 - - - Dated:- 13-8-2019 - Uday Umesh Lalit And Vineet Saran, JJ. JUDGMENT Uday Umesh Lalit, J. 1. This Appeal by Special Leave challenges the judgment and final order dated 27.08.2018 passed by the High Court of Bombay dismissing Income Tax Appeal No.281 of 2016 preferred by the appellant herein and thereby confirming the order dated 22.04.2015 passed by the Income Tax Appellate Tribunal ( the Tribunal , for short) in ITA No.2399/Mum/2009. 2. The facts leading to the filing of this Appeal are as under:- A) The respondent had received certain amount of brokerage from its parent company. During the assessment proceedings the respondent was directed to furnish details about the parent company and the rate of brokerage that was charged. After the details were furnished, the respondent was asked to establish if the parent company was involved in arbitrage activity and whether the rate charged was higher. After considering the material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. Reference to the TPO is an administrative matter which was supposed to be followed by the AO which he has failed to do so. The Tribunal cannot make any good to such lapse made by the AO. 17. As we have held that T.P. Adjustments are bad in law, we do not find it necessary to dwell into the merits of the case. 18. In the result, the appeal filed by the assessee is partly allowed. 3. The view so taken by the Tribunal was affirmed by the High Court which is presently under Appeal. We heard Mr. Mahabir Singh, learned Senior Advocate in support of the Appeal and Mr. Arijit Chakravarty, learned Advocate for the Respondent. 4. Instruction No.3/2003 dated 20.05.2003 which weighed with the Tribunal and the High Court, is as under:- Instruction No. 3/2003 SECTION 92 OF THE INCOME TAX ACT, 1961 TRANSFER PRICING COMPUTATION OF INCOME FROM INTERNATIONAL TRANSACTION HAVING REGARD TO ARM S LENGTH PRICE UNDER SECTION 92 GUIDELINES TO TRANSFER PRICING OFFICERS AND ASSESSING OFFICERS TO OPERATIONALISE TRANSFER PRICING PROVISIONS AND TO HAVE PROCEDURAL UNIFORMITY. INSTRUCTION NO. 3/2003, DATED 20-05-2003 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92CA. In order to make a reference to the TPO, the Assessing Officer has to satisfy himself that the taxpayer has entered into an international transaction with an associated enterprise. One of the sources from which the factual information regarding international transaction can be gathered is Form No.2CEB filed with the return which is in the nature of an accountant s report containing basic details of an international transaction entered into by the taxpayer during the year and the associated enterprise with which such transaction is entered into, the nature of documents maintained and the method followed. Thus, the primary details regarding such international transactions would normally be available in the accountant s report. The Assessing Officer can arrive at prima facie belief on the basis of these details whether a reference is considered necessary. No detailed enquiries are needed at this stage and the Assessing Officer should not embark upon scrutinizing the correctness or otherwise of the price of the international transaction at this stage. In the initial years of implementation of these provisions and pending development of adequate database, it would be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (1) of section 92C and by applying the most appropriate method referred to in sub-section (2) thereof. There may be occasions where application of the most appropriate method provides results which are different but equally reliable. In all such cases, further scrutiny may be necessary to evaluate the appropriateness of the method, the correctness of the data, weight given to various factors and so on. The selection of the most appropriate method will depend upon the facts of the case and the factors mentioned in rules contained in rule 10C. The TPO after taking to account all relevant facts and data available to him shall determine arm s length price and pass a speaking order after obtaining the approval of the DIT (TP). The order should contain details of the data used, reasons for arriving at a certain price and the applicability of methods. It may be emphasized that the application of method including the application of the most appropriate method, the data used, factors governing the applicability of respective methods, computation of price under a given method will all be subjected to judicial scrutiny. It is, therefore, necessary that the order of the TPO contains ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Date of receipt of reference from A.O. Name of the A.O. making reference Name and address of the tax payer and nature of business Nature and quantum of international transaction as per section 92B and assessment year Name and address of the associate d enterprise and the country in which it is resident Nature of association as per section 92A Date of issue of notice to taxpayer Transfer price as taken by the taxpayer Arms length price as determined by the Transfer Pricing Officer under section 92CA (3) Method applied Reference to any database adopted by TPO `Date of despatch of the order of the A.O. ANNEXURE II Order under section 120, read with section 92CA of the Income-tax Act, 1961, dated April, 2003 In exercise of the power conferred by sub-section (1) and sub-section (2) of section 120 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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