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TMI Blog2021 (3) TMI 1459X X X X Extracts X X X X X X X X Extracts X X X X ..... s, ground No. 1 and 2 of the appeal, the same read as under:- "1. The Learned Assessing Officer under directions from the Honourable Dispute Resolution Panel as well as the Learned Transfer Pricing Officer erred in law and on facts in applying the transfer pricing provisions (section 92 to section 92F of the Act) to Your Assessee inspite of the fact of that both Narayan Foods Limited and Ambico Exports and Imports Private Limited (UK) are neither Associated Enterprise as defined under section 92A of the Act nor a related party as defined under section 40A(2)(b) of the ACT to Your Assessee. 2. The Learned Assessing Officer erred in law and on the basis of facts to make a reference to the Learned Transfer Pricing Officer under section 92CA(1) of the ACT for determining arms length price on transactions with Narayan Foods Limited and Ambico Exports and Imports Private Limited (UK) without providing an opportunity to Your Assessee to herd in the matter." 4. The ld. Authorized Representative of the assessee narrating the facts of case submitted that the assessee is engaged in trading of diamonds, export and import of chemicals, rough diamonds, general items and processing - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P has erred holding that, since case of the assessee squarely falls within the ambit of section 92A(1)(b) of the Act, there is no need to travel to sub-section (2) of section 92A of the Act. The ld. Authorized Representative of the assessee buttress his contentions placed reliance on the following decisions: (i) Orchid Pharma Ltd. vs. DCIT, 143 DTR 34 (Bang-Trib) (ii) ACIT vs. Veer Gems, 77 taxmann.com 127 (Ahd-Trib) (iii) Kaybee Pvt. Ltd. vs. ITO, 204 TTJ 921 (Mumbai) (iv) Page Industries Ltd. vs. DCIT, 159 ITD 680 (Bang) 4.3. The ld. Authorized Representative of the assessee submitted that in ground No. 2 of the appeal the assessee has raised a legal ground i.e. the Assessing Officer has not served any show cause notice on assessee before making reference to TPO under section 92CA (1) of the Act. He asserted that the basic principle of natural justice was violated before invoking the provisions of Chapter-10 of the Act. The ld. Authorized Representative of the assessee pointed that the CBDT had issued guidelines for implementation of TP provisions vide Instruction No. 3/2016 dated 10/03/2016 wherein, it has been categorically mentioned that where the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the DRP and the assessment order. The ld. Departmental Representative submitted that the assessee and Ambico UK and Narayan UK are AEs within the meaning of Sec. 92A of the Act. Harshad Danesh Patel is common shareholder between the entities. In the overseas entities, he is holding 50% shares and in Indian entity he along with his relatives hold nearly 12% shareholding. Thus, he exercises his influence in management and control on Indian and overseas entities. In respect of issue of affording opportunity of hearing, the ld. Departmental Representative submitted that the assessee was given two opportunities to file his objections against reference to the TPO. The assessee failed to avail those opportunities to make out a case in its favour. The assessee thereafter, participated in the TP proceedings without raising any further objection. The ld. Departmental Representative prayed for dismissing the appeal filed by the assessee. 6. We have heard the submissions made by rival sides and have examined the orders of authorities below. The two issues that have been agitated by the assessee before us are: (i) Whether the assessee, Ambico UK and Narayan UK are AEs as defined under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights; or (h) ninety per cent or more of the raw materials and consumables required for the manufacture or processing of goods or articles carried out by one enterprise, are supplied by the other enterprise, or by persons specified by the other enterprise, and the prices and other conditions relating to the supply are influenced by such other enterprise; or (i) the goods or articles manufactured or processed by one enterprise, are sold to the other enterprise or to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise; or (j) where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his relative or jointly by such individual and relative of such individual; or (k) where one enterprise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as associated enterprise one enterprise, in relation to another enterprise, participate, directly or indirectly, or through one or more intermediaries, "in the management or control or capital of the other enterprise" or when "one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise" . Section 92(A)(2) only provides illustrations of the cases in which such an enterprise participates in management, capital or control of another enterprise. In other words, what Section 92A (1) decides is the principle on the basis of which one has to examine whether or not two or more enterprise