M/S. S.G. ASIA HOLDINGS (I) P. LTD, MUMBAI V. THE ACIT CIR 4(2), MUMBAI

ITA 2399/MUM/2009

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0601 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 07-04-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 15-04-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND SHRI N PADMANABAN
• Assessee Lawyers: ARVIND SONDE
• Keywords: Transfer pricing; International transaction; Validity of assessment
• Section: 92

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI . . , , BEFORE SHRI I.P.BANSAL , JUDICIAL MEMBER AND SHRI N.K . BILLAIYA, A CCOUNTANT M EMBER / I .T.A. NO . 2399/MUM/2009 ( / ASSESSMENT YEAR : 2005 - 06 M/S. S.G. ASIA HOLDINGS (INDIA) PVT. LTD., CEEJAY HOUSE, 9 TH FLOOR, OPP. ATRIA MALL, DR. ANNIE BESANT ROAD, WORLI, MUMBAI - 400 018 / VS. THE ACIT, CIR 4(2), MUMBAI ./ ./ PAN/GIR NO. : AAECS 2909R ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI ARVIND SONDE / RESPONDENT BY : SHRI N.K. CHAND SHRI N. PADMANABAN / DATE OF HEARING : 15 . 0 4 .2015 / DATE OF PRONOUNCEMENT : 22 .0 4 .2015 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) - IV, MUMBAI DT. 16.2.2009 PERTAINING TO ASSESSMENT YEAR 2005 - 06. 2. THE ASSESSEE HAS RAISED INASMUCH AS 11 GROUNDS OF APPEAL. WITH GROUND NO. 11, THE ASSESSEE HAS CHALLENGED THE JURISDICTION OF THE AO IN ITA. NO. 2399/M/09 2 MAKING THE ASSESSMENT WITHOUT REFERRING THE MATTER TO THE TRANSFER PRICING OFFICER WHERE THE VALUE OF INTERNATIONAL TRANSACTIONS EXCEEDED RS. 5 CRORES. THE ASSESSEE CLAIMS THAT THIS A CT OF THE AO IS IN CONTRADICTION TO THE PROVISIONS OF INSTRUCTION NO. 3 OF 2003 ISSUED BY T H E CENTRA L BOARD OF DIRECT TAXES . THE ASSESSEE IS AGGRIEVED BY THE FACT THAT THE LD. CIT(A) ACCEPTED SUCH ORDER OF THE AO. 3. BEFORE GOING INTO THE MERITS OF THE CASE, WE HEARD THE RIVAL PARTIES ON THIS GROUND OF VALIDITY OF THE ASSESSMENT. 4. THE ASSESSEE COM PANY IS ENGAGED IN BROKERING AND DEALING IN SHARES AND OTHER SECURITIES. RETURN OF INCOME WAS FILED ON 31.10.2005 DECLARING TOTAL INCOME AT RS. 24,31,82,750/ - . THE RETURN OF INCOME WAS ACCOMPANIED WITH THE RELEVANT AUDIT REPORT. THE RETURN WAS SELECTED F OR SCRUTINY ASSESSMENT, ACCORDINGLY STATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. 4.1. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTION WITH FOLLOWIN G ASSOCIATED ENTERPRISES. 1) SG PARIS 2) SG INDIAN BRANCH 4.2. IT IS SEEN THAT SG INDIAN BRANCH IS AN ASSESSEE UNDER THE INCOME TAX ACT AND PROFIT AND GAINS EARNED ARE SUBJECT TO TAXATION IN INDIA, HENCE TRANSACTIONS INVOLVING SG ASIA AND SG PARIS ARE CONSIDERED FOR THE PURPOSE OF DETERMINING ARMS LENGTH PRICE. SG ASIA PROVIDES BROKING AND CLEARING SERVICES TO ASSOCIATED AND UNASSOCIATED ENTERPRISES. THE AO HAS MADE ADJUSTMENTS IN RESPECT OF BROKERAGE/COMMISSION. ITA. NO. 2399/M/09 3 5. THE ASSESSEE HAS CHALLENGED THE VA LIDITY OF THE JURISDICTION OF THE AO BEFORE THE LD. CIT(A) ALSO . T HE SAME HAS BEEN CONSIDERED BY THE LD. CIT(A) AT PAGE - 6 OF HIS ORDER AND AT PAGE - 8 VIDE PARA XII, THE LD. CIT(A) DISMISSED THIS CLAIM OF THE ASSESSEE. 6. BEFORE US, THE LD. COUNSEL FOR TH E ASSESSEE VEHEMENTLY SUBMITTED THAT THE ORDER OF THE AO IS BAD IN LAW INASMUCH AS IT IS IN CONTRADICTION TO THE INSTRUCTIONS ISSUED BY THE CBDT VIDE INSTRUCTION NO. 3 OF 2003 DT. 20.5.2003. 7. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTING THE ASSESSMENT ORDER STATED THAT THE ORDER OF THE AO IS LAWFUL AND THERE IS NO CONTRADICTION TO THE CIRCULAR. 8. WE HAVE HEARD THE RIVAL PARTIES AND CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE JUDICIAL DECISIONS RELIED UPON BY THE RIVAL PARTIES. THE RELEVANT PORTION OF THE AFOREMENTIONED CBDT INSTRUCTION READ AS UNDER: THE CBDT, 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 U/S. 92 CA 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 TRANSACTIONS SHOULD BE REFERRED TO TH E TPO. 9. THE CONSTITUTIONAL VALIDITY OF THIS INSTRUCTION WAS CHALLENGED BEFORE THE HONBLE DELHI HIGH COURT AND THE HONBLE HIGH COURT OF DELHI IN THE CASE OF SONY INDIA P VT. LTD. VS CBDT HAS HELD AS UNDER: APPLYING THE ABOVE TEST, THE IMPUGNED INSTRUCTION CANNOT BE HELD TO VIOLATE ARTICLE 14. THE CLASSIFICATION BROUGHT ABOUT BY THE IMPUGNED INSTRUCTION IS BASED ON A STRAIGHTFORWARD RECOGNIZABLE BASIS GIVING NO ROOM FOR CONFUSION. TRANSACTIONS OF A HIGH VALUE REQUIRE A CAREFUL EXAMINATION TO DETERMINE IF THE DECLARED PRICE IS IN FACT AN ACCEPTABLE ALP. IT MAY NOT BE ITA. NO. 2399/M/09 4 EXPEDIENT FOR THE ASSESSING OFFICER TO EFFICIENTLY DEAL WITH THE ASSESSMENT INVOLVING SUCH AN EXERCISE. IN THAT SENSE IT ACHIEVES THE EXPEDITIOUS DISPOSAL OF THE ASSESSMENT BY THE ASSESSING OFFICER IF THE EXERCISE IS REFERRED FOR A SPECIALISED DETERMINATION BY THE TRANSFER PRICING OFFICER. THE CLASSIFICATION CERTAINLY BEARS A NEXUS TO THIS OBJECTIVE. WE ARE OF THE CONSIDERED VIEW THAT THE CHALLENGE TO THE IMPUGNED INSTRUCTION ON THE GROUND OF ' SUSPECT CLASSIFICATION' MUST FAIL. 10. PRIOR TO THIS DECISION OF THE HONBLE HIGH COURT OF DELHI, THE MATTER WAS CONSIDERED BY THE SPECIAL BENCH OF THE TRIBUNAL BANGALORE BENCH IN THE CASE OF AZTEC SOFTWARE & TECHNOLOGY SERVICES LTD VS ACIT 294 ITR (AT) 32. THE SPECIAL BENCH HAS CONSIDERED THE FOLLOWING QUESTION INTER ALIA WITH OTHER ISSUES. Q. WHAT IS THE LEGAL EFFECT OF INSTRUCTION NO. 3 OF 2003 ISSUED BY CENTRAL BOARD OF DIRECT TAXES ON TRANSFER PRICING PROCEEDS? 11. THE TRIBUNAL HELD AS UNDER: NOW, WE PROCEED TO ANSWER QUESTION NO. 6 TO SEE THE LEGAL EFFECT OF INSTRUCTION NO. 3 DATED MAY 20, 2003, ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES ON TRANSFER PRICING. AS PER THE ABOVE INSTRUCTION, THE CENTRAL BOARD OF DIRECT TAXES HAS DIRECTED ALL OFFICERS OF THE DEPARTMENT WHERE THE AGGREGATE VALUE OF INTERNATIONAL TRANSACTION AND TRANSACTIONS EXCEED RS. 5 CRORES, TO REFER THE MATTER OF DETERMINATION OF ALP TO TPO. THE RELEVANT PORTION OF CIRCULAR IS AS UNDER ([2003] 261 ITR (ST.) 51, 53) : ' IN THE INITIAL YEARS OF IMPLEMENTATION OF THESE PROVISIONS AND 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 BOAR D 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 TRANS ACTION WITH AN ASSOCIATED ENTERPRISE OR THERE ARE TRANSACTIONS WITH MORE THAN ONE ASSOCIATED ENTERPRISES THE AGGREGATE VALUE OF WHICH EXCEEDS RS. 5 CRORES, THE TRANSACTIONS SHOULD BE REFERRED TO THE TPO. BEFORE MAKING REFERENCE TO THE TPO, THE ASSESSING OF FICER HAS TO SEEK APPROVAL OF THE COM MISSIONER/DIRECTOR AS CONTEMPLATED UNDER THE ACT. UNDER THE PROVI SIONS OF SECTION 92CA REFERENCE IS IN RELATION TO THE INTERNATIONAL TRANSACTION. HENCE, ALL TRANSACTIONS HAVE TO BE EXPLICITLY MENTIONED IN THE LETTER O F REFERENCE. SINCE THE CASE WILL BE SELECTED FOR SCRUTINY BEFORE ITA. NO. 2399/M/09 5 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 I NTERNATIONAL 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 O F PENDING RETURNS FILED FOR THE ASSESSMENT YEAR 2002 - 03 SHOULD BE COMPLETED BY JUNE 30, 2003.' IT IS NOT IN DISPUTE THAT THE ABOVESAID CIRCULAR WAS ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES UNDER SECTION 119 OF THE INCOME - TAX ACT. AFORESAID SECTION AUTHO RIZES THE BOARD TO ISSUE ORDERS, INSTRUCTIONS AND DIRECTIONS TO THE INCOME - TAX AUTHORITIES AS IT MAY DEEM FIT FOR PROPER ADMINISTRATION OF THE INCOME - TAX ACT. AUTHORITIES ARE DUTY BOUND TO OBSERVE AND EXECUTE ORDERS, INSTRUCTIONS AND DIRECTIONS OF THE BOAR D. UNDER SUB - SECTION (2) CLAUSE (A) IT IS PROVIDED THAT WHERE THE BOARD CONSIDERS IT NECESSARY AND EXPEDIENT FOR PURPOSE OF PROPER AND EFFICIENT MANAGEMENT OF THE WORK OF ASSESSMENT AND COLLECTION OF REVENUE, IT MAY ISSUE ORDERS AND DIRECTIONS IN RESPECT O F ANY CLASS OF INCOME OR CLASS OF CASES SETTING FORTH DIRECTIONS OR INSTRUCTIONS SO AS TO GUIDELINES, PRINCIPLES OR PROCEDURES TO BE FOLLOWED BY THE INCOME - TAX AUTHORITIES. AS IS CLEAR FROM THE CIRCULAR, THE IDEA OF ISSUING INSTRUCTIONS UNDER REFERENCE IS TO AVOID SELECTION OF SMALL CASES WITH INTERNATIONAL TRANSACTION LESS THAN RS. 5 CRORES FOR SCRUTINY OF TRANSFER PRICE AND TO AVOID ARBITRARINESS IN THE APPLICATION OF THE PROVISION. ALL CASES WHERE THE AGGREGATE VALUE OF INTERNATIONAL TRANSACTIONS EXCEED RS. 5 CRORES, ARE REQUIRED TO BE REFERRED TO THE TPO BY THE ASSESSING OFFICER. THE LIMIT HAS NOW BEEN INCREASED TO RS.15 CRORES. HAVING REGARD TO THE OBJECT STATED IN THE CIRCULAR, NO FAULT IS FOUND NOR ANY ILLEGALITY SEEN IN THE INSTRUCTIONS. IN THE CASE OF UNION OF INDIA V. AZADI BACHAO ANDOLAN [2003] 263 ITR 706 , THEIR LORDSHIPS OF THE SUPREME COURT HAVE OBSERVED AS UNDER (PAGE 730) : ' APART FROM SUB - SECTION (1), SUB - SECTION (2) OF SECTION 119 ALSO ENABLES THE CENTRAL BOARD OF DIRECT TAXES ' FOR THE PURPOSE OF PROPER AND EFFICIENT MANAGEMENT OF THE WORK OF ASSESSMENT AND COLLECTION OF REVENUE, TO ISSUE APPROPRIATE ORDERS, GENERAL OR SPECIAL IN RESPECT OF ANY CLASS OF INCOMES OR CLASS OF CASES, SETTING FORTH DIRECTIONS OR INSTRUCTIONS (NOT BEING PREJUDICIAL TO ASSESSEES) AS TO THE GUIDELINES, PRINCIPLES OR PROCEDURES TO BE FOLLOWED BY OTHER INCOME - TAX AUTHORITIES IN THE WORK RELATING TO ASSESSMENT OR COLLECTION OF RE VENUE OR THE INITIATION OF PROCEEDINGS FOR THE IMPOSITION OF PENALTIES'. IN OUR VIEW, THE HIGH COURT WAS NOT JUSTIFIED IN READING THE CIRCULAR AS NOT COMPLYING WITH THE PROVISIONS OF SECTION 119. THE CIRCULAR FALLS WELL WITHIN THE PARAMETERS OF THE POWERS EXERCISABLE BY THE CENTRAL BOARD OF DIRECT TAXES UNDER SECTION 119 OF THE ACT.' THEREFORE, WHEN THE PROVISIONS OF SECTION 92CA(1) ARE READ WITH CIRCULAR OF CENTRAL BOARD OF DIRECT TAXES (INSTRUCTION NO. 3) DATED MAY 20, 2003, ([2003] 261 ITR (ST.) 51 ), IT BECOMES ' NECESSARY' FOR THE ASSESSING OFFICER TO REFER THE QUESTION OF DETERMINATION OF TRANSFER PRICING ITA. NO. 2399/M/09 6 OF INTERNATIONAL TRANSACTIONS TO THE TPO. HE HAS NO DISCRETION IN THE MATTER IN THE LIGHT OF LIMIT FIXED BY THE BOARD. THE ASSESSING OFFICER HAS ONLY TO LOOK AT THE AGGREGATE VALUE OF INTERNATIONAL TRANSACTIONS DISCLOSED BY THE ASSESSEE IN THE AUDIT REPORT AND THEN FOLLOWS DIRECTIONS OF THE CENTRAL BOARD OF DIRECT TAXES. THE ASSESSING OFFICER, THEREFORE, IS LEFT WITH A VERY LIMITED ROLE UNDER SECTION 9 2CA(1). LIKEWISE, WHILE GRANTING APPROVAL TO THE ACTION OF THE ASSESSING OFFICER, THE COMMISSIONER HAS ONLY TO SEE WHETHER THE AGGREGATE VALUE OF INTERNATIONAL TRANSACTION IS MORE THAN RS. 5 CRORES OR NOT. IF IT IS MORE, HE HAS ALSO TO GRANT APPROVAL IN TH E LIGHT OF THE DIRECTIONS OF THE CENTRAL BOARD OF DIRECT TAXES. THESE DIRECTIONS ARE MANDATORY AND BINDING ON THE ASSESSING OFFICER AND THE COMMISSIONER. THE FACT THAT DIRECTIONS ARE NOT BINDING ON THE ASSESSEE OR COURTS IS IMMATERIAL. THE RELEVANT QUESTIO N TO BE ANSWERED IS WHETHER CIRCULARS ARE BINDING ON THE DEPARTMENTAL AUTHORITIES. THE QUESTION HAS AN OBVIOUS ANSWER. THE ISSUE OF LEGALITY AND VALIDITY OF THE ABOVE DIRECTIONS WAS RAISED BEFORE THE HON'BLE DELHI HIGH COURT IN THE CASE OF SONY INDIA P. LT D. [2007] 288 ITR 52 . THEIR LORDSHIPS HAVE ALSO UPHELD THE VALIDITY OF THE DIRECTIONS OF THE CENTRAL BOARD OF DIRECT TAXES. IN THE LIGHT OF ABOVE DISCUSSIONS, WE DO NOT FIND ANY ILLEGALITY IN THE DIRECTIONS ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES (CBDT). THIS QUESTION IS ALSO ANSWERED AGAINST THE ASSESSEE. OBSERVATIONS OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) HOLDING THE CONTRARY ARE SET ASIDE. 12. A SIMILAR ISSUE WAS ALSO CONSIDERED BY THE T RIBUNAL DELHI BENCH IN THE CASE OF RANBAXY LABORATORIES LTD. VS ACIT 110 ITD 428 AT PARA 65 OF ITS ORDER AND AT PARA - 67, THE TRIBUNAL HAD TO CONSIDER THE FOLLOWING: IT WAS ACCORDINGLY CONTENDED THAT DECISION OF SPECIAL BENCH OF ITAT IN THE CASE OF AZTEC SOFTWARE & TECHNOLOGY SERVICES LTD.';S (SUPRA) IS CONTRARY TO THE DECISION OF HON';BLE DELHI HIGH COURT IN THE CASE OF SONY INDIA (P.) LTD. (SUPRA) AND THAT POWER OF THE ASSESSING OFFICER TO CARRY OUT EXERCISE AND DETERMINE ARM';S LENGTH PRICE HAS REMAINE D UNAFFECTED AND, THEREFORE, ASSESSMENT WITHOUT MAKING REFERENCE TO TPO COULD NOT BE TERMED AS ILLEGAL. 13. AFTER CONSIDERING THE FACTS AND THE DECISIONS, THE TRIBUNAL CAME TO THE FOLLOWING CONCLUSION: ON CAREFUL CONSIDERATION OF DECISION OF SONY INDIA (P.) LTD. (SUPRA) AND THAT OF SPECIAL BENCH IN THE CASE OF AZTEC SOFTWARE & TECHNOLOGY SERVICES LTD. (SUPRA), WE DO NOT FIND ANY GOOD REASON TO ACCEPT THE ARGUMENT OF SHRI VOHRA AND INTERPRETATION HE HAS PUT ON THE DECISION IN THE CASE OF SONY INDIA (P.) LTD. (SUPRA) LEADING TO HIS INFERENCE THAT IT IS NOT NECESSARY FOR ASSESSING OFFICER TO MAKE A REFERENCE TO T.P.O. EVEN WHEN VALUE OF INTERNATIONAL TRANSACTION EXCEEDS RS. 5 CRORES. THE CONSTITUTIONAL VALI DITY OF ABOVE INSTRUCTIONS DATED 20 - 5 - 2003 WAS CHALLENGED UNDER ARTICLE 226/227 OF THE CONSTITUTION AND CONTENTIONS OF ITA. NO. 2399/M/09 7 THE PETITIONER ARE RECORDED AT PAGE 59 OF THE REPORT. IT WAS CLAIMED THAT CLASSIFICATION OF INTERNATIONAL TRANSACTION INTO TWO CATEGORIES , THOSE OF VALUE EXCEEDING RS. 5 CRORE AND OTHERS LESS THAN RS. 5 CRORES WAS NOT BASED ON ANY INTELLIGIBLE DIFFERENTIA AND, THEREFORE, SUCH INSTRUCTIONS WERE VIOLATIVE OF ARTICLE 14 OF THE CONSTITUTION. INSTRUCTIONS ISSUED UNDER SECTION 119 OF THE INCOME - T AX ACT WERE ULTRA VIRES OF THE STATUTORY PROVISION. THE QUASI - JUDICIAL DISCRETION OF THE ASSESSING OFFICER HAS BEEN TAKEN AWAY. THEIR LORDSHIPS CONSIDERED RELEVANT SCHEME OF THE ACT RELATING TO TRANSFER PRICING UNDER INDIAN REGULATION, ITS PURPOSES AND TH E LEGAL VALIDITY OF ABOVE INSTRUCTIONS. THE MATTER FOR CONSIDERATION WAS TAKEN IN TWO PARTS: FIRSTLY, STATUTORY PROVISIONS WERE CONSIDERED IN DETAIL WITHOUT GOING INTO THE QUESTION OF VALIDITY OF THE INSTRUCTION; AND SECONDLY, THE QUESTION OF VALIDITY OF I NSTRUCTIONS WAS CONSIDERED IN THE LIGHT OF ARTICLE 14 OF THE CONSTITUTION. IT IS QUITE CLEAR FROM WHAT IS STATED ABOVE IN PARAS 12, 29 AND 31 OF THE JUDGMENT. SHRI VOHRA HAS REFERRED TO THAT PART OF THE DECISION WHERE DISCRETION OF ASSESSING OFFICER TO DET ERMINE ARM'S LENGTH PRICE IN RESPECT OF TRANSACTION OF VALUE OF LESS THAN RS. 5 CRORES REMAINING UNAFFECTED IS DISCUSSED. WHILE MAINTAINING THE VALIDITY OF THE INSTRUCTIONS, THEIR LORDSHIPS MADE PERTINENT OBSERVATIONS IN PARAS 32 AND 37. PARA 37 HAS ALREAD Y BEEN QUOTED. PARA 32 IS AS UNDER : '32. APPLYING THE ABOVE TEST, THE IMPUGNED INSTRUCTION CANNOT BE HELD TO VIOLATE ARTICLE 14. THE CLASSIFICATION BROUGHT ABOUT BY THE IMPUGNED INSTRUCTION IS BASED ON A STRAIGHTFORWARD RECOGNIZABLE BASIS GIVING NO ROOM FOR CONFUSION. TRANSACTIONS OF A HIGH VALUE REQUIRE A CAREFUL EXAMINATION TO DETERMINE IF THE DECLARED PRICE IS IN FACT AN ACCEPTABLE ALP. IT MAY NOT BE EXPEDIENT FOR THE ASSESSING OFFICER TO EFFICIENTLY DEAL WITH THE ASSESSMENT INVOLVING SUCH AN EXERCISE. IN THAT SENSE IT ACHIEVES THE EXPEDIT IOUS DISPOSAL OF THE ASSESSMENT BY THE ASSESSING OFFICER IF THE EXERCISE IS REFERRED FOR A SPECIALIZED DETERMINATION BY THE TRANSFER PRICING OFFICER. THE CLASSIFICATION CERTAINLY BEARS A NEXUS TO THIS OBJECTIVE. WE ARE OF THE CONSIDERED VIEW THAT THE CHALL ENGE TO THE IMPUGNED INSTRUCTION ON THE GROUND OF 'SUSPECT CLASSIFICATION' MUST FAIL.' IT IS CLEAR FROM ABOVE THAT VALIDITY OF INSTRUCTION WAS UPHELD, REASON AND NEED FOR MAKING REFERENCE TO TPO OF INTERNATIONAL TRANSACTION EXCEEDING RS. 5 CRORE WAS EMPHA SIZED. AND AT PARA 71 INTER ALIA THE TRIBUNAL OBSERVED AS UNDER: IT IS NOT POSSIBLE FOR US TO HOLD THAT INSTRUCTIONS ISSUED BY CBDT UNDER SECTION 119 OF INCOME - TAX ACT TO REGULATE ASSESSMENT PROCEEDING CAN BE TREATED AS A WASTE PAPER BY OFFICERS FUNCTIO NING UNDER THE BOARD (CBDT). IF SUCH A VIEW IS TAKEN, IT WOULD LEAD TO CHAOS IN THE COUNTRY. IF VARIOUS GUIDELINES ISSUED BY CBDT FOR ADMINISTRATION OF INCOME - TAX DEPARTMENT AND FOR REGULATION OF ASSESSMENT ETC. ARE NOT ADHERED TO OR MADE OPTIONAL, THEN AL L SCHEMES OF ASSESSMENT MAY FAIL AND JEOPARDIZE THE WORKING OF THE DEPARTMENT. THIS IS NEITHER THE LAW OF LAND NOR THERE IS ANY JUSTIFICATION TO ACCEPT SUCH AN ARGUMENT. WE ARE THEREFORE OF THE VIEW THAT ASSESSING OFFICER, IN THE LIGHT OF INSTRUCTION OF CB DT, WAS DUTY BOUND TO REFER THE MATTER TO THE TPO, HAVING REGARD TO THE PURPOSE OF SPECIALIZED CELL CREATED BY THE REVENUE DEPARTMENT TO ITA. NO. 2399/M/09 8 DEAL WITH COMPLICATED AND COMPLEX ISSUES ARISING UNDER THE TRANSFER PRICING MECHANISM. THIS CASE ITSELF IS A GOOD EXAMP LE AS TO HOW DEPARTMENT CAN BE HOODWINKED UNLESS CASE IS PROPERLY EXAMINED BY PERSONS HAVING KNOWLEDGE OF PRINCIPLES OF TRANSFER PRICING. THE CONTENTION OF SHRI VOHRA IS ACCORDINGLY REJECTED. WE ARE ALSO NOT CONVINCED THAT IN NOT REFERRING THE QUESTION OF DETERMINATION OF ARM'S LENGTH PRICE TO THE TPO, THE ASSESSING OFFICER MERELY COMMITTED A PROCEDURAL ERROR AND, THEREFORE, LEGALITY OF ASSESSMENT ORDER TO INVOKE PROVISION OF SECTION 263. IN OUR CONSIDERED OPINION, THE ASSESSING OFFICER FAILED TO FOLLOW ST ATUTORY REGULATIONS ON A COMPLICATED ISSUE LIKE TRANSFER PRICING AND MADE AN ASSESSMENT WITHOUT APPLICATION OF MIND. ACCORDINGLY, POWERS BY COMMISSIONER UNDER SECTION 263 WERE RIGHTLY EXERCISED ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE. EVEN IF FOR THE SAKE OF ARGUMENT, IT IS ACCEPTED THAT REFERENCE TO TPO IS NOT MANDATORY AND INSTRUCTIONS NOT BINDING; ON PECULIAR FACTS OF THIS CASE, AS DISCUSSED ABOVE, THE ASSESSMENT MADE WITHOUT APPLICATION OF MIND FOR PURPOSES OF SECTION 263 WAS ERRONEOUS AND PREJUDI CIAL TO THE INTEREST OF THE REVENUE. THE LD. CIT RIGHTLY EXERCISED HIS JURISDICTION UNDER SECTION 263 IN THIS CASE. CASES RELATING TO NON - APPLICATION OF PROVISION OF SECTION 144B OR OTHER PROCEDURAL ERRORS STAND ON A DIFFERENT FOOTING AS BASIC JURISDICTION TO MAKE ASSESSMENT RESTS WITH THE ASSESSING OFFICER. THERE IS MARKED DIFFERENCE BETWEEN PURPOSE OF TRANSFER PRICING REGULATIONS AND SCHEME INVOLVED IN SECTION 144B, NOW DELETED. AT ANY RATE, WE HAVE REFERRED IN DETAIL TO STATUTORY PROVISIONS AND MATERIAL ON RECORD TO SHOW THAT ASSESSMENT MADE WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. WE, THEREFORE, DO NOT FIND ANY SUBSTANCE IN ABOVE ARGUMENT OF SHRI VOHRA. 14. THIS DECISION OF THE TRIBUNAL DELHI BENCH IS CONFIRMED BY THE HONBLE HIG H COURT OF DELHI IN 345 ITR 193. WHILE CONFIRMING THE DECISION OF THE TRIBUNAL, THE HONBLE COURT OBSERVED AS UNDER: WE THUS AGREE WITH THE VIEW TAKEN BY THE TRIBUNAL THAT THE JUDGMENT OF THE SPECIAL BENCH IN AZTEC SOFTWARE (SUPRA) IS NOT IN CONFLICT WITH SONY INDIA (SUPRA) ONCE THE VALIDITY OF THE SAID INSTRUCTION IS UPHELD BY THIS COURT. THE FOLLOWUP THEREOF IS THAT TH E ASSESSING OFFICER WAS SUPPOSED TO REFER THE MATTER TO THE TRANSFER PRICING OFFICER HAVING REGARD TO THE FACT THAT SPECIALIZED CELL WAS CREATED BY THE REVENUE DEPARTMENT TO DEAL WITH THE COMPLICATED AND COMPLEX ISSUES ARISING OUT OF THE TRANSFER MECHANISM . THE TRIBUNAL WAS RIGHT IN HOLDING THAT EVEN THE INSTANT CASE ITSELF PROVIDES A GOOD EXAMPLE FOR NEED TO REFER THE MATTER TO THE TRANSFER PRICING OFFICER IN SUCH CASES. WHEN CIRCULAR IS ISSUED UNDER SECTION 119 OF THE ACT AND ITS VALIDITY IS UPHELD IT IS BINDING ON THE ASSESSING OFFICER. NOT TAKING RECOURSE THERETO AND PASSING THE ORDER AMOUNTED TO MAKING ASSESSMENT WITHOUT CONDUCTING PROPER INQUIRY AND INVESTIGATION AS ENJOINED BY LAW WHICH WAS ALSO WARRANTED IN THE FACTS OF THIS CASE AND, THEREFORE, THE COMMISSIONER WAS RIGHT IN HOLDING THAT SUCH ASSESSMENT WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE IN THE LIGHT ITA. NO. 2399/M/09 9 OF THE LAW LAID DOWN BY THE APEX COURT IN MALABAR INDUSTRIAL CO. LTD. [2000] 243 I TR 83 (SC). 15. THE LD. DEPARTMENTAL REPRESENTATIVE HAS ALSO RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF KAPURCHAND SHRIMAL VS CIT 131 ITR 451, DECISION OF THE TRIBUNAL DELHI BENCH IN THE CASE OF DCIT VS M/S. JINDAL DYECHEM IN DUSTRIES PVT. LTD. IN ITA NO. 2877/DEL/2009 , ACIT VS UE TRADE CORPN. (INDIA) (P) LTD. IN ITA NOS. 4405 & 4460(DEL) OF 2009. 16. WE HAVE CAREFULLY GONE THROUGH THESE DECISIONS AND WE FIND THAT IN NONE OF THESE DECISIONS THE QUESTION OF JURISDICTION WAS CH ALLENGED. THEREFORE, THE DECISIONS RELIED UPON BY THE LD. DR WOULD DO NO GOOD TO THE REVENUE. MOREOVER IN THE CASE OF M/S. JINDAL DYECHEM INDUS (SUPRA), THE SPECIAL BENCH DECISION IN THE CASE OF AZTEC SOFTWARE & TECHNOLOGY SERVICES LTD (SUPRA) AND THE D ECISION OF THE DELHI HIGH COURT IN THE CASE OF SONY INDIA PVT. LTD (SUPRA) WERE NOT CONSIDERED NOR THE CIRCULAR OF THE CBDT (SUPRA) HAS BEEN REFERRED TO. 16.1. AFTER CONSIDERING THE ENTIRE JUDICIAL DISCUSSION DISCUSSED HEREINABOVE, IN OUR CONSIDERED OPINIO N, THE MANDATORY INSTRUCTIONS ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES CANNOT BE BRUSHED ASIDE LIGHTLY. BY NO T MAKING REFERENCE TO THE TRANSFER PRICING OFFICER, THE AO HAS BREACHED THE MANDATORY INSTRUCTIONS ISSUED BY THE CBDT THEREBY MAKING THE ASSESS MENT 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 C BDT 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. ITA. NO. 2399/M/09 10 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 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 R ESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. OR DER PRONOUNCED IN THE OPEN COURT ON 22 ND APRIL , 2015 SD/ - SD/ - ( I.P. BANSAL ) (N.K. BILLAIYA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 22 ND APRIL , 2015 . . ./ RJ , SR. PS ITA. NO. 2399/M/09 11 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI