Lister Petter India Pvt. Ltd., Pune V. ACIT, Circle 11(2), Pune

ITA 2171/PUN/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1064 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-05-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 02-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Keywords: Transfer pricing; International transaction; Reassessment proceedings
• Section: 92C; 143(3); 148; 15; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE: SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO. 2171 /PN/201 2 ASSESSMENT YEAR : 20 07 - 08 LISTER PETTER INDIA PVT. LTD., OFFICE NO. 203, MANGALMURTI COMPLEX, 990, SHUKRAWAR PETH, TILAK ROAD, PUNE-411002 VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 11(2), PUNE (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 TH E ACT). IN APPEAL, THE ASSESSEE HAS INTER-ALIA CHALLENGED THE ACTIO N OF ASSESSING OFFICER IN MAKING REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) IN THE ABSENCE OF ANY PENDING ASSESSMENT PROCEEDIN GS. THE ASSESSEE HAS ALSO CHALLENGED THE INITIATION OF REASSESSMENT PROCEEDINGS U/S. 147 OF THE ACT. THE ASSESSEE IN ALTERNATE SUBMISSION S HAS ASSAILED THE ADDITION OF RS.1,04,74,608/- TO THE ARMS LENGTH PRICE O F THE INTERNATIONAL TRANSACTION. 2 ITA NO. 2171/PN/2012, A.Y. 2007-08 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSIN ESS OF MANUFACTURING AND TRADING OF I.C. ENGINES, COMPONENTS AND RENDERING RELATED SERVICES. THE ASSESSEE FILED ITS RETURN OF INCOME FO R 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 VERIFICA TION OF BOOKS OF ACCOUNT AND DETAILS FILED BY THE ASSESSEE IN THE COURSE O F SCRUTINY ASSESSMENT, THE RETURN OF INCOME FILED BY THE ASSESSEE WA S 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 21-10-2 010 MADE AN ADJUSTMENT OF RS.1,04,74,608/- IN RESPECT OF INTERNATIONAL T RANSACTIONS ON PAYMENTS MADE BY ASSESSEE TOWARDS MANAGEMENT REC HARGE TO ITS AES. ON THE BASIS OF ORDER PASSED BY THE TPO, REASSESS MENT PROCEEDINGS U/S. 147 WERE INITIATED AND ADDITION OF RS.1,04,74 ,608/- WITH RESPECT TO INTERNATIONAL TRANSACTION WAS MADE BY TH E ASSESSING OFFICER IN DRAFT ASSESSMENT ORDER DATED 22-11-2011. AGAI NST THE DRAFT ASSESSMENT ORDER THE ASSESSEE FILED OBJECTIONS BEFORE TH E DISPUTE RESOLUTION PANEL (DRP). APART FROM CHALLENGING THE ADDITION M ADE IN THE DRAFT ASSESSMENT ORDER, THE ASSESSEE IMPUGNED THE VIRE S OF REFERENCE MADE TO TPO IN THE ABSENCE OF ANY PENDING ASSESSMENT P ROCEEDINGS. THE DRP REJECTED THE OBJECTIONS OF THE ASSESSEE AND U PHELD THE ADDITION. BASED ON THE DIRECTION OF DRP DATED 21-08-2001, THE ASS ESSING OFFICER PASSED THE IMPUGNED ASSESSMENT ORDER. 3. SHRI SUNIL GANOO APPEARING ON BEHALF OF THE ASSESSEE S UBMITTED AT THE OUTSET THAT REFERENCE MADE TO TPO AFTER COMPLETION OF THE ASSESSMENT ON 19-11-2009 IS BAD IN LAW AND WITHOUT JURIS DICTION. THE 3 ITA NO. 2171/PN/2012, A.Y. 2007-08 LD. AR SUBMITTED THAT WHEN NO RETURN IS PENDING FOR CONSID ERATION BEFORE THE ASSESSING OFFICER, REFERENCE MADE TO TPO IS INVALID. IN S UPPORT OF HIS SUBMISSIONS, THE LD. AR PLACED RELIANCE ON THE DECISION OF H ON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. SAP LABS (P.) LT D. 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 O NLY ON THE BASIS OF ORDER OF TPO WHICH IS WITHOUT JURISDICTION. 4. ON THE OTHER HAND SHRI A.K. MODI REPRESENTING THE DEP ARTMENT VEHEMENTLY SUPPORTED THE IMPUGNED ASSESSMENT ORDER A ND THE DIRECTIONS OF THE DRP. THE LD. DR SUBMITTED THAT THERE IS NO ERROR IN REFERENCE MADE TO THE TPO. THE PROVISIONS OF SECTION 92 CA DOES NOT LAY THE CONDITION THAT REFERENCE CAN BE MADE ONLY DURING PE NDENCY OF ASSESSMENT PROCEEDINGS. THE LD DR PRAYED FOR DISMISSING T HE APPEAL OF THE ASSESSEE. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO EXAMINED THE DECISIONS ON WHICH THE LD. AR HAS P LACED RELIANCE. THE ASSESSEE IN ITS APPEAL HAS PRIMARILY QUESTION ED 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 1 9 - 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 RE ASSESSMENT 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 CONTE NDED IN SECTION 92CA OF THE ACT. THE RELEVANT EXTRACT OF THE SECTION IS AS UND ER: 92CA. (1) WHERE ANY PERSON, BEING THE ASSESSEE, HAS ENTERED INTO AN INTERNATIONAL TRANSACTION IN ANY PREVIOUS YEAR, A ND THE ASSESSING OFFICER CONSIDERS IT NECESSARY OR EXPEDIEN T SO TO DO, HE MAY, WITH THE PREVIOUS APPROVAL OF THE [PRINCIPAL COMMI SSIONER OR] COMMISSIONER, REFER THE COMPUTATION OF THE ARMS LENGT H 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), T HE TRANSFER PRICING OFFICER SHALL SERVE A NOTICE ON THE ASSESSEE REQUIRING HIM TO PRODUCE OR CAUSE TO BE PRODUCED ON A DATE TO BE SPE CIFIED THEREIN, ANY EVIDENCE ON WHICH THE ASSESSEE MAY RELY IN SUPP ORT OF THE COMPUTATION MADE BY HIM OF THE ARMS LENGTH PRICE IN R ELATION 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 92 CA SUB- SECTION (1) & (2) SHOWS THAT REFERENCE TO TPO CAN BE MAD E BY THE ASSESSING OFFICER ONLY WHEN THE ASSESSMENT IS OPEN BEFORE HIM. THE ASSESSING OFFICER CAN FORM AN OPINION FOR MAKING REFERENCE T O TPO FOR COMPUTING ALP IN RELATION TO INTERNATIONAL TRANSACTION DURIN G 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). T HE TRIBUNAL AFTER ANALYZING THE RELEVANT PROVISIONS OF THE ACT HELD, T HAT IF ON THE DATE OF MAKING REFERENCE TO THE TPO, THE ASSESSMENT PROCEEDIN GS 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 ARMS LENGTH PR ICE OF THE INTERNATIONAL TRANSACTIONS IN TERMS OF SECTION 92CA OF THE ACT. THE RELEVANT EXTRACT OF THE ORDER OF TRIBUNAL IS REPRODUCED HERE-IN-B ELOW: 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 PRO VISIONS RELATING TO THE TRANSFER PRICING ASSESSMENT CONTAINED IN SECT IONS 92 TO 92F. THE ENTIRE PURPOSE OF COMPUTATION OF ARM'S LENGTH PR ICE 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 REG ARD TO THE ARM'S LENGTH PRICE. THEREFORE, THE SOLE AIM OF COMPUTI NG THE ARM'S LENGTH PRICE IN RELATION TO ANY INTERNATIONAL TRANSAC TION 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 PROCES S FOR COMPUTATION OF ARM'S LENGTH PRICE IN RELATION TO THE RELEVANT INTE RNATIONAL 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 SA TISFACTION CONTEMPLATED IN THE CBDT INSTRUCTION, WOULD, INTER-ALIA , ENVISAGE A REFERENCE TO THE TPO ALSO. IN OUR CONSIDERED OPINIO N, THE RELIANCE PLACED BY THE LD. CIT-DR ON THE AFORESAID CBDT PROCED URE FOR SELECTION OF CASES FOR SCRUTINY, CANNOT DISTRACT FROM THE RELEVANT STATUTORY PROVISIONS RELATING TO THE CONTROVERSY BE FORE US. IN-FACT, THE SCHEME OF THE ACT WHICH WE HAVE DEALT EARLIER, E STABLISHES THAT THE WORK OF COMPUTING THE ARM'S LENGTH PRICE IN RELA TION TO INTERNATIONAL TRANSACTION ARISES ONLY AND ONLY WHEN TH E INCOME FROM SUCH INTERNATIONAL TRANSACTION IS BEING ASSESSED. CE RTAINLY, THE REFERENCE TO THE TPO FOR THE COMPUTATION OF ARM'S LE NGTH PRICE CANNOT PRECEDE THE INITIATION OF THE ASSESSMENT PROCEEDINGS B Y 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 ASSESSM ENT 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 TH E 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 AGA INST 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 AC ADEMIC 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 22 ND DAY OF MAY, 2015 AT PUNE SD/- SD/- (R.K. PANDA) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 22 ND MAY, 2015 RK/PS COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE DRP, PUNE 4 THE DIT (INTERNATIONAL TAXATION), PUNE 5 6 THE DR, ITAT, B BENCH, PUNE. GUARD FILE. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, PUNE