TMI Blog2020 (3) TMI 542X X X X Extracts X X X X X X X X Extracts X X X X ..... ther upheld by a judicial authority or pending in appeal. That being the position, we hold that the AO made a reference to the TPO in contravention of Instruction No.3/2016. Since the Instruction is binding on the AO, such reference is declared as invalid and the consequential transfer pricing adjustment of ₹ 10.14 crore is directed to be deleted.- Decided in favour of assessee. - ITA No.114/PUN/2019 - - - Dated:- 9-3-2020 - Shri R.S. Syal, Vice President And Shri Partha Sarathi Chaudhury, Judicial Member For the Assessee : Shri Kishor Phadke For the Revenue : Shri T.V. Bhaskar Reddy ORDER PER R.S.SYAL, VP : This appeal by the assessee is directed against the final assessment order dated 26-11-2018 passed by the Assessing Officer (AO) u/s. 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (hereinafter also called the Act ) in relation to the assessment year 2014-15. 2. The assessee is aggrieved by the transfer pricing adjustment of ₹ 10,14,06,297/- made in the final assessment order. The first legal issue raised in this appeal poses a challenge to the jurisdiction of the Assessing Officer (AO) in making a reference to the Transfer Pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s selected for scrutiny on non-transfer pricing risk parameters. The AO sought approval of the Principal Commissioner of Income-tax (Pr. CIT) (Central) vide his letter 28-10-2016 for making a reference to the TPO u/s. 92CA of the Act on the ground that transfer pricing addition of more than ₹ 10.00 crore was made in an earlier year in terms of para 3.3(b) of the Instruction No.3/2016 dated 10-03-2016 issued by the CBDT. A copy of such letter is available at page 383 of the paper book. The Pr. CIT accorded his approval vide letter dated 03-11-2016, a copy of which has been placed on 384 of the paper book. On receipt of approval from the Pr. CIT, the AO made a reference to the TPO on 04-11-2016 for determining the ALP of the international transactions. In this reference letter again, the AO gave similar reasons for making reference to the TPO as were given in the letter to the Pr. CIT, being, transfer pricing addition of more than ₹ 10.00 crore in earlier year and ex consequenti, the case covered under para 3.3(b) of the Instruction No.3/2016 dated 10-03-2016 issued by the CBDT. On receipt of such a reference, the TPO passed the order u/s 92CA(3) proposing the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the matter to the file of AO so that appropriate reference could be made to the TPO. 8. On 16-10-2015, the CBDT, replacing its earlier Instruction of 2003, issued a fresh Instruction No.15/2015 on the subject by providing that the cases were to be selected for scrutiny only on certain parameters and there was no requirement of referring an international transaction to the TPO for determination of its ALP merely because the value of transactions exceeded a particular limit. Thus, it is overt that with the Instruction No.15/2015, the hitherto threshold limit of ₹ 5/₹ 15.00 crore requiring the making of a mandatory reference to the TPO for determination of the ALP by the AO, was dispensed with. 9. Thereafter, Instruction No.03/2016 dated 10-03-2016 was issued by the CBDT replacing the earlier Instruction dated 16-10- 2015. The new Instruction of 2016 provides for mainly two categories of cases in which reference can be made by the AO to the TPO for the ALP determination. The first main category consists of the cases that are selected for scrutiny on the basis of transfer pricing risk parameters and second category comprises of cases that are selected for scrutin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O) concerned. For this year, there was addition of ₹ 23,35,28,452/- by the TPO. Hence, your kind reference is invited to Para 3.3(b) of Instruction No.3/2016 dated 10-03-2016 issued by the CBDT : 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. 3. In this case there was addition of more than ₹ 10 Crore. Also, the appeal is pending before the Dispute Resolution Panel (DRP), Mumbai. In this case, there are additions by the TPO concerned for earlier assessment years, namely 2007-08 to 2012- 13. (emphasis supplied by us) 11. We have noted above that it is not a case selected for scrutiny on the basis of transfer pricing risk parameters. In that view of the matter, application of para 3.2 of the 2016 Instruction is ousted. On going through the above extracted portions of the AO s letter, it becomes evident that he made a reference to the TPO in terms of para 3.3 (b) of Instruction of 2016, which deals with making a reference in one of the three situations qua a case selected for scrutiny on the basis of non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons raised by the assessee are disposed of by the DRP after due application of mind and thereafter the final assessment order is passed by the AO that the `proposed transfer pricing adjustment sheds the word `proposed and assumes the character of `transfer pricing adjustment to the extent of containing the effect of the directions of the DRP. 15. At this stage, it is relevant to mention that the reference to the transfer pricing adjustment of ₹ 10.00 crore or more in the first condition of para 3.3(b) is to an earlier assessment year. The term an earlier assessment year does not refer to the immediately preceding assessment year. If, for any year prior to the immediately preceding assessment year also, a transfer pricing adjustment of ₹ 10.00 crore or more has been made, it will satisfy the first condition. 