Nikon India Pvt. Ltd., Gurgaon V. DCIT, Gurgaon

ITA 6314/DEL/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6839 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 21-06-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 27-11-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Assessee Lawyers: MUKESH BHUTANI; VISHAL KALRA S
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Retrospective amendment; Question of law
• Section: 92C; 143(3); 92B; 92E; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I : NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAV, JUDICIAL MEMBER ITA NO.6314/DEL/2015 ASSESSMENT YEAR : 2011-12 NIKON INDIA PVT. LTD., PLOT NO.71, SECTOR-32, INSTITUTIONAL AREA, GURGAON. PAN: AACCN5100F VS. DCIT, CIRCLE-3, 3 RD FLOOR, HSIIDC BUILDING, VANIJYA NIKUNJ, UDYOG VIHAR, GURGAON. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MUKESH BHUTANI & SHRI VISHAL KALRA, ADVOCATES DEPARTMENT BY : SHRI AMRENDRA KUMAR, CIT, DR DATE OF HEARING : 14.07.2016 DATE OF PRONOUNCEMENT : 15.07.2016 ORDER PER R.S. SYAL, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE FINAL ASSESSMENT ORDER PASSED BY THE AO U/S 143(3) READ W ITH SECTION 144C OF ITA NO.6314/DEL/2015 2 THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2011-12. 2. THE LD. AR CHALLENGED THE JURISDICTION OF THE AS SESSING OFFICER (AO) / TRANSFER PRICING OFFICER (TPO) IN DETERMININ G THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTION OF ADV ERTISING, MARKETING AND PROMOTION EXPENSES (AMP EXPENSES). HE SUBMITTED THAT THE AUTHORITIES EMBARKED ON TREATING THE AMP EXPENSES A S AN INTERNATIONAL TRANSACTION; DETERMINING ITS ALP; AND THEN MAKING T RANSFER PRICING ADDITION, WITHOUT ANY JURISDICTION. THIS WAS COUNT ERED BY THE LD. DR, WHO MADE TWO-FOLD SUBMISSIONS ON THIS ISSUE, VIZ., FIRST, THAT THE ASSESSEE COULD NOT TAKE UP THE JURISDICTION ISSUE B EFORE THE TRIBUNAL FOR THE FIRST TIME WITHOUT RAISING IT BEFORE THE AUTHOR ITIES BELOW, AND SECOND, THAT THE ASSESSEE HAS NOT TAKEN ANY SUCH GROUND IN ITS MEMORANDUM OF APPEAL. IN RESPONSE, THE LD. AR SUBMITTED THAT THE ASSESSEE DID ASSAIL THE JURISDICTION OF THE TPO DURING THE COURSE OF PROCEE DINGS BEFORE HIM, BUT, THE TPO WENT AHEAD WITH THE DETERMINATION OF THE AL P OF AMP EXPENSES WITHOUT DECIDING THAT ISSUE. ON A SPECIFI C QUERY AS TO BY WHICH ITA NO.6314/DEL/2015 3 DOCUMENT THE ASSESSEE CHALLENGED THE JURISDICTION O F THE TPO, THE LD. AR REFERRED TO PAGE 490 OF THE PAPER BOOK, BEING THE ASSESSEES REPLY DATED 15 TH DECEMBER, 2014 TO THE SHOW CAUSE NOTICE ISSUED BY THE TPO. IN PARTICULAR, THE LD. AR DREW OUR ATTENTION TOWARDS P ARA C.1 OF THE ASSESSEES REPLY TO THE SHOW CAUSE NOTICE, WHICH RE ADS AS UNDER:- C.1 YOUR GOODSELF HAS CONCLUDED THAT THE MARKETIN G INTANGIBLE IS AN INTERNATIONAL TRANSACTION BY DISREGARDING THE FA CT THAT THE AMP EXPENSES INCURRED BY THE ASSESSEE REPRESENT PURELY DOMESTIC TRANSACTION(S) UNDERTAKEN TOWARDS THIRD PARTIES, NO T COVERED UNDER THE PURVIEW OF SECTION 92 OF THE ACT AND THAT THE A NALYSIS OF DOMESTIC TRANSACTIONS UNDERTAKEN WITH THIRD PARTI ES, IN RESPECT OF WHICH NO TP REFERENCE HAS BEEN MADE BY THE LD. AO T O THE LD.TPO, IS BEYOND THE POWERS VESTED WITH THE TPO UNDER SECT ION 92CA OF THE ACT. 3. ON THE SECOND OBJECTION BY THE LD. DR THAT SINCE THE ASSESSEE HAS NOT TAKEN UP ANY SUCH GROUND IN THE MEMORANDUM OF A PPEAL AND, HENCE, SHOULD BE DEBARRED FROM RAISING THIS ISSUE, THE LD. AR INVITED OUR ATTENTION TOWARDS GROUND 3 IN ITS MEMORANDUM OF APP EAL BEFORE THE TRIBUNAL, WHICH READS AS UNDER:- 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDERS PASSED BY THE AO/TPO WERE BAD IN LAW AS THE PRE-REQUISITE OF APPLYING CHAPTER-X I.E., EXISTENCE OF AN INTERNA TIONAL TRANSACTION BETWEEN TWO ASSOCIATED ENTERPRISES (AE) UNDER THE PROVISIONS OF ITA NO.6314/DEL/2015 4 SECTION 92B OF THE ACT, WAS NOT SATISFIED OR EXISTE D IN THE PRESENT CASE. 4. ON THE BASIS OF THE ABOVE GROUND, IT WAS CONTE NDED THAT THE ASSESSEE HAS RAISED THIS ISSUE VIDE GROUND NO. 3 OF THE APP EAL. 5. AS REGARDS THE ASSESSEES REPLY TO THE FIRST O BJECTION OF THE LD. DR ABOUT NOT RAISING JURISDICTION ISSUE BEFORE THE TPO , WE FIND THAT THE ASSESSEE CONTENDED THAT SINCE : `NO TP REFERENCE H AS BEEN MADE BY THE LD. AO TO THE LD.TPO, IS BEYOND THE POWERS VESTED W ITH THE TPO UNDER SECTION 92CA OF THE ACT. THE ABOVE PARA IS IN THE NATURE OF A CHALLENGE TO THE JURISDICTION OF THE TPO TO DETERMI NE THE ALP OF THE AMP EXPENSES. INSOFAR AS THE SECOND OBJECTION OF T HE LD. DR IS CONCERNED ABOUT THERE BEING NO SPECIFIC GROUND IN T HE MEMORANDUM OF APPEAL, WE FIND THAT GROUND NO. 3 SIMPLY STATES TH AT THE `EXISTENCE OF AN INTERNATIONAL TRANSACTION BETWEEN TWO ASSOCIATED EN TERPRISES (AE) UNDER THE PROVISIONS OF SECTION 92B OF THE ACT, WAS NOT SATISFIED OR EXISTED IN THE PRESENT CASE. THE GROUND ONLY CHALL ENGES THE EXISTENCE OF AN INTERNATIONAL TRANSACTION AND NOT THE JURISDICTI ON OF THE TPO TO DETERMINE THE ALP OF THE AMP EXPENSES. THERE IS A V AST DIFFERENCE ITA NO.6314/DEL/2015 5 BETWEEN SAYING THAT AMP EXPENSES IS NOT AN INTERNA TIONAL TRANSACTION AND THAT THE TPO DID NOT HAVE JURISDICTION TO DETER MINE THE ALP OF AMP EXPENSES. BE THAT AS IT MAY, IN OUR CONSIDERED OPINION, THIS IS NOT GOING TO HELP THE REVENUE IN FORBIDDING THE ASSESSE E FROM CHALLENGING THE JURISDICTION OF THE TPO, EVEN IN THE ABSENCE OF ANY SPECIFIC GROUND IN THIS REGARD. THIS BEING A LEGAL ISSUE CAN BE TAK EN UP BEFORE THE TRIBUNAL EVEN FOR THE FIRST TIME NOTWITHSTANDING TH E SAME HAVING NOT BEEN RAISED EITHER BEFORE THE AUTHORITIES BELOW OR NOT TAKEN UP IN THE MEMORANDUM OF APPEAL. THE HONBLE SUPREME COURT IN NTPC LTD. VS. CIT (1998) 229 ITR 383 (SC) , HAS HELD THAT AN ADDITIONAL GROUND ON QUESTION OF LAW CAN BE RAISED BEFORE THE TRIBUNAL F OR THE FIRST TIME WHICH HAS A BEARING ON THE TAX LIABILITY OF THE ASS ESSEE NOTWITHSTANDING THE FACT THAT THE SAME WAS NOT RAISED BEFORE THE LO WER AUTHORITIES. THE ONLY CONDITION FOR RAISING SUCH A GROUND IS THAT TH E FACTUAL POSITION GOVERNING SUCH A LEGAL GROUND SHOULD BE AVAILABLE O N RECORD AND THE GROUND SHOULD BE CAPABLE OF RENDERING DECISION WITH OUT CARRYING OUT ANY FRESH INVESTIGATION OF FACTS. SINCE THE ISSUE OF JURISDICTION OF THE AO/TPO IN DETERMINING THE ALP OF THE AMP EXPENSES I S A QUESTION OF ITA NO.6314/DEL/2015 6 LAW AND THE RELEVANT MATERIAL FOR DELIVERING DECISI ON ON IT IS AVAILABLE ON RECORD, WE ADMIT THIS ISSUE FOR CONSIDERATION ON MERITS. 6. ON MERITS, THE LD. AR SUBMITTED THAT THE ASSESSE E DID NOT INDICATE AMP EXPENSES AS AN INTERNATIONAL TRANSACTION IN ITS AUDIT REPORT IN FORM NO.3CEB AND THE SAME WAS NOT REFERRED BY THE AO TO THE TPO, HENCE, THE TPO/AO DID NOT HAVE ANY JURISDICTION TO DETERMI NE THE ALP OF THIS INTERNATIONAL TRANSACTION. THE LD. AR HEAVILY BANK ED UPON INSTRUCTION NO.3/2016 DATED 10 TH MARCH, 2016 LAYING DOWN GUIDELINES FOR IMPLEMENTATION OF TRANSFER PRICING PROVISIONS. REF ERRING TO PARA 3.4 OF THIS INSTRUCTION, THE LD. AR ARGUED THAT THE AO MUS T HAVE FIRST PROVIDED AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFOR E RECORDING A SATISFACTION IN RESPECT OF THE TRANSACTION OF AMP E XPENSES. THEN, HE REFERRED TO PARA 4.1 OF THE INSTRUCTION TO SUBMIT T HAT THE TPO COULD NOT HAVE UNDERTAKEN THE EXERCISE OF DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION OF AMP EXPENSES. IT WAS SUBMITTED THAT THE SAID INSTRUCTION, ALBEIT DATED MARCH, 2016, IS CURATIVE AND, HENCE, R ETROSPECTIVE IN NATURE. TO FORTIFY THE ARGUMENT OF RETROSPECTIVITY, HE RELI ED ON THE JUDGMENT OF ITA NO.6314/DEL/2015 7 THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. VATIKA TOWNSHIP PVT. LTD. (2014) 367 ITR 466 (SC). IT WAS SUBMITTED THAT THE INSTRUCTION BE GIVEN RETROSPECTIVE EFFECT AND, ACCORDINGLY, THE JU RISDICTION OF THE AO/TPO TO DETERMINE THE ALP OF AMP EXPENSES BE DECL ARED INVALID. 7. THIS WAS OPPOSED BY THE LD. DR, WHO SUBMITTED THAT THE INSTRUCTION DATED 10 TH MARCH, 2016 IS PROCEDURAL IN NATURE AND, HENCE, CA N NEVER HAVE A RETROSPECTIVE EFFECT. TO BE MORE SPECIFIC, HE SUBMITTED THAT NO INSTRUCTION ISSUED BY THE CBDT LAYING DOWN A PARTIC ULAR PROCEDURE TO BE FOLLOWED BY THE AUTHORITIES, CAN EVER BE RETROSPEC TIVE IN NATURE. HE ALSO RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF ANANDJI HARIDAS & CO. (P) LTD. VS. ENGINEERING MAZD OOR SANGH AND ANOTHER (1975) 99 ITR 592 (SC) TO PUT FORTH THAT ONLY WHERE A STATUTE IS NOT EXHAUSTIVE OR WHERE ITS LANGUAGE IS UNCERTAIN, THE EXTERNAL EVIDENCE CAN BE LOOKED INTO. HE SUBMITTED THAT SINCE THE PR OVISIONS OF SECTION 92CA(2A) AND (2B) ARE CLEAR AND UNAMBIGUOUS WHICH D O NOT ADMIT OF ANY DOUBT IN PROVIDING THAT THE JURISDICTION OF THE TPO IS NOT LIMITED TO THE INTERNATIONAL TRANSACTIONS EITHER REPORTED BY T HE ASSESSEE OR REFERRED ITA NO.6314/DEL/2015 8 TO BY THE AO, THERE IS NO NEED TO LOOK INTO THE INS TRUCTION, AT LEAST BEFORE THE DATE OF ITS APPLICABILITY. 8. WE FIND THAT THERE ARE TWO ASPECTS OF THIS IS SUE REQUIRING OUR DECISION, FIRST, THE CONTENT OF THE INSTRUCTION AND SECOND, THE PROSPECTIVE OR RETROSPECTIVE EFFECT OF THE INSTRUCTION. 9. THE LD. AR RELIED ON PARA 3.4 OF THE INSTRUCT ION TO BOLSTER HIS ARGUMENT THAT THE AO COULD NOT HAVE REFERRED THE MA TTER OF ALP OF AMP EXPENSES TO THE TPO WITHOUT RECORDING HIS SATISFACT ION AND SUCH SATISFACTION COULD HAVE RECORDED ONLY AFTER GIVING OPPORTUNITY OF HEARING TO THE ASSESSEE. LET US SEE THE CONTENTS OF PARA 3.4 OF THE INSTRUCTION, WHICH READS AS UNDER :- 3.4 FOR CASES TO BE REFERRED BY THE AO TO THE TPO IN ACCORDANCE WITH PARAGRAPHS 3.2 AND 3.3 ABOVE, IN RESPECT OF TRANSACTIONS HAVING 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 DETERMINATI ON OF THE ALP OF AN INTERNATIONAL TRANSACTION OR SPECIFIED DOMESTIC TRANSACTION BEFORE SEEKING APPROVAL OF THE PCIT OR CIT TO REFER THE MA TTER TO THE TPO FOR DETERMINATION OF THE ALP: WHERE THE TAXPAYER HAS NOT FILED THE ACCOUNTANTS REPORT UNDER SECTION 92E OF THE ACT BUT THE INTERNATIONAL TRANSA CTIONS OR ITA NO.6314/DEL/2015 9 SPECIFIED DOMESTIC TRANSACTIONS UNDERTAKEN BY IT CO ME TO THE NOTICE OF THE AO; WHERE THE TAXPAYER HAS NOT DECLARED ONE OR MORE I NTERNATIONAL TRANSACTION OR SPECIFIED DOMESTIC TRANSACTION IN TH E ACCOUNTANTS REPORT FILED UNDER SECTION 92E OF THE ACT AND THE S AID TRANSACTION OR TRANSACTIONS COME TO THE NOTICE OF THE AO; AND WHERE THE TAXPAYER HAS DECLARED THE INTERNATIONAL TRANSACTIONS OR SPECIFIED DOMESTIC TRANSACTIONS IN THE ACCOUNTANTS REPORT FILED UNDER SECTION 92E OF THE ACT BUT HAS MADE CERTAIN Q UALIFYING REMARKS TO THE EFFECT THAT THE SAID TRANSACTIONS AR E NOT INTERNATIONAL TRANSACTIONS OR SPECIFIED DOMESTIC TRANSACTIONS OR THEY DO NOT IMPACT THE INCOME OF THE TAXPAYER. IN THE ABOVE THREE SITUATIONS, THE AO MUST PROVIDE AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER BEFORE RECORDING HIS SA TISFACTION OR OTHERWISE. IN CASE NO OBJECTION IS RAISED BY THE TA XPAYER TO THE APPLICABILITY OF CHAPTER X [SECTIONS 92 TO 92F] OF THE ACT TO THESE THREE SITUATIONS, THEN AO SHOULD REFER THE INTERNAT IONAL TRANSACTION OR SPECIFIED DOMESTIC TRANSACTION TO THE TPO FOR DETER MINING THE ALP AFTER OBTAINING THE APPROVAL OF THE PCIT OR CIT. HO WEVER, WHERE THE APPLICABILITY OF CHAPTER X [SECTIONS 92 TO 92F] TO THESE THREE SITUATIONS IS OBJECTED TO BY THE TAXPAYER, THE AO M UST CONSIDER THE TAXPAYERS OBJECTIONS AND PASS A SPEAKING ORDER SO AS TO COMPLY WITH THE PRINCIPLES OF NATURAL JUSTICE. IF THE AO DECIDE S IN THE SAID ORDER THAT THE TRANSACTION IN QUESTION NEEDS TO BE REFERR ED TO THE TPO, HE SHOULD MAKE A REFERENCE AFTER OBTAINING THE APPROVA L OF THE PCIT OR CIT. 10. THE LD. AR SUBMITTED THAT HIS CASE FALLS UNDER THE SECOND BULLET POINT OF THE PARA INASMUCH AS THE ASSESSEE DID NOT REPORT AMP EXPENSES AS AN INTERNATIONAL TRANSACTION. WE FIND THAT THE LANGUAGE OF THE ABOVE ITA NO.6314/DEL/2015 10 PARA MAKES IT CLEAR THAT BEFORE MAKING A REFERENCE BY THE AO TO THE TPO, THERE IS A JURISDICTIONAL REQUIREMENT ON THE PART OF THE AO TO RECORD HIS SATISFACTION THAT THERE IS AN INCOME OR A POTENTIAL OF AN INCOME ARISING ON DETERMINATION OF THE ALP OF AN INTERNATI ONAL TRANSACTION BEFORE SEEKING APPROVAL OF THE CIT WHERE THE ASSESS EE, INTER ALIA , HAS NOT DECLARED A PARTICULAR TRANSACTION AS INTERNATIO NAL TRANSACTION IN ITS REPORT FILED U/S 92E. BEFORE RECORDING SUCH A SATIS FACTION, IT IS INCUMBENT ON THE PART OF THE AO TO PROVIDE AN OPPORTUNITY OF HEARING TO THE ASSESSEE AND, THEREAFTER, PASS A SPEAKING ORDER, I F THE ASSESSEE OBJECTS TO THE AOS VERSION. IT IS ONLY WHEN THE TAXPAYER FAI LS TO DECLARE AN INTERNATIONAL TRANSACTION, WHICH COMES TO THE NOTIC E OF THE AO, WHO MAKES REFERENCE TO THE TPO FOR DETERMINING ITS ALP, THAT THE PRE SATISFACTION HAS TO BE RECORDED BY HIM AFTER GIVING AN OPPORTUNITY OF HEARING TO THE ASSESSEE. WE DO NOT FIND THE ASSESSE ES CASE FALLING UNDER THE SECOND BULLET POINT, BECAUSE IT IS NOT THE AO W HO FORMULATED HIS VIEW ON AMP EXPENSES AS AN INTERNATIONAL TRANSACTIO N AND THEN REQUIRED DETERMINATION OF ITS ALP BY THE TPO. AS IN THE INST ANT CASE, THE AO DID NOT MAKE ANY REFERENCE TO THE TPO FOR DETERMINING T HE ALP OF THE ITA NO.6314/DEL/2015 11 UNREPORTED INTERNATIONAL TRANSACTION OF AMP EXPENSE S, THIS PARA OF THE INSTRUCTION, CAN HAVE NO APPLICATION. 11. NOW, WE TAKE UP THE CHALLENGE TO THE JURISDICTI ON OF THE TPO, MADE BY THE LD. AR BY RELYING ON PARA 4 OF THE INSTRUCTI ON, WHICH READS AS UNDER :- 4.1 THE ROLE OF THE TPO BEGINS AFTER A REFERENCE I S RECEIVED FROM THE AO. IN TERMS OF SECTION 92CA, THIS ROLE IS LIMI TED TO THE DETERMINATION OF THE ALP IN RELATION TO INTERNATION AL TRANSACTIONS OR SPECIFIED DOMESTIC TRANSACTIONS REFERRED TO HIM BY THE AO. HOWEVER, IF ANY OTHER INTERNATIONAL TRANSACTION COM ES TO THE NOTICE OF THE TPO DURING THE COURSE OF THE PROCEEDINGS BEF ORE HIM, THEN HE IS EMPOWERED TO DETERMINE THE ALP OF SUCH OTHER INT ERNATIONAL TRANSACTIONS ALSO BY VIRTUE OF SECTION 92CA (2A) AND (2B). THE TRANSFER PRICE HAS TO BE DETERMINED BY THE TPO IN T ERMS OF SECTION 92C. THE PRICE HAS TO BE DETERMINED BY USING ANY ON E OF THE METHODS STIPULATED IN SUB-SECTION (1) OF SECTION 92 C AND BY APPLYING THE MOST APPROPRIATE METHOD REFERRED TO IN SUB-SECTION (2) THEREOF. THERE MAY BE OCCASIONS WHERE APPLICATION O F THE MOST APPROPRIATE METHOD PROVIDES RESULTS WHICH ARE DIFFE RENT BUT EQUALLY RELIABLE. IN ALL SUCH CASES, FURTHER SCRUTINY MAY B E NECESSARY TO EVALUATE THE APPROPRIATENESS OF THE METHOD, THE COR RECTNESS OF THE DATA, WEIGHT GIVEN TO VARIOUS FACTORS AND SO ON. TH E SELECTION OF THE MOST APPROPRIATE METHOD WILL DEPEND UPON THE FACTS OF THE CASE AND THE FACTORS MENTIONED IN RULE 100. THE TPO, AFTER T AKING INTO ACCOUNT ALL RELEVANT FACTS AND DATA AVAILABLE TO HI M, SHALL DETERMINE THE ALP AND PASS A SPEAKING ORDER . ITA NO.6314/DEL/2015 12 12. ON GOING THROUGH THE ABOVE PARA, IT BECOMES CLE AR THAT THE ROLE OF THE TPO IS LIMITED TO THE DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANSACTIONS REFERRED TO HIM BY THE AO. THIS PARA F URTHER PROVIDES : HOWEVER, IF ANY OTHER INTERNATIONAL TRANSACTION CO MES TO THE NOTICE OF THE TPO DURING THE COURSE OF PROCEEDINGS BEFORE HIM THEN HE IS EMPOWERED TO DETERMINE THE ALP OF SUCH OTHER INTERN ATIONAL TRANSACTION ALSO BY VIRTUE OF SECTION 92CA(2A) AND (2B) . ON GOING THROUGH THIS MANDATE OF THE INSTRUCTION, IT BECOMES PALPABLE THA T THOUGH THE ORIGINAL JURISDICTION OF THE TPO IS CONFINED TO THE INTERNAT IONAL TRANSACTIONS REFERRED TO HIM BY THE AO FOR DETERMINATION OF THE ALP, BUT, SUCH JURISDICTION IS EXTENDABLE TO OTHER INTERNATIONAL T RANSACTIONS WHICH COME TO HIS NOTICE DURING THE COURSE OF PROCEEDINGS BEFO RE HIM. IT IS NOWHERE LAID DOWN THAT THE POWER OF THE TPO TO DETERMINE TH E ALP OF AN INTERNATIONAL TRANSACTION IS RESTRICTED TO THOSE RE FERRED BY THE AO ALONE. THIS PART OF THE INSTRUCTION IS IN LINE WITH THE ST ATUTORY MANDATE CONTAINED IN SUB-SECTION (2A) AND (2B) OF SECTION 9 2CA, WHICH READS AS UNDER :- ITA NO.6314/DEL/2015 13 `(2A) WHERE ANY OTHER INTERNATIONAL TRANSACTION OT HER THAN AN INTERNATIONAL TRANSACTION REFERRED UNDER SUB-SECTIO N (1), COMES TO THE NOTICE OF THE TRANSFER PRICING OFFICER DURING THE C OURSE OF THE PROCEEDINGS BEFORE HIM, THE PROVISIONS OF THIS CHAP TER SHALL APPLY AS IF SUCH OTHER INTERNATIONAL TRANSACTION IS AN INTERNAT IONAL TRANSACTION REFERRED TO HIM UNDER SUB-SECTION (1). (2B) WHERE IN RESPECT OF AN INTERNATIONAL TRANSACTI ON, THE ASSESSEE HAS NOT FURNISHED THE REPORT UNDER SECTION 92E AND SUCH TRANSACTION COMES TO THE NOTICE OF THE TRANSFER PRICING OFFICER DURIN G THE COURSE OF THE PROCEEDING BEFORE HIM, THE PROVISIONS OF THIS CHAPT ER SHALL APPLY AS IF SUCH TRANSACTION IS AN INTERNATIONAL TRANSACTION RE FERRED TO HIM UNDER SUB-SECTION (1). 13. THE HONBLE JURISDICTIONAL HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS INDIA PVT. LTD. VS. CIT (2015) 374 I TR 118 (DEL) HAS DECIDED THIS VERY ISSUE IN FAVOUR OF THE REVENUE B Y HOLDING IN PARA 47 THAT: `THE MAJORITY DECISION OF THE TRIBUNAL IN L.G. ELEC TRONICS INDIA PVT LTD. (SUPRA) HAS RIGHTLY DRAWN A DISTINCTION BETWEE N SUB-SECTION (2B) AND SUB-SECTION (2A) TO SECTION 92CA OF THE ACT. SU B-SECTION (2A) WAS INSERTED IN 2011, I.E. NEARLY ONE YEAR BEFORE INSER TION OF SECTION (2B) BY THE FINANCE ACT, 2012. SUB- SECTION (2A) HAS NOT BE EN GIVEN RETROSPECTIVE EFFECT AND IT APPLIES ONLY W.E.F. 1ST JUNE, 2011. SUB- SECTION (2A) APPLIES TO ANY INTERNATIONAL TRANSACTI ON OR SPECIFIED DOMESTIC TRANSACTION OF WHICH REFERENCE HAS NOT BEE N MADE TO THE TPO UNDER SUB-SECTION (1). WITH EFFECT FROM 1ST JUNE, 2011, THE TPO CAN GO INTO ARMS LENGTH PRICING OF AN INTERNATIONAL TRANS ACTION OR A SPECIFIED DOMESTIC TRANSACTION NOT REFERRED TO HIM. THE DISTINCTION BETWEEN SUB- SECTION (2A) AND (2B) BEING THAT THE FIRST CLAUSE R ELATES TO A DECLARED INTERNATIONAL TRANSACTION, I.E. IN RESPECT OF WHICH A REPORT UNDER SECTION 92E HAS BEEN FURNISHED, WHEREAS SUB- SECTION (2B) R EFERS TO ITA NO.6314/DEL/2015 14 INTERNATIONAL TRANSACTIONS IN RESPECT OF WHICH REPO RT UNDER SECTION 92E IS NOT FURNISHED. 14. IN THE LIGHT OF THE ABOVE ARTICULATION OF LAW B Y THE HONBLE JURISDICTIONAL HIGH COURT ON SUB-SECTIONS (2A) AND (2B) OF SECTION 92CA OF THE ACT, IT IS CLEAR BEYOND ANY SHADOW OF DOUBT THAT THE TPO IS EMPOWERED TO DETERMINE THE ALP OF ANY OTHER INTERNA TIONAL TRANSACTION WHICH COMES TO HIS NOTICE DURING THE COURSE OF PROC EEDINGS BEFORE HIM. AS THE INSTANT INTERNATIONAL TRANSACTION OF AMP EXP ENSES WAS TAKEN NOTE OF BY THE TPO, WE DO NOT FIND ANY LACK OF JURISDICT ION IN HIS PROCEEDING WITH THE DETERMINATION OF ITS ALP. 15. NOW WE ESPOUSE THE SECOND ASPECT AS TO WHET HER THE INSTRUCTION IS RETROSPECTIVE AS URGED BY THE LD. AR OR ONLY PROSPE CTIVE AS CONTENDED BY THE LD. DR. IN OUR CONSIDERED OPINION, THERE IS NO MERIT IN THE ARGUMENT OF THE LD. AR THAT INSTRUCTION DATED 10 TH MARCH, 2016 IS CURATIVE IN NATURE AND, HENCE, BE GIVEN RETROSPECTIVE EFFECT. THE RELIANCE OF THE LD. AR ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN VATIKA TOWNSHIP PVT. LTD. (SUPRA) IS COMPLETELY OUT OF CONTEXT. THE QUESTION IN THAT CASE WAS AS TO WHETHER THE PROVISO TO SECTION 113 INTROD UCED BY THE FINANCE ITA NO.6314/DEL/2015 15 ACT, 2002 W.E.F. 1 ST JUNE, 2002 SHOULD BE CONSIDERED AS RETROSPECTIVE O R PROSPECTIVE. THE HONBLE SUPREME COURT HELD THAT S UCH PROVISO CASTING ADDITIONAL BURDEN ON THE TAX PAYER, MUST BE CONSTRU ED AS PROSPECTIVE IN NATURE. WE DO NOT APPROVE THE BORROWING BY THE LD. AR OF CERTAIN OBSERVATIONS MADE IN THIS JUDGMENT LAYING DOWN THAT THE BENEFICIAL PROVISIONS SHOULD BE APPLIED RETROSPECTIVELY AND TH EN CANVASSING THAT THE INSTRUCTION SHOULD ALSO BE GIVEN RETROSPECTIVE EFFE CT. OUR REASON FOR NOT ACCEPTING THE APPLICABILITY OF THIS JUDGMENT TO THE FACTS OF THE INSTANT CASE IS THAT WE ARE NOT INTERPRETING ANY STATUTORY PROVISION, EITHER SUBSTANTIVE OR PROCEDURAL, TO FIND OUT WHETHER IT I S RETROSPECTIVE OR PROSPECTIVE. IT IS A SIMPLE CASE OF AN INSTRUCTION DATED 10 TH MARCH, 2016 PUT IN PLACE BY THE CBDT AS A GUIDELINE TO BE FOLLO WED BY THE AOS AND TPOS IN IMPLEMENTING THE TRANSFER PRICING PROVISION S. THIS INSTRUCTION IS IN SUPERSESSION OF THE EARLIER INSTRUCTION NO.15 OF 2015. IT HAS BEEN CLEARLY MENTIONED IN PARA 7 OF THE LATER INSTRUCTIO N DATED 10 TH MARCH, 2016 THAT: THIS ISSUES U/S 119 OF THE INCOME-TAX A CT, 1961 AND REPLACES INSTRUCTION NO.15 OF 2015 WITH IMMEDIATE EFFECT . IT IS PLENTIFULLY CLEAR THAT THIS LATER INSTRUCTION HAS BEEN IMPLEMENTED W ITH IMMEDIATE EFFECT ITA NO.6314/DEL/2015 16 FROM THE DATE OF ITS ISSUANCE, WHICH IS 10 TH MARCH, 2016. INSTRUCTIONS TO THE OFFICERS GIVEN BY THE BOARD SETTING UP A PROCED URE FOR IMPLEMENTATION OF CERTAIN PROVISIONS CANNOT ASSUME THE CHARACTER OF A LEGISLATIVE PROVISION SO AS TO TOY WITH THE POSSIBI LITY OF APPLYING THE SAME RETROSPECTIVELY. WE ARE REMINDED OF THE DECIS ION OF THE HONBLE JURISDICTIONAL HIGH COURT IN DIT VS. ERICSSON A.B. (2012) 246 CTR 0422 (DEL), IN WHICH THE ASSESSEE, INTER ALIA, RELIED ON INSTRUCTION NO. 1829 DT. 21.9.1989 TO CLAIM THAT NO TAXABLE EVENT T OOK PLACE IN INDIA. THE REVENUE ARGUED BEFORE THE HONBLE HIGH COURT TH AT SUCH INSTRUCTION STOOD WITHDRAWN `WITH IMMEDIATE EFFECT BY A LATER CIRCULAR NO. 7 OF 2009 DT. 22ND OCT., 2009, AND HENCE THE LA TER CIRCULAR BE TREATED AS RETROSPECTIVE. THE ARGUMENT OF THE LD. AR IN CAS E BEFORE US IS SIMILAR TO THAT ADVANCED BY THE REVENUE IN THAT CASE BEFORE THE HONBLE HIGH COURT THAT THE LATER INSTRUCTION IMPLEMENTED `WITH IMMEDIATE EFFECT BE GIVEN RETROSPECTIVE EFFECT. REJECTING THE CONTENTIO N OF RETROSPECTIVE EFFECT ADVANCED ON BEHALF OF THE REVENUE, THE HONB LE HIGH COURT HELD THAT : `ALTHOUGH INSTRUCTION NO. 1829 STANDS WITHDR AWN BY VIRTUE OF CIRCULAR NO. 7 OF 2009 DT. 22ND OCT., 2009, SUCH WITHDRAWAL CAN HAVE ITA NO.6314/DEL/2015 17 NO RETROSPECTIVE EFFECT AND THE PRINCIPLE LAID DOWN IN INSTRUCTION NO. 1829 MUST CONTINUE TO GOVERN THE ASSESSMENT FOR THE RELEVANT YEAR. WHEN THE LANGUAGE OF THE SECTIONS 92C AND 92CA ETC. DOES NOT PROVIDE FOR THE AO TO AFFORD AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER BEFORE RECORDING HIS SATISFACTION IN TERMS OF PARA 3.4, WE FAIL TO COMPREHEND AS TO HOW THIS PROCEDURAL ASPECT MADE APPLICABLE WITH IMMEDIATE EFFECT FROM 10 TH MARCH, 2016, CAN BE READ IN THE PROVISION AB INITIO . IF THIS INSTRUCTION, AS ARGUED BY THE LD. AR, IS CONSTRUED AS RETROSPECTIVE ENJOINING UPON THE AO TO RECORD SATISFACTION AS DIS CUSSED IN PARA 3.4, IT WOULD RENDER SEVERAL EARLIER ASSESSMENT ORDERS CONT AINING TRANSFER PRICING ADDITIONS, NULL AND VOID. SINCE THIS PROCE DURE HAS BEEN PUT IN PLACE BY THE CBDT WITH EFFECT FROM 10 TH MARCH, 2016, IT HAS TO BE TREATED AS PROSPECTIVE, WHICH MEANS THAT THE TPOS/A OS WILL FOLLOW THE SAME QUA THE MATTERS UNDER THEIR CONSIDERATION ON 10 TH MARCH, 2016 AND ONWARDS. WE, THEREFORE, JETTISON THE CONTENTION AD VANCED BY THE LD. AR THAT THIS INSTRUCTION BE GIVEN RETROSPECTIVE EFFECT . ITA NO.6314/DEL/2015 18 16. IT IS, ERGO, HELD THAT THE TPO WAS WITHIN HI S JURISDICTION IN PROCEEDING TO DETERMINE THE ALP OF THE INTERNATIONA L TRANSACTION OF AMP EXPENSES AND FURTHER, IN PRINCIPLE, THERE IS NO FLAW IN THE AO MAKING TRANSFER PRICING ADDITION, WHICH ACTION IS ALSO INTRA VIRES . 17. NOW WE ARE LEFT WITH THE MERITS OF ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT OF AMP EXPENSES. THE LD. AR CON TENDED THAT THE INCURRING OF AMP EXPENSES IS NOT AN INTERNATIONAL T RANSACTION AT ALL AND, HENCE, THERE CAN BE NO QUESTION OF DETERMINING THE ARMS LENGTH PRICE OF THIS TRANSACTION OR MAKING ANY ADDITION THEREON. H E RELIED ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. WHIRLPOOL OF INDIA LTD. (2015) 94 CCH 156 DEL-HC TO CONTEND THAT THE AMP EXPENSES COULD NOT BE CONSIDERED AS AN INTERNAT IONAL TRANSACTION. THE LD. AR SUBMITTED THAT HE HAS GOT ALL THE RELEVA NT MATERIAL WITH HIM TO DEMONSTRATE THAT HIS CASE QUALIFIES TO BE A NON- INTERNATIONAL TRANSACTION IN TERMS OF THE JUDGMENT IN WHIRLPOOL (SUPRA). HE ALSO RELIED ON ANOTHER JUDGMENT OF THE HONBLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA LTD. & ANOTHER VS. CIT (2015) 129 DTR 25 (DEL ) FOR THE SAME ITA NO.6314/DEL/2015 19 PROPOSITION. IN THE LIGHT OF THESE JUDGMENTS AND SO ME OTHER TRIBUNAL ORDERS, IT WAS SUBMITTED THAT THERE WAS NO INTERNAT IONAL TRANSACTION OF AMP EXPENSES ON THE BASIS OF PRINCIPLES LAID DOWN I N THESE JUDGMENTS AND, HENCE, THE ENTIRE EXERCISE OF DETERMINING ITS ALP AND, CONSEQUENTLY, MAKING TRANSFER PRICING ADJUSTMENT, B E SET ASIDE. 18. IN THE OPPUGNATION, THE LD. DR SUBMITTED THA T THERE IS NO BLANKET RULE OF THE AMP EXPENSES AS NON-INTERNATIONAL TRANS ACTION. HE SUBMITTED THAT THE HONBLE HIGH COURT IN WHIRLPOOL (SUPRA) HAS MADE CERTAIN OBSERVATIONS, WHICH SHOULD BE PROPERLY WEIGHED FOR ASCERTAINING IF AN INTERNATIONAL TRANSACTION OF AMP EXPENSES EXISTS. HE FURTHER CONTENDED THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE I MMEDIATELY PRECEDING ASSESSMENT YEAR HAS RESTORED THE ISSUE TO THE FILE OF TPO TO BE DECIDED AFRESH IN THE LIGHT OF THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD . VS. CIT (2015) 374 ITR 118 (DEL). HE ALSO RELIED ON A LATER JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN YUM RESTAURANTS (INDIA) P. LTD. VS. ITO (2016) 380 ITR 637 (DEL) AND STILL ANOTHER JUDGMENT DATED 28.1.2016 OF ITA NO.6314/DEL/2015 20 THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. (FOR THE AY 2010-11) IN WHICH THE QUESTION AS TO WHETHER AMP EXPENSES IS AN INTERNATIONAL TRANSACTIO N HAS BEEN RESTORED FOR A FRESH DETERMINATION. THE LD. DR ARGUED THAT THE HONBLE DELHI HIGH COURT IN ITS EARLIER DECISION IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) HAS HELD AMP EXPENSES TO BE AN INTERNATIONAL TRANSACTI ON. IT WAS ARGUED THAT THE JUDGMENTS IN THE CASE OF YUM RESTAURANTS AND SONY ERICSON (FOR AY 2010-11) DELIVERED IN JANUARY, 2016 ARE POSTERIOR IN TIME T O THE EARLIER JUDGMENTS IN THE CASE OF MARUTI SUZUKI AND WHIRLPOOL, ETC. , AND, HENCE, THE MATTER SHOULD BE RESTORED FOR A FRESH DE TERMINATION. HE ALSO RELIED ON A HOST OF ORDERS PASSED BY THE TRIBUNAL R ESTORING THE MATTER TO THE FILE OF TPO FOR A FRESH DETERMINATION OF THE QU ESTION OF THE EXISTENCE OR OTHERWISE OF THE INTERNATIONAL TRANSACTION OF AM P EXPENSES, POST THE ABOVE REFERRED THREE SETS OF JUDGMENTS BY THE HONB LE DELHI HIGH COURT - IN FAVOUR OF THE REVENUE (SONY ERICSSON, THE EAR LIER JUDGMENT); IN FAVOUR OF THE ASSESSEE (WHIRLPOOL AND MARUTI ETC.); AND RESTORING THE MATTER FOR A FRESH DETERMINATION (YUM RESTAURANT AN D SONY ERICSSON, THE ITA NO.6314/DEL/2015 21 LATER JUDGMENT). THESE TRIBUNAL ORDERS INCLUDE FUJI FILM INDIA PVT. LTD. VS. DCIT (ITA NO.6916 & 2535/DEL/2015 DATED 29.4.20 16) AND TOSHIBA INDIA PVT. LTD. VS. DCIT (ITA NO.944/DEL/2016, ORDE R DATED 8.4.2016 ). 19. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LD. AR TRIED TO HARP ON CER TAIN AGREEMENTS AND OTHER DOCUMENTS TO BUTTRESS HIS POINT THAT THERE WA S NO INTERNATIONAL TRANSACTION ON ACCOUNT OF AMP EXPENSES IN TERMS OF THE JUDGMENT IN THE CASE OF WHIRLPOOL (SUPRA) . ON PERUSAL OF THE ORDER OF THE TPO, IT EMERGES THAT THERE IS NO DISCUSSION ABOUT ANY OF TH ESE DOCUMENTS. SINCE THE TPO HELD AMP EXPENSES TO BE AN INTERNATIONAL TR ANSACTION, HE DID NOT HAVE ANY OCCASION TO CONSIDER THESE DOCUMENTS I N THE LIGHT OF THE JUDICIAL VIEW NOW AVAILABLE FOR CONSIDERATION. RESP ECTFULLY FOLLOWING THE TRIBUNAL ORDERS OF CO-ORDINATE BENCHES, PLACED ON R ECORD BY THE LD. DR, WE ARE OF THE CONSIDERED OPINION THAT IT WOULD BE I N THE