DCIT, Circle- 16(2), New Delhi V. Meneta Automotive Components Pvt. Ltd., New Delhi

ITA 1058/DEL/2018

AI Insights

The case involves an appeal by the Revenue against the order of the CIT(A)-44, New Delhi, which had allowed the appeal of Meneta Automotive Components Pvt. Ltd. The primary issue was whether the Assessing Officer could determine the Arm's Length Price (ALP) without referring the matter to the TPO. The Tribunal and the Supreme Court's previous judgments emphasized the mandatory nature of referring such matters to the TPO, as outlined in the CBDT's instructions and the Income-tax Act. The Supreme Court's decision in PCIT-4, Mumbai Vs. M/s S.G. Asia Holdings (India) Pvt. Ltd. reinforced this requirement, leading to the dismissal of the Revenue's appeal in this case.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131666 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 20-11-2022
• Assessment Year: 2008-2009
• Appeal Filed On: 11-02-2018
• Other Referred Cases: M/s Ranbaxy Lab Ltd. Vs. CIT 345 ITR 193 (Del.), Vodafone India Services Pvt. Ltd. Vs. UOI 361 ITR 531 (Bom.)
• Laws Referred To: Income-tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Set aside
• Section: 92C; 143(3); 92; 92D; 92B; 92F; 92A; 92E; 119; 92CA

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘I’, NEW DELHI Before Dr. B. R. R. Kumar, Accountant Member Sh. Yogesh Kumar US, Judicial Member ITA No. 1058/Del/2018 : Asstt. Year : 2008-09 DCIT, Circle-16(2), New Delhi-110002 Vs Meneta Automotive Components Pvt. Ltd., 111, Rishab Corporate Tower, 16, Community Centre, Karkarduma, Delhi-110092 (APPELLANT) (RESPONDENT) PAN No. AAECM8250H Assessee by : Sh. G. C. Srivastava, Adv. & Sh. Mayank Patawari, CA Revenue by : Sh. Bhagwati Charan, Sr. DR Date of Hearing: 21.11.2022 Date of Pronouncement: 07.02.2023 ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeal has been filed by the Revenue against the order of ld. CIT(A)-44, New Delhi dated 30.11.2017. 2. Following grounds have been raised by the Revenue: “1. Whether on facts and in circumstances of the case, the ld. CIT(A) is legally justified in allowing appeal of the assessee on merely procedural irregularity of not making reference to the Transfer Pricing Officer (The TPO) without appreciating the findings of the Assessing Officer (The AO) in assessment order? 2. Whether on facts and in circumstances of the case, the ld. CIT(A) is legally justified in allowing appeal of the assessee and in deleting the addition of Rs.4,96,95,925/- on account of TP adjustment by placing reliance on the judgment of Hon’ble High Court ITA No. 1058/Del/2018 Meneta Automotive Components Pvt. Ltd. 2 in the case of M/s Ranbaxy Lab Ltd. Vs. CIT 345 ITR 193 (Del.), even when the cases relied upon the decision have been rendered upturned in the decision of the Hon’ble Bombay High Court in the case of Vodafone India Services Pvt. Ltd. Vs. UOI 361 ITR 531 (Bom.)/?” 3. In the instant case, the fact of determination of the ALP by the AO himself is not in dispute either by the parties. The short question before us is to adjudicate “whether the Assessing Officer himself/herself can determine arm’s length price without referring the issue to the TPO”. 4. On this issue we are guided by Instruction No. 3/2003 20.05.2003 and Instruction No. 15/2015 dated 16.10.2015 of CBDT and the judgment of Hon’ble Supreme Court dated 13.08.2019 in the case of PCIT-4, Mumbai Vs. M/s S.G. Asia Holdings (India) Pvt. Ltd. in Civil Appeal No. 6144 of 2019. For the sake of ready reference, the said references are reproduced in toto as under: Instruction No. 15/2015 F.No. 500/9/2015-APA-11 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes Foreign Tax and Tax Research Division-I APA-II Section New Delhi, dated 16th October, 2015 Subject: Revised and Updated Guidance for Implementation of Transfer Pricing Provisions-Regarding ITA No. 1058/Del/2018 Meneta Automotive Components Pvt. Ltd. 3 The provisions relating to transfer pricing are contained in Sections 92 to 92F of the Income-tax Act (hereinafter referred to as ‘the Act’). These provisions came into force w.e.f. Assessment Year 2002-2003 and have seen a number of amendments over the years, including the insertion of Safe Harbour and Advance Pricing Agreement provisions and the extension of the applicability of transfer pricing provisions to Specified Domestic Transactions. 2. In terms of the provisions, any income arising from an international transaction or specified domestic transaction between two or more associated enterprises shall be computed having regard to the Arm’s Length Price. Instruction No. 3 was issued on 20th May, 2003 to provide guidance to the Transfer Pricing Officers and the Assessing Officers to operationalise the transfer pricing provisions and to have procedural uniformity. Due to a number of legislative, procedural and structural changes carried out over the last few years, Instruction No. 3 of 2003 is being replaced with this Instruction to provide updated and adequate guidance on the transfer pricing provisions pertaining to international transactions. 3. Reference to Transfer Pricing Officer (TPO) 3.1 The power to determine the Arm’s Length Price (ALP) in an international transaction is contained in sub-section (3) of Section 92C of the Act. However, Section 92CA of the Act, inter-alia, provides that where the Assessing Officer (AO) considers it necessary or expedient so to do, he may refer the computation of ALP in relation to an international transaction to the Transfer Pricing Officer (TPO). Sub-section (3) of Section 92CA provides that the TPO, after taking into account the material available with him shall, by an order in writing, determine the ALP in accordance with sub section (3) of Section 92C of the Act. Sub- section (4) of Section 92CA provides that on receipt of the order of the TPO, the AO shall proceed to compute the total income of the taxpayer in conformity with the A LP determined by the TPO. Thus, while the determination of ALP, wherever reference is made to him, is required to be done by the TPO under sub section (3) of Section 92CA read with sub-section (3) of Section 92C, the computation of total income in conformity with the A LP so determined by the TPO is required to be done by the AO under sub-section (4) of Section 92C read with sub-section (4) of Section 92CA of the Act. ITA No. 1058/Del/2018 Meneta Automotive Components Pvt. Ltd. 4 3.2 In order to make a reference to the TPO, the AO has to first satisfy himself that the taxpayer has entered into an international transaction with an associated enterprise. One of the sources from which the factual information regarding international transaction can be gathered is Form No. 3CEB filed by the taxpayer, which is in the nature of an accountant’s report containing basic details of an international transaction entered into by the taxpayer during the year and the associated enterprise with which such transaction is entered into, the nature of documents maintained and the method followed. Thus, the primary details regarding such international transactions would normally be available in the accountant’s report. The AO can arrive at a prima facie belief on the basis of these details whether a reference to the TPO is necessary. No detailed enquiries are needed at this stage and the AO should not embark upon scrutinizing the correctness or otherwise of the price of the international transaction at this stage. However, in the following situations, the AO must, as a jurisdictional requirement, record his satisfaction that there is an income or a potential of an income arising and/or being affected on determination of the ALP of an international transaction before he proceeds to determine the ALP under sub-section (3) of Section 92C of the Act or to refer the matter to the TPO to determine the A LP under sub-section ( 1) of Section 92CA of the Act: (a) where the taxpayer has not filed the Accountant’s report under Section 92E of the Act but international transactions undertaken by it come to the notice of the AO; (b) where the taxpayer has not declared one or more international transaction in the Accountant’ s report filed under Section 92E of the Act and the said transaction or transactions come to the notice of the AO; and (c) where the taxpayer has declared the international transaction or transactions in the Accountant’s report filed under Section 92E of the Act but has made certain qualifying remarks to the effect that the said transaction or transactions are not international transactions or do not impact the income of the taxpayer. In all the above situations, the AO must provide an opportunity of being heard to the taxpayer before recording his satisfaction or otherwise. 3.3 The exercise of finding out whether any income arises and/or is affected or potentially arises and/or is potentially affected by the determination of the ALP of the international transaction would certainly be a factor, in addition to other factors, in determining ITA No. 1058/Del/2018 Meneta Automotive Components Pvt. Ltd. 5 whether or not it is necessary or expedient to refer the matter to the TPO. In case no objection is raised by the taxpayer to the applicability of Chapter X [Sections 92 to 92F] of the Act, then the prima-facie view of the AO would be sufficient before referring the international transaction to the TPO for determining the ALP. However, where the applicability of Chapter X [Sections 92 to 92F] of the Act to the facts of the taxpayer’s case is objected to, the assessee’s objection should be considered and specifically dealt with so as to make sufficient compliance with the principles of natural justice. 