16. Now we come to the second condition in para 3.3 (b), which is that such an adjustment of ₹ 10.00 crore or more must have been upheld by the judicial authorities or pending in appeal. A transfer pricing adjustment can be said to be upheld by the judicial authorities (at least, the first forum) only when such an adjustment is first made as a first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer pricing adjustment itself cannot be said to have been made at that point of time and a fortiori there was no question of the same being upheld by the judicial authorities or pending in appeal. 18. The ld. DR tried to draw a parallel between an appeal before the CIT(A) and pendency of the matter before the DRP. He contended that once the transfer pricing adjustment was pending with the DRP, the same should be construed as pending in appeal. 19. There is no merit in the contention. We have noted earlier that an assessment order can be said to be ripe for consideration by judicial authorities either at the time of pendency of appeal or its disposal in which the transfer pricing adjustment has been upheld only when it has irretrievably gone out of the hands of the AO, who has become functus officio. If the AO has yet to continue with the assessment, it cannot be said that the second condition of para 3.3(b) of the 2016 Instruction is satisfied. Obviously an appeal will lie only when an assessment order has been passed. As proceedings before the DRP are continuation of assessment proceedings, being a stage prior to the completion of assessment, we cannot approve the conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame force as the pendency of the appeal, ergo, does not fit into the scheme as the completion of assessment can take place only after the DRP has disposed of the objections. 21. There is a logic behind providing a safeguard of satisfying the twin conditions of para 3.3(b) as discussed above, namely, first the making of the transfer pricing adjustment and second either its approval or pendency of appeal against that. Sometimes, a TPO may be swayed by an over-ambitious endeavour resulting into proposing a high-pitched transfer pricing adjustment in his order u/s. 92CA(3) of the Act, which, at the stage of notifying the draft order, becomes binding on the AO in terms of section 92CA(4). Till such time, there is no application of mind by any higher authority of the Department. It is only when the assessee takes up the matter before the DRP that the transfer pricing adjustment is vetted and scrutinised by the DRP for ensuring that it has been properly proposed leading to the passing of the final assessment order by the AO. Both the situations in the second condition of para 3.3(b) - of either upholding the transfer pricing adjustment by the judicial authorities or the pendency of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at though the AO has the power u/s. 92C to determine the ALP of an international transaction or specified domestic transaction, determination of ALP should not be carried out at all by the AO in a case where reference is not made to the TPO . On going through para 3.7 of 2016 Instruction, it is manifested that the AO, under no circumstance, can himself determine the ALP of an international/specified domestic transaction u/s. 92C of the Act. He is mandatorily required to get the ALP determined from the TPO, and that too, in the circumstances mentioned in the relevant paras of the Instruction. As the AO is debarred from exercising any power u/s. 92C(3) of the Act at his own by virtue of 2016 Instruction, the same having binding effect on the Departmental authorities, cannot be tinkered with. Once it is held that the AO cannot himself determine the ALP, there can be no question of his availing the services of the TPO save and except the circumstances given mainly in paras 3.2 and 3.3 of the 2016 Instruction. The argument of the ld. DR that the Instruction 2016 cannot override section 92C(3) of the Act, though looks attractive, but cannot pass the scrutiny for the raison d etre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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