×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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09-03-2020, Healthcare, Section 92, 92F, 92C(3), Tribunal Pune
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 Rs.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 Pricing Officer (TPO) for determining the arm’s length price (ALP) of the international transactions reported by the assessee.
3. Succinctly, the factual scenario, which s relevant for determining the extant legal issue is that the assessee is an Indian company which filed its original return declaring total income of Rs.8,73,81,465/-, which was subsequently revised to a loss of Rs.4,39,40,490/- on account of merger of some companies. The
assessee reported certain international transactions in Form No. 3CEB, including `Sale of Pharmaceutical products’. The AO made a reference to the Transfer Pricing Officer (TPO) for determining the ALP of the international transactions. The latter proposed a transfer pricing adjustment of Rs.10,49,46,477/-. Pursuant to the directions given by the Dispute Resolution Panel (DRP), the AO made transfer pricing adjustment of Rs.10,14,06,297/- in the impugned final assessment order. The case of the assessee before the Tribunal is that the AO could not have made a reference to the TPO on the basis of the reasons stated therein and hence, such a reference should be declared invalid and the consequential transfer pricing addition deleted.
4. We have heard the rival submissions and gone through the relevant material on record. In order to decide the legal question, it is sine qua non to have a glance at certain relevant documents. Page 386 of the paper book is a copy of CASS (Computer Assisted Scrutiny Selection) reasons for selection of the assessee’s case for scrutiny assessment. The reasons given are Low net profit or loss shown from large gross receipts; Large other expenses claimed in the Profit and Loss account; Taxable income shown in revised return is less than the taxable income shown in the original return; Loss from currency fluctuations; Low income in comparison to high loans/advances/investment in shares; Large difference in the opening stock of current year and closing stock of previous year shown in Profit and Loss account as per Return of income; Mismatch in sales turnover reported in Audit Report and ITR; Mismatch in amount paid to related persons u/s. 40A(2)(b) reported in Audit Report and ITR; and Mismatch between income/receipt credited to Profit and Loss account considered under other heads of income and Income from heads of income. It is evident from the above reasons that the case was 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 Rs.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 Rs.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 pricing adjustment of Rs.10.49 crore.
5. The contention of the ld. AR before the Tribunal is that the AO went wrong in seeking permission from the Pr. CIT and then making a reference to the TPO on the ground that the transfer pricing addition of more than Rs.10.00 crore was made in an earlier year in the case of assessee.
6. Sections 92 to 92F, contained in Chapter X of the Act, were substituted / inserted by the Finance Act, 2002. Section 92C(3) of the Act empowers the AO to determine the ALP of the international transaction / specified domestic transaction in accordance with sub-sections (1) and (2). Section 92CA(1) with the marginal note “Reference to Transfer Pricing Officer” states that where an assessee has entered into an international transaction in any previous year, and the Assessing Officer considers it necessary or expedient so to do, he may, with the previous approval of the Commissioner, refer the computation of the arm’s length price in relation to such international transaction to the TPO. On a conjoint reading of sections 92C and 92CA, it transpires that the ALP determination can be done directly by the AO as well as cause to be done through TPO after seeking approval from the Pr. CIT.