3.4 Before making a reference to the TPO, the AO has to seek the approval of the Principal Commissioner or Commissioner as provided in the Act. The provisions of Section 92CA of the Act, inter-alia, refer to the international transaction. Hence, all international transactions, in relation to which a reference to the TPO is considered necessary, have to be explicitly mentioned in the letter through which the reference is being made. 3.5 Since transfer pricing cases are now being selected for scrutiny on the basis of risk parameters, there is no requirement of selecting a transfer pricing case for scrutiny on the basis of the value of the international transaction. Consequently, there would be no requirement of referring an international transaction to the TPO for determination of its ALP merely because the value of the international transaction is above a particular limit. In particular, where a case has been selected for scrutiny only on non TP issues and the case also involves international transactions with AEs, the case shall not be referred to the TPO irrespective of the value of the international transaction or aggregate value of all international transactions. The only exception to this would be a case selected for scrutiny on non-TP parameters where the AO comes to know that the taxpayer has entered into international transaction or transactions but the taxpayer has either not filed the Accountant’s report under Section 92E or has not disclosed the said international transaction or transactions in the Accountant’s report filed. In such exceptional situations, the AO may refer the matter to the TPO after providing an opportunity of being heard to the taxpayer. 3.6 Since the case will be selected for scrutiny before making the reference to the TPO, the AO may proceed to examine other aspects of the case during the pendency of assessment proceedings but must wait for the report/order of the TPO on the value of international transactions before making final assessment. 4. Role of Transfer Pricing Officer ITA No. 1058/Del/2018 Meneta Automotive Components Pvt. Ltd. 6 4.1 The role of the TPO begins after a reference is received from the AO. In terms of Section 92CA of the Act, this role is limited to the determination of the ALP in relation to international transaction(s) referred to him by the AO. However, if any other international transaction comes to the notice of the TPO during the course of the proceedings before him, then he is empowered to determine the ALP of such other international transactions also by virtue of sub-sections (2A) and (2B) of Section 92CA of the Act. The transfer price has to be determined by the TPO in terms of Section 92C of the Act. The price has to be determined by using any one of the methods stipulated in sub-section (1) of Section 92C and by applying the most appropriate method referred to in sub-section (2) thereof. There may be occasions where application of the most appropriate method provides results which are different but equally reliable. In all such cases, further scrutiny may be necessary to evaluate the appropriateness of the method, the correctness of the data, weight given to various factors and so on. The selection of the most appropriate method will depend upon the facts of the case and the factors mentioned in rules contained in Rule 1OC. The TPO, after taking into account all relevant facts and data available to him, shall determine the ALP and pass a speaking order. The TPO, being an Additional/ Joint CIT, shall obtain the approval of the jurisdictional CIT (Transfer Pricing) before passing the order. On the other hand, the TPO, being a Deputy/Assistant CIT, shall obtain the approval of the jurisdictional Additional/ Joint CIT before passing the order. The jurisdictional CIT (TP) should assign a limited number of important and complex cases, not exceeding 50, to the Additional/ Joint CIT (TPOs) working in the same jurisdiction. For the selection of such important and complex cases by the CIT(TP), the concerned CCIT (International Taxation) shall frame appropriate guidelines. 