are associated enterprise or not. The principle is, as we have noted above, that one of the enterprise, in relation to other enterprise, participate, directly or indirectly, in the management or control or capital of the other enterprise and that persons who participate in such management, control or capital of both the enterprises are common. As long as an enterpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enterprises'. The relevant extract of the observations of the Tribunal are as under: "8. As we deal with this issue, let's first appreciate the scheme of Section 92A. A plain reading of this statutory provision makes the legal position quite clear. The basic rule for treating the enterprises as associated enterprises is set out in Section 92A(1). The illustrations in which basic rule finds application are set out in Section 92A(2). Section 92A(1) lays down the basic rule that in order to be treated as associated enterprise one enterprise, in relation to another enterprise, participate, directly or indirectly, or through one or more intermediaries, "in the management or control or capital of the other enterprise" or when "one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise". Section 92(A)(2) only provides illustrations of the cases in which such an enterprise participates in management, capital or control of another enterprise. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in Section 92A(1) quite considerably on the basis of, what appears to be, manner of participation in "control" of the other enterprise. What is thus clear that as long as the provisions of one of the clauses in Section 92A(2) are not satisfied, even if an enterprise has a de facto participation capital, management or control over the other enterprises, the two enterprises cannot be said to be associated enterprises. That is a what coordinate bench decisions in the cases of Orchid Pharma Ltd Vs DCIT [(2016) 76 taxmann.com 63 (Chennai - Trib.)] and Page Industries Ltd Vs DCIT {(2016) 159 ITD 680 (Bang)] also hold. " [Emphasised by us] 10. The Hon'ble Gujarat High Court in an appeal filed by the revenue i.e. Pr.CIT vs Veer Gems, 407 ITR 639 has upheld the decision of the Tribunal. The Hon'ble Apex Court (256 Taxman 298) while dismissing the SLP filed by the Revenue has approved the decision of Hon'ble Gujarat High Court. Thus, the view taken by the Tribunal, that the provisions contained in sub-section (1) and sub-section (2) of section 92A have to be read in conjunction, has attained finality. 11. In a recent decision the coordinate Bench of the Tribunal in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. The contention of the assessee is that show cause notice was issued to the assessee before making reference to the TPO. The ld. Authorized Representative of the assessee referred to noting sheet entry dated 07/03/2016, wherein the assessee was asked to furnish affidavit of Harshad Danesh Patel regarding no association with overseas entities. We find that the assessee had raised this issue before DRP as well. The DRP in para 5.11 of the directions recorded that the assessee has admitted that twice through order sheet entry the assessee was asked to respond to its relationship with Ambico UK and Narayan UK. 14. The CBDT vide Instruction No. 3/2016 (supra) has issued guidelines for implementation of TP provisions. In the said instruction the manner and procedure for making reference to TPO has also been explained. A perusal of the same shows that it has been categorically mentioned in the CBDT Instruction that Assessing Officer must provide an opportunity of hearing to the assessee before recording his satisfaction in the following three situations: - where the taxpayer has not filed the Accountant's report under section 92E of the Act but the international transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 dated 10th March 2016 clarifies the correct legal position and cannot be construed as not applying to the facts on hand. Since it isa procedural aspect and is intended to the benefit to the Assessee, it requires to be applied even in the present case where a reference was earlier made by the AO to the TPO on 31st March 2013 and thereafter. 23. For all the aforesaid reasons, the Court is of the view that the three references made by the AO to the TPO on the question of determination of ALP of the alleged international transactions involving the Petitioner and its AE have been made without affording the Petitioner an opportunity of being heard as was required by law. This, as explained by the Bombay High Court in Vodafone India Services (P) Limited v. Union of India (supra), and reaffirmed by the CBDT‟s Instruction No. 3 of 2016, is a procedural requirement implicit in Section 92 CA (1) of the Act. Accordingly, the said three references made by the AO to the TPO for determination of the said question for the AYs 2011-12, 2012-13 and 2013-14 are hereby set aside. 24. The question of whether or not a reference should be made to the TPO, for the three AYs in question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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