TMI Blog2021 (10) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... , during the course of proceedings, the AO had called for necessary information by issuing notice under Section 92C read with Section 142(1) of the Act dated 05.02.2016 for the A.Y. 2013-14 and the same was complied with by the assessee vide its letter dated 19.02.2016, whereby, the assessee had furnished a copy of the audit report in Form No.3CEB containing the complete details of international transactions and also submitted Transfer pricing Study report and thereafter, on 18.03.2016, the revised Transfer Pricing Study report and Accountant s report were submitted and finally, the AO has framed the assessment vide its order dated 18.03.2016. Before completion of the scrutiny assessment, the original Accountant s report in Form No.3CEB, Transfer Pricing Study report and revised reports thereof were available on record and it is evident that, the assessee had submitted it in a prescribed time limit. Thus, all the information with regard to international transactions entered into by the assessee with its associated enterprises were placed on record at the time of scrutiny assessment proceedings. On perusal of the reasons recorded, it appears that the AO has recorded to the eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly, on 18.03.2016, assessment was framed under Section 143(3) of the Act determining total income ₹ 17,89,32,690/- disallowing the expenditure of commission expenses paid to nonresidence and the same had been added back to the total income. iv. During the scrutiny proceedings, the AO had issued notice under Section 92(C) read with Section 142(1) of the Act dated 05.02.2016 for A.Y. 2013-14 and called for various details and information and the same was complied with by the assessee vide its letter dated 19.02.2016 (04.03.2016) and had furnished such details like Transfer Pricing Order for A.Y. 2012-13, copy of the original Transfer Pricing Study Report and Accountant s Report in Form No. 3CEB and also submitted revised Transfer Pricing Study Report and Accountant s report vide its letter dated 14.03.2016 (submitted on 18.03.2016) and after perusing various details/information, the AO passed an assessment order vide order dated 18.03.2016 under Section 143(3) of the Act and assessed the income at ₹ 17,89,32,609/- after disallowing the commission paid to non-resident amounting to ₹ 54,06,265/-. During the course of scrutiny proceedings, the AO did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... caped for the A.Y. 2013-14 in the spirit of provision of Section 147 of the Income Tax Act, 1964. 3. Being aggrieved by the disposal of the objections against the notice for reopening of the assessment, the writ applicant has come up before this Court with the present writ application. 4. We have heard Mr. Saurabh Soparkar, learned Senior Counsel assisted by Mr.Bandish Soparkar, learned advocate appearing for the writ applicant and Mr. Manish Bhatt, learned Senior Counsel assisted by Mrs. Mauna Bhatt, learned Senior Standing Counsel appearing for the revenue. 5. Mr. Soparkar, learned Senior Counsel appearing for the writ applicant raised the following contentions: i. It was submitted that the impugned notice is bad in law and without jurisdiction as the conditions precedent for initiation of the reassessment proceedings are not complied with and therefore, impugned notice is bad in law and required to be quashed. ii. The reasons recorded are erroneous. The AO has proceeded completely on wrong factual premise. The reasons, therefore, lack validity. In this context, it was submitted that, the assessee Company had submitted its audit report in Form No.3CEB on 26.07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as submitted that, during the course of scrutiny assessment, all the necessary information with respect to international transactions were submitted by the assessee Company and all the materials like original Form No.3CEB, Transfer Pricing Study Report, revised Accountant s Report and TPS report were available on record. However, the AO did not refer the issue to the Transfer Pricing Officer to determine the Arm s Length Price and relying on the Circular consciously thought it fit not to determine the price or refer the matter to the Transfer Pricing Officer. Thus, present reassessment proceeding is nothing, but fresh application of mind to the same set of facts and therefore, mere a change of opinion does not confer jurisdiction on the AO to initiate proceedings for reassessment without tangible material available on record. v. Lastly, it was submitted that in the reasons recorded, it is stated that income of ₹ 7,40,57,709/- has escaped assessment for the year under consideration, however, in the reasons recorded, how and under what manner, the amount being arrived at by the AO that it has escaped assessment has not been precisely explained and therefore, the basis of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration? 10. Before adverting to the rival contentions raised by the respective parties, it is relevant to refer to the provisions of Section 147 of the Act, which provides that, if the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of Sections 148 to 153 of the Act, assess or reassess such income. In view of the aforesaid provisions, to confer jurisdiction under Section 147 of the Act, the primary condition to be satisfied is that, the AO must have reason to believe that the income chargeable to tax has escaped assessment. 11. In the facts of the present case, it appears that, the assessee Company had entered into various international transactions with its associated enterprises. Any income arising from international transaction shall be computed having regard to the Arm s Length Price. Chapter X of the Act deals with the special provision relating to avoidance of tax. In view of the issue raised by the assessee company, it is relevant to refer to Sections 92, 92C and 92CA of the Act, which provide that, any income arising from an international transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which state in para 3.7 that for administering the transfer pricing regime in an efficient manner, it is clarified that though AO has the power under Section 92C to determine the ALP of international transactions or specified domestic transactions, determination of ALP should not be carried out at all by the AO in a case where reference is not made to the TPO. However, in such cases, the AO must record in the body of the assessment order that due to the Board s instruction on this matter, the transfer pricing issue has not been examined at all. In accordance with the above instructions, the transfer pricing issue has not been examined at all. 14. In the facts of the present case, it is necessary to refer to the Circular/instructions No.3/2016 dated 10.03.2016 issued by Central Board of Direct Taxes, which provides guidelines for implementation of the Transfer Pricing provisions. In the present case, relying para 3.7 of the instructions, the AO did not refer the issue to the Transfer Pricing Officer as provided under Section 92CA of the Act to determine the Arm s Length Price under Section 92C of the Act. A bare reading of Clause 3.7 of the Circular/instructions shows that, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee in original assessment proceedings, but thereafter, the AO does not make any addition in the assessment order. In such situation, it should be accepted that the issue was examined, but the AO did not find any ground or reason to make addition or reject the stand of the assessee and he forms the opinion as a result, the reassessment will be invalid because the AO had formed an opinion in the original assessment, though he has not recorded his reasons. 16. In a case of CIT Vs. Kelvinator of India Ltd., the Apex Court while interpreting language of Section 147 of the Act, held that the assessing officer certainly has the power to reassess for any assessment year subject to the provisions of Sections 147 to 153 of the Act, however, the use of this power is conditional upon the fact that, the AO has some reason to believe that, the income has escaped assessment. The Apex Court has interpreted the use of words reason to believe and held that it has to be interpreted schematically as the liberal interpretation of the word would have the consequence of conferring arbitrary powers on the assessing officer who may even initiate such reassessment proceedings mainly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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