4.2 The order passed by the TPO should contain details of the data used, reasons for arriving at a certain price and the applicability of methods. It may be emphasized that the application of method including the application of the most appropriate method, the data used, factors governing the applicability of respective methods, computation of price under a given method will all be subjected to judicial scrutiny. It is, therefore, necessary that the order of the TPO contains adequate reasons on all these counts. Copies of the documents or the relevant data used in arriving at the arm’s length price should be made available to the AO for his records and use at subsequent stages of appellate or penal proceedings. ITA No. 1058/Del/2018 Meneta Automotive Components Pvt. Ltd. 7 4.3 In addition to the above, the TPO is required to carry out the Compliance Audit of the Advance Pricing Agreements (APAs) entered into by the Board and the taxpayers in accordance with Rule 10 P of the Income-tax Rules. 4.4 The TPO is also required to play an important role in respect of Safe Harbour provisions. Whenever a reference is made to the TP O under sub rule (4) or sub-rule (10) of Rule 10 TE of the Income-tax Rules, the TPO has to carefully examine all the facts and circumstances of the taxpayer’s exercise of an option for Safe Harbour and pass an order in writing as mandated in sub-rule (6) or sub-rule ( 11) of the said Rule, respectively. 5. Role of the AO after Determination of ALP Under sub-section (4) of Section 92C of the Act, the AO has to compute the total income of the assessee having regard to the ALP determined by him under sub-section (3) of the same Section. Where the determination of ALP is done by the TPO under sub-section (3) of Section 92CA of the Act, the AO has to compute the total income of the assessee under sub-section (4) of Section 92C (read with sub-section (4) of Section 92CA) in conformity with the ALP so determined by the TPO. 6. Maintenance of Data Base It is to be ensured by the CIT (Transfer Pricing) that the references received from the AOs by the TPOs in his jurisdiction are dealt with expeditiously and accurate record of all events connected with the whole process of determination of ALP is maintained. This record is to be maintained by each TPO in the format enclosed as Annexure – to this Instruction. This format will serve as an important database for future action and also help in bringing about uniformity in the determination of the ALP in identical or substantially identical cases. The CIT (TP) must ensure that the separate data maintained by all TPOs under their jurisdiction are consolidated into one report for the entire charge after the completion of each transfer pricing audit cycle. 7. Applicability The above guidance is applicable only to transfer pricing provisions in respect of international transactions. Similar guidance in respect of transfer pricing provisions pertaining to specified domestic transact ions are under consideration of the CBDT. Till such time the guidance pertaining to specified domestic transactions is not issued, paragraph 3.5 of this Instruction shall apply to the effect that where a case has been selected for scrutiny on non-TP parameters and the case also involves specified domestic transact ions with AEs, the case shall not be referred to the TPO irrespective of the value of the specified domestic transaction or aggregate value of all specified ITA No. 1058/Del/2018 Meneta Automotive Components Pvt. Ltd. 8 domestic transactions. The only exception to this would be a case selected for scrutiny on non-TP parameters where the AO comes to know that the taxpayer has entered into specified domestic transaction or transact ions but the taxpayer has either not filed the Accountant’s report under Section 92E of the Act or has not disclosed the said specified domestic transaction or transactions in the Accountant’s report filed. In such exceptional situations, the AO may refer the matter to the TPO after providing an opportunity of being heard to the taxpayer. 8. This Instruction issues under Section 119 of the Act and supercedes Instruction No.3 of 2003 with immediate effect.” (Sobhan Kar) Director (APA), Government of India 5. The Hon’ble Supreme Court has held in THE PRINCIPAL COMMISSIONER OF INCOME TAX-4, MUMBAI M/s. S.G. ASIA HOLDINGS (INDIA) PVT. LTD. that in view of the transfer pricing guidelines issued by the CBDT in Instruction No.3/2003 the Tribunal was right in observing that by not making reference to the TPO, the Assessing Officer had breached the mandatory instructions issued by the CBDT. IN THE SUPREME COURT OF INDIA CIVIL APPEAL NO.6144 OF 2019 THE PRINCIPAL COMMISSIONER OF INCOME TAX-4, MUMBAI ...Appellant Versus M/s. S.G. ASIA HOLDINGS (INDIA)PVT. LTD. ... Respondent JUDGMENT Uday Umesh Lalit, J. 1. This Appeal by Special Leave challenges the judgment and final order dated 27.08.2018 passed by the High Court of Bombay dismissing Income Tax Appeal No.281 of 2016 preferred by the appellant herein and thereby confirming the order dated 22.04.2015 passed by the Income Tax Appellate Tribunal (‘the Tribunal’, for short) in ITA No.2399/Mum/2009. 