TMI Blog2022 (12) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... d No.2 raised by the assessee. - IT(TP)A No.2868/Bang/2018 - - - Dated:- 28-6-2022 - SHRI N.V VASUDEVAN, VICE PRESIDENT AND MS. PADMAVATHY S, ACCOUNTANT MEMBER Assessee by : Shri Ramasubramaniam Revenue by : Dr. Manjunath Karkihalli ORDER Per N.V.Vasudevan, Vice President This is an appeal by the assessee against the final order of assessment dated 29/8/2018 passed by the LTU, ACIT, Circle-2, Bangalore u/s 143(3) r.w.s 144C of the Income-tax Act 1961 (Act) in relation to the assessment year 2014-15. 2. The assessee is a company engaged in the manufacturing and sale of enclosures, heat exchangers, industrial cooling equipment, power distribution and MOD. During the previous year, the assessee had international transactions with its associated enterprise (AE). In terms of the provisions of Sec.92 of the Act, income arising out of an international transaction has to be determined having regard to Arm s Length Price. In terms of Sec.92CA of the Act, the AO made a reference for determination of arms length price (ALP) to the Transfer Pricing Officer (TPO). The TPO determined short fall in ALP to the extent of Rs.29,60,30,584/-. The addition suggested by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO only under the circumstances laid out in this Instruction. 3.2 All cases selected for scrutiny, either under the Computer Assisted Scrutiny Selection [CASS] system or under the compulsory manual selection system (in accordance with the CBDT's annual instructions in this regard -for example. Instruction No. 6/2014 for selection in F.Y 2014-15 and Instruction No. 8/2015 for selection in F.Y 2015-16), on the basis of transfer pricing risk parameters [in respect of international transactions or specified domestic transactions or both] have to be referred to the TPO by the AO, after obtaining the approval of the jurisdictional Principal Commissioner of Income-tax (PCIT) or Commissioner of Income-tax (CIT). The fact that a case has been selected for scrutiny on a TP risk parameter becomes clear from a perusal of the reasons for which a particular case has been selected and the same are invariably available with the jurisdictional AO. Thus, if the reason or one of the reasons for selection of a case for scrutiny is a TP risk parameter, then the case has to be mandatorily referred to the TPO by the AO, after obtaining the approval of the jurisdictional PCIT or CIT. 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the above three situations, the AO must provide an opportunity of being heard to the taxpayer before recording his satisfaction or otherwise. In case no objection is raised by the taxpayer to the applicability of Chapter X [Sections 92 to 92F] of the Act to these three situations, then AO should refer the international transaction or specified domestic transaction to the TPO for determining the ALP after obtaining the approval of the PCIT or CIT. However, where the applicability of Chapter X [Sections 92 to 92F] to these three situations is objected to by the taxpayer, the AO must consider the taxpayer's objections and pass a speaking order so as to comply with the principles of natural justice. If the AO decides in the said order that the transaction in question needs to be referred to the TPO, he should make a reference after obtaining the approval of the PCIT or CIT. 5. A perusal of the above paragraphs of the Circular would show that 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 scrutiny on the basis of non transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the TP adjustment was Rs.10 crores or more warranting invoking Instruction No.8 of 2015 was made. It was the contention of the assessee before the DRP that since the AO has not followed the binding instruction of CBDT, the reference to TPO is bad in law. It was contended that since the TPO gets jurisdiction only if there is a valid reference u/s 92CA of the Act and since the reference to the TPO was not valid, the order passed u/s 92CA I of the Act is nullity and cannot be the basis to make the impugned addition in the draft assessment order. The assessee relied on the decision of the Hon ble Delhi High Court in the case of Indorama Synthetics (India) Ltd., Vs ACIT 386 ITR 665 wherein it was held that Circular No.3 of 2016 is retrospective in operation and applied to all pending cases and even to a case where reference was made earlier prior to the issue of Circular. The assessee also relied on the decisions wherein it as laid down that selection of a case for scrutiny contrary to Instructions of CDBT would make the assessment bad in law, CIT Vs. Best Plastics Pvt. Ltd., 295 ITR 256 (Delhi) and CIT Vs. Nayana P Dedhia 270 ITR 572 (AP) assessee therefore prayed that the order pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked to clarify the basis of which the AO made a reference to the TPO. The JCIT (ODS), Circle-3(1)(1), Bengaluru has addressed a letter to the DR clarifying the position with regard to the basis of making a reference to the DRP by the AO vide letter dated 18/3/2022, which reads as follows:- To, The Commissioner of Income Tax Income Tax Appellate Tribunal-2 Bengaluru [Through Proner Channel] Sir, Sub: Request for reasons for referring the case ws 92CA of the Income Tax Act- in the ease ofM/s. Rittal (l) Pvt Ltd, PAN AAACR7927A, AY 2014-15 -reg. Ref: Letter of CIT, ITAT-2, Bangalore in F. No.CIT/1TAT-2/B/2021-22/5735 dated 16.03.2022 Kindly refer to the above. 2. In the eases of the assessee company Ws. Rittal India Private Limited for AY 2014- 15, the scrutiny assessment was completed 143(3) r.w.s 144C of the Income Tax Act, 1961 on 29.08.2018. 3. With regard to the report sought by CIT, IT AT-2, Bengaluru vide the above referred letter it is submitted that the reason for scrutiny selection under CASS does not include Transfer Pricing Issue. However, as per CBDT Instruction 3 of 2016 dated 10.032016 para 3.3 (b), the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO reference made by the AO to the TPO contrary to the aforesaid instruction is invalid and consequently the transfer pricing adjustment made on the basis of an order passed by the TPO on an invalid reference cannot be sustained. 12. We have considered the submissions and the material produced before us, which clearly proves that the parameters laid down in para 3.3(b) was the basis on which the AO made reference to the TPO viz., where there has been a transfer pricing adjustment of Rs. 10 Crore or more in an earlier assessment year and such adjustment has been upheld by the judicial authorities or is pending in appeal . Admittedly, the parameter laid down therein has not been satisfied in the present case and consequently, the reference by the AO to the TPO u/s.92CA of the Act is invalid. In the light of the discussion on the validity of an order u/s.92CA and invalidity and sustainability of the consequent addition made to the total income on the basis of such invalid order u/s.92CA of the Act, we are of the view that order of reference to the TPO in the present case is invalid, therefore the addition made based on the basis an order passed by the TPO on an invalid referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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