Lister Petter India Pvt. Ltd.,, Pune vs Assessee

Lister Petter India Pvt. Ltd., Assistant Commissioner Office No. 203, Mangalmurti of Income Tax, Complex, 990, Shukrawar Peth, Vs. Circle - 11(2), Pune Tilak Road, Pune-411002 (Appellant) (Respondent) PAN No. AAACL6978K

Assessee By: Shri Sunil Ganoo Revenue By: Shri A.K. Modi

Date of hearing : 12-05-2015 Date of pronouncement : 22-05-2015

ORDER

PER VIKAS AWASTHY, JM:-

The appeal has been filed by the assessee impugning the

assessment order dated 28-09-2012 passed u/s. 143(3) r.w.s. 147 and

144C of the Income Tax Act, 1961 (hereinafter referred to as "the Act").

In appeal, the assessee has inter-alia challenged the action of

Assessing Officer in making reference to the Transfer Pricing Officer

(TPO) in the absence of any pending assessment proceedings. The

assessee has also challenged the initiation of reassessment proceedings

u/s. 147 of the Act. The assessee in alternate submissions has assailed

the addition of Rs.1,04,74,608/- to the arm's length price of the

international transaction.

2 ITA No. 2171/PN/2012, A.Y. 2007-08

2. The brief facts of the case as emanating from records are: The

assessee is a private limited company engaged in the business of

manufacturing and trading of I.C. Engines, components and rendering

related services. The assessee filed its return of income for the

assessment year 2007-08 on 29-10-2007 declaring total income as Nil.

The case of the assessee was selected for scrutiny and notice u/s. 143(2)

was issued to the assessee on 18-09-2008. After verification of books of

account and details filed by the assessee in the course of scrutiny

assessment, the return of income filed by the assessee was accepted vide

order dated 19-11-2009. Thereafter, on 18-12-2009, the DCIT,

Circle-11(1) & 11(2), Pune made reference to Transfer Pricing Officer

(TPO) u/s. 92(CA). The TPO vide his order dated 21-10-2010 made an

adjustment of Rs.1,04,74,608/- in respect of international transactions

on payments made by assessee towards management recharge to its

AEs. On the basis of order passed by the TPO, reassessment

proceedings u/s. 147 were initiated and addition of Rs.1,04,74,608/-

with respect to international transaction was made by the Assessing

Officer in draft assessment order dated 22-11-2011. Against the draft

assessment order the assessee filed objections before the Dispute

Resolution Panel (DRP). Apart from challenging the addition made in the

draft assessment order, the assessee impugned the vires of reference

made to TPO in the absence of any pending assessment proceedings.

The DRP rejected the objections of the assessee and upheld the addition.

Based on the direction of DRP dated 21-08-2001, the Assessing Officer

passed the impugned assessment order.

3. Shri Sunil Ganoo appearing on behalf of the assessee submitted at

the outset that reference made to TPO after completion of the

assessment on 19-11-2009 is bad in law and without jurisdiction. The 3 ITA No. 2171/PN/2012, A.Y. 2007-08

ld. AR submitted that when no return is pending for consideration before

the Assessing Officer, reference made to TPO is invalid. In support of his

submissions, the ld. AR placed reliance on the decision of Hon'ble High

Court of Karnataka in the case of CIT Vs. SAP Labs (P.) Ltd. reported as

271 CTR 612 and the order of Co-ordinate Bench of the Tribunal in ITA

No. 2234/PN/2012 in the case of Maximize Learning (P.) Ltd. Vs. ACIT

decided on 02-02-2015. The ld. AR further submitted that even the

reassessment proceedings initiated against the assessee are without

jurisdiction. No fresh incriminating material was found against the

assessee. The reassessment proceedings were initiated only on the basis

of order of TPO which is without jurisdiction.

4. On the other hand Shri A.K. Modi representing the Department

vehemently supported the impugned assessment order and the

directions of the DRP. The ld. DR submitted that there is no error in

reference made to the TPO. The provisions of section 92CA does not lay

the condition that reference can be made only during pendency of

assessment proceedings. The ld DR prayed for dismissing the appeal of

the assessee.

5. We have heard the submissions made by the representatives of

rival sides and have perused the orders of the authorities below. We

have also examined the decisions on which the ld. AR has placed

reliance. The assessee in its appeal has primarily questioned the action

of Assessing Officer in making reference to the TPO in the absence of any

pending assessment proceedings. Before adverting to this issue, it would

be relevant to recapitulate the sequence of events and the provisions of

relevant sections of the Act.

4 ITA No. 2171/PN/2012, A.Y. 2007-08

Sequence of Events:

Sl. No. Date Particulars

1 29-10-2007 Income tax Return filed by the assessee.

2 18-09-2008 First notice u/s. 143(2) issued to the assessee.

3 15-06-2009 Second notice u/s. 143(2).

4 19-11-2009 Assessment order u/s. 143(3).

5 18-12-2009 Reference u/s. 92CA(1) made to TPO.

6 21-10-2010 Order passed by TPO.

7 14-01-2011 Notice u/s. 148 for reassessment issued.

8 22-11-2011 Draft assessment order u/s. 143(3) r.w.s. 147.

9 21-08-2012 Directions of DRP.

10 28-09-2012 Impugned assessment order.

6. The provisions relating to reference to TPO are contended in

section 92CA of the Act. The relevant extract of the section is as under:

"92CA. (1) Where any person, being the 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 [Principal Commissioner or] Commissioner, refer the computation of the arm's length price in relation to the said international transaction under section 92C to the Transfer Pricing Officer.

(2) Where a reference is made under sub-section (1), the Transfer Pricing Officer shall serve a notice on the assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the assessee may rely in support of the computation made by him of the arm's length price in relation to the international transaction referred to in sub-section (1)."

5 ITA No. 2171/PN/2012, A.Y. 2007-08 A bare perusal of the provisions contained in section 92CA sub-

section (1) & (2) shows that reference to TPO can be made by the

Assessing Officer only when the assessment is open before him. The

Assessing Officer can form an opinion for making reference to TPO for

computing ALP in relation to international transaction during the course

of assessment proceedings. Once, the assessment order is passed the

Assessing Officer cannot make a reference to the TPO with respect to an

issue which is not open before him.

7. Similar issue had come up before the Co-ordinate Bench of the

Tribunal in the case of Maximize Learning (P.) Ltd. (supra). The Tribunal

after analyzing the relevant provisions of the Act held, that if on the date

of making reference to the TPO, the assessment proceedings u/s. 143

had come to an end and the proceedings for assessment stood

terminated, there was no occasion for the Assessing Officer to make

reference to the TPO for determination of arm's length price of the

international transactions in terms of section 92CA of the Act. The

relevant extract of the order of Tribunal is reproduced here-in-below:

"19. We have carefully considered the plea of the Ld. CIT-DR, that it is open to the Department to make a reference to the TPO without issuing notice u/s 143(2) of the Act, but in our view, it is not supported by a schematic reading of the relevant Provisions relating to the transfer pricing assessment contained in sections 92 to 92F. The entire purpose of computation of arm's length price in relation to an international transaction is found in sub-section (1) of section 92 of the Act. Section 92(1) mandates that any income arising from an international transaction shall be computed having regard to the arm's length price. Therefore, the sole aim of computing the arm's length price in relation to any international transaction is to compute the income arising therefrom. Thus, the computation of income and the determination of arm's length price in relation to the international transaction have to go hand-in-hand and without there being an occasion to compute income arising from an international 6 ITA No. 2171/PN/2012, A.Y. 2007-08

transaction, it is difficult to comprehend the process for computation of arm's length price in relation to the relevant international transaction. Therefore, it would not be open for the Department to say that the process of computing arm's length price of an international transaction or a reference to the TPO to determine arm's length price can be initiated in the absence of any proceeding for computing total income of the assessee.

20. Further, in our view, the Ld. CIT-DR has relied on one of the norms prescribed for picking a return for scrutiny assessment to say that certain exercise is required to be done on the part of the Assessing Officer to record his satisfaction before the matter is put- up to the CCIT/DGIT who shall approve the selection of case for scrutiny. According to her, the recording of such satisfaction contemplated in the CBDT Instruction, would, inter-alia, envisage a reference to the TPO also. In our considered opinion, the reliance placed by the Ld. CIT-DR on the aforesaid CBDT Procedure for selection of cases for scrutiny, cannot distract from the relevant statutory provisions relating to the controversy before us. In-fact, the scheme of the Act which we have dealt earlier, establishes that the work of computing the arm's length price in relation to international transaction arises only and only when the income from such international transaction is being assessed. Certainly, the reference to the TPO for the computation of arm's length price cannot precede the initiation of the assessment proceedings by the Assessing Officer by issuance of notice u/s 143(2) of the Act."

8. The Hon'ble High Court of Karnataka in the case of SAP Labs (P.)

Ltd. (supra) had held that when no return is pending for consideration

by Assessing Officer, reference made to TPO is bad.

9. In the fact of the present case, it is evident that on the date of

reference to TPO i.e. 18-12-2009, the Assessing Officer was not having

pending assessment proceedings for the impugned assessment year.

The Assessing Officer had passed the assessment order u/s. 143(3) on 7 ITA No. 2171/PN/2012, A.Y. 2007-08

19-11-2009. Thereafter, notice u/s. 148 was issued to the assessee on

14-01-2011. Thus, the proceedings before the TPO and the subsequent

proceedings arising there from are vitiated and are bad in law.

10. The reassessment proceedings have been initiated against the

assessee only on the basis of order of TPO. The issue of reopening, as

well as, challenge to addition made on merit have become academic in

view of the above findings given on reference made to TPO u/s. 92CA(1).

11. The impugned order is set aside and the appeal of the assessee is

allowed.

Order pronounced on Friday, the 22nd day of May, 2015

at Pune

Sd/- Sd/-

(R.K. PANDA) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Pune, Dated: 22nd May, 2015 RK/PS

Copy to

1 Assessee 2 Department 3 The DRP, Pune 4 The DIT (International Taxation), Pune 5 The DR, ITAT, "B" Bench, Pune. 6 Guard file.

//True Copy//

By Order

Assistant Registrar, Income Tax Appellate Tribunal, Pune