2. The facts leading to the filing of this Appeal are as under:- ITA No. 1058/Del/2018 Meneta Automotive Components Pvt. Ltd. 9 A) The respondent had received certain amount of brokerage from its parent company. During the assessment proceedings the respondent was directed to furnish details about the parent company and the rate of brokerage that was charged. After the details were furnished, the respondent was asked to establish if the parent company was involved in arbitrage activity and whether the rate charged was higher. After considering the material on record, according to the Assessing Officer, the brokerage charged by the respondent was only 0.05% which was found to be at a lower rate as compared to the prevalent rates in market. The Assessing Officer, therefore, while computing the assessment under Section 143(3) of the Income Tax Act, 1961 (‘the Act’, for short), by his order dated 27.12.2007 made an addition of Rs.2,89,82,746/- under Section 92 of the Act. B) The respondent being aggrieved preferred an appeal before the CIT(A), who by his order dated 16.02.2009 confirmed the addition made by the Assessing Officer and dismissed the appeal. The matter was carried further by filing ITA No.2399/Mum/2009 before the Tribunal. C) The Tribunal by its order dated 22.04.2015 set aside the findings rendered by the first two authorities and held that transfer pricing adjustment made by the Assessing Officer was contrary to the mandatory instructions issued by CBDT 2 in its Instruction No.3/2003 dated 20.05.2003. While allowing the appeal, the Tribunal observed as under:- “16.1 After considering the entire judicial discussion discussed hereinabove, in our considered opinion, the mandatory instructions issued by the Central Board of Direct Taxes cannot be brushed aside lightly. By not making reference to the Transfer Pricing Officer, the AO has breached the mandatory instructions issued by the CBDT thereby making the assessment order on this issue in violation of the provisions of the law. We, therefore, set aside the findings of the Ld. CIT(A) on this issue and hold that the Transfer Pricing Adjustments made by the AO in contradiction to the mandatory instructions of the CBDT is bad in law. Here, we would like to make it clear that the assessment order is good but the Transfer Pricing Adjustments made therein are bad in law. Ground No.11 is therefore partly allowed. 16.2 Before parting with this issue, the Ld. DR has emphasized that if the AO has not followed the mandatory directions, the case may be set aside to the file of the AO so that he may refer the matter to the TPO. We do not subscribe to this argument of the Ld. DR for the simple reason that the Tribunal is an Appellate Authority and therefore cannot ITA No. 1058/Del/2018 Meneta Automotive Components Pvt. Ltd. 10 interfere in the administrative matters which are mandatory as per the provisions of the Act. Reference to the TPO is an administrative matter which was supposed to be followed by the AO which he has failed to do so. The Tribunal cannot make any good to such lapse made by the AO. 17. As we have held that T.P. Adjustments are bad in law, we do not find it necessary to dwell into the merits of the case. 18. In the result, the appeal filed by the assessee is partly allowed. ... ...” 3. The view so taken by the Tribunal was affirmed by the High Court which is presently under Appeal. We heard Mr. Mahabir Singh, learned Senior Advocate in support of the Appeal and Mr. Arijit Chakravarty, learned Advocate for the Respondent. 4. Instruction No.3/2003 dated 20.05.2003 which weighed with the Tribunal and the High Court, is as under:- “Instruction No. 3/2003 SECTION 92 OF THE INCOME TAX ACT, 1961 – TRANSFER PRICING – COMPUTATION OF INCOME FROM INTERNATIONAL TRANSACTION HAVING REGARD TO ARM’S LENGTH PRICE UNDER SECTION 92 – GUIDELINES TO TRANSFER PRICING OFFICERS AND ASSESSING OFFICERS TO OPERATIONALISE TRANSFER PRICING PROVISIONS AND TO HAVE PROCEDURAL UNIFORMITY. INSTRUCTION NO. 3/2003, DATED 20-05-2003 (SUPERSEDED BY INSTRUCTION NO.15/2015 (F.NO.500/9/2015-APA-II), DATED 16-10-2015) The provisions relating to transfer price contained in sections 92 to 92F of the Income-tax Act, have come into force with effect from assessment year 2002-03. In terms of the provisions, income from an international transaction is to be computed having regard to arm’s length price between the associated enterprises. Further, in terms of Section 92CA, a Transfer Pricing Officer, on a reference received from the Assessing Officer, is required to determine arm’s length price of an international transaction by an order and the Assessing Officer is required to compute the income having regard to the price so determined by the TPO. The notification regarding jurisdiction of TPOs and their controlling officers have been issued by the Central Board of Direct Taxes and the copies thereof are enclosed for ready ITA No. 1058/Del/2018 Meneta Automotive Components Pvt. Ltd. 11 reference as Annexure II. In order to maintain uniformity of procedure and to ensure that work in this important area proceeds smoothly and effectively, the following guidelines are hereby issued: (i) Reference to Transfer Pricing Officer (TPO):- The Power to determine arm’s length price in an international transaction is contained in sub-section (3) of section 92C. However, section 92CA provides that where the Assessing Officer considers it necessary or expedient so to do, he may refer the computation of arm’s length price in relation to an international transaction to the TPO. Sub-section (3) of section 92CA provides that the TPO after taking into account the material available with him shall, by an order in writing, determine the arm’s length price in accordance with sub-section (3) of section 92C. Sub-Section (4) of section 92CA provides that on receipt of the order of the TPO, the Assessing Officer shall proceed to compute the total income of the assessee having regard to the arm’s length price, determined by the TPO. Thus, whereas the determination of the arm’s length price, wherever reference is made to him, is required to be done by the TPO under sub-section (3) of section 92CA, read with sub-section (3) of section 92C, the computation of total income having regard to the arm’s length price so determined by the TPO is required to be done by the Assessing Officer under sub- section (4) of section 92C, read with sub-section (4) of section 92CA. In order to make a reference to the TPO, the Assessing Officer has to satisfy himself that the taxpayer has entered into an international transaction with an associated enterprise. One of the sources from which the factual information regarding international transaction can be gathered is Form No.2CEB filed with the return which is in the nature of an accountant’s report containing basic details of an international transaction entered into by the taxpayer during the year and the associated enterprise with which such transaction is entered into, the nature of documents maintained and the method followed. Thus, the primary details regarding such international transactions would normally be available in the accountant’s report. The Assessing Officer can arrive at prima facie belief on the basis of these details whether a reference is considered necessary. No detailed enquiries are needed at this stage and the Assessing Officer should not embark upon scrutinizing the correctness or otherwise of the price of the international transaction at this stage. In the initial years of implementation of these provisions and ITA No. 1058/Del/2018 Meneta Automotive Components Pvt. Ltd. 12 pending development of adequate database, it would be appropriate if a small number of cases are selected for scrutiny of transfer price and these are dealt with effectively. The Central Board of Direct Taxes, therefore, have decided that wherever the aggregate value of international transaction exceeds Rs.5 crores, the case should be pricked up for scrutiny and reference under section 92CA be made to the TPO. If there are more than one transaction with an associated enterprise or there are transactions with more than one associated enterprises the aggregate value of which exceeds Rs.5 crores the transaction should be referred to TPO. Before making reference to the TPO, the Assessing Officer has to seek approval of the Commissioner/Director as contemplated under the Act. Under the provisions of section 92CA reference is in relation to the international transaction. Hence all transactions have to be explicitly mentioned in the letter of reference. Since the case will be selected for scrutiny before making reference to the TPO, the Assessing Officer may proceed to examine other aspects of the case during pendency of assessment proceedings but await the report of the TPO on the value of international transaction before making final assessment. The threshold limit of Rs.5 crores will be reviewed depending upon the workload of the TPOs. The work relating to selection of cases for scrutiny and reference to TPO on the above basis in respect of pending returns filed for the assessment year 2002-03 should be completed by June 30, 2003. (ii) Role of Transfer Pricing Officer:- The role of the TPO begins after a reference is received from the Assessing Officer. In terms of section 92CA this role is limited to the determination of arm’s length price in relation to the international transaction(s) referred to him by the Assessing Officer. If during the course of proceedings before him it is found that there are certain other transactions; which have not been referred to him by the Assessing Officer, he will have to take up the matter with the Assessing Officer so that a fresh reference is received with regard to such transactions. It may be noted that the reference to the TPO is transaction and enterprise specific. The transfer price has to be determined by the TPO in terms of section 92C. The price has to be determined by any one of the methods stipulated in sub-section (1) of section 92C ITA No. 1058/Del/2018 Meneta Automotive Components Pvt. Ltd. 13 and by applying the most appropriate method referred to in sub-section (2) thereof. There may be occasions where application of the most appropriate method provides results which are different but equally reliable. In all such cases, further scrutiny may be necessary to evaluate the appropriateness of the method, the correctness of the data, weight given to various factors and so on. The selection of the most appropriate method will depend upon the facts of the case and the factors mentioned in rules contained in rule 10C. The TPO after taking to account all relevant facts and data available to him shall determine arm’s length price and pass a speaking order after obtaining the approval of the DIT (TP). The order should contain details of the data used, reasons for arriving at a certain price and the applicability of methods. It may be emphasized that the application of method including the application of the most appropriate method, the data used, factors governing the applicability of respective methods, computation of price under a given method will all be subjected to judicial scrutiny. It is, therefore, necessary that the order of the TPO contains adequate reasons on all these counts. Copies of the documents or the relevant data used in arriving at the arm’s length price should be made available to the Assessing Officer for his records and use at subsequent stages of appellate or penal proceedings. (iii) Role of the Assessing Officer after receipt of “arm’s length price”: Under sub-section (4) of section 92C, the Assessing Officer has to compute total income of the assessee having regards to the arm’s length price so determined by the TPO. While sub-section (4) of section 92CA clearly provides that such computation of income will be made having regard to the arm’s length price so determined by the TPO, it is imperative that a formal opportunity is given to the taxpayer before making adjustments to the total income. The opportunity with regard to the determination of arm’s length price has already been given by the TPO and, therefore, opportunity by the Assessing Officer, for final determination of income under sub-section (4) of section 92C, read with sub-section (4) of section 92CA is to be given by the Assessing Officer. (iv) Maintenance of database: It is to be ensured by the DIT (Transfer Pricing) that the reference received from the Assessing Officer is dealt with expeditiously so as to leave the Assessing Officer with sufficient time to offer an opportunity of being heard of the taxpayer before computing the income and completing the assessment. ITA No. 1058/Del/2018 Meneta Automotive Components Pvt. Ltd. 14 In order to ensure that all the references are attended to timely and effectively, a record of all such developments should be maintained in the format enclosed as Annexure I to these guidelines. This format will also serve as an important data base for future action and also help ensure uniformity in the determination of “arm’s length price” in identical or substantially identical cases. These instructions are under Section 119 of the Income-tax Act. ANNEXURE I Register of record to be maintained by Transfer Pricing Officer Sl.No Date of Name of Name Nature and Name and Nature of Date of Transfer Arms Method Reference `Date of . receipt the A.O. and quantum of address of association issue of price as length applied to any despatch of making address international the as per notice taken by price as database of the reference reference of the transaction associate section to the determined adopted order of from tax as per d 92A taxpayer taxpayer by the by TPO the A.O. A.O. payer section 92B enterprise Transfer and the Pricing nature assessment country in Officer of year which it under business is resident section 92CA (3) ANNEXURE II Order under section 120, read with section 92CA of the Income-tax Act, 1961, dated April, 2003 In exercise of the power conferred by sub-section (1) and sub-section (2) of section 120 of the Income-tax Act, 1961, the Central Board of Direct Taxes hereby directs that the Transfer Pricing Officers mentioned in column 2 having their headquarters mentioned in column 3 shall exercise such powers and perform such function of Transfer Pricing Officers as mentioned in Section 92CA for the purpose of sections 92C and 92D of the Act, in respect of persons or classes of persons mentioned in column 5:” 5. It was submitted by Mr. Mahabir Singh, learned Senior Advocate that the expression “.....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 the said international transaction or specified domestic transaction under Section 92C to the Transfer Pricing Officer” occurring in Section 92CA of the Act signified that discretion was vested in the Assessing Officer and it would not be mandatory in every single case that he must refer the issue of computation of the Arm’s Length Price to the TPO3. ITA No. 1058/Del/2018 Meneta Automotive Components Pvt. Ltd. 15 6. However, the following expressions employed in Instruction No.3/2003 put the matter in a different perspective: – “... ...The Assessing Officer can arrive at prima facie belief on the basis of these details whether a reference is considered necessary. No detailed enquiries are needed at this stage and the Assessing Officer should not embark upon scrutinizing the correctness or otherwise of the price of the international transaction at this stage... ... If there are more than one transaction with an associated enterprise or there are transactions with more than one associated enterprise the aggregate value of which exceeds Rs.5 crores, the transactions should be referred to the TPO. ... ... Since the case will be selected for scrutiny before making reference to the TPO, the Assessing Officer may proceed to examine other aspects of the case during pendency of assessment proceedings but await the report of the TPO on the value of international transaction before making final assessment. ...... (vi) Role of the Assessing Officer after receipt of “arm’s length price”: Under sub-section (4) of section 92C, the Assessing Officer has to compute total income of the assessee having regard to the arm’s length price so determined by the TPO.” 7. In view of the guidelines issued by the CBDT in Instruction No.3/2003 the Tribunal was right in observing that by not making reference to the TPO, the Assessing Officer had breached the mandatory instructions issued by the CBDT. We do not find the conclusion so arrived at by the Tribunal to be incorrect. 8. However, the Tribunal ought to have accepted the submission made by the Departmental Representative as quoted in para 16.2 of its order and the matter ought to have been restored to the file of the Assessing Officer so that appropriate reference could be made to the TPO. It would therefore be upto the authorities and the Commissioner concerned to consider the matter in terms of Sub-Section (1) of Section 92CA of the Act. 9. We, therefore, allow this Appeal to the aforesaid extent and direct that it would now be upto the Assessing Officer to take appropriate steps in terms of Instruction No.3/2003. 10. The Appeal is allowed to the aforesaid extent. No costs. .........................J. [Uday Umesh Lalit] .........................J. [Vineet Saran] New Delhi; August 13, 2019. ITA No. 1058/Del/2018 Meneta Automotive Components Pvt. Ltd. 16 6. Hence, in view of the Instructions of the CBDT and the judgment of the Hon’ble Apex Court, we hold that it is mandatory for the Assessing Officer (AO) to refer of matter for determination of Arm’s Length Price (ALP) to the Transfer Pricing Officer (TPO). Failure to do so results in breach of mandatory instructions and any order passed without satisfying the requisite procedure laid down would lead to nullity of such order passed. 7. In the result, the appeal of the Revenue is dismissed. Order Pronounced in the Open Court on 07/02/2023. Sd/- Sd/- (Yogesh Kumar US) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 07/02/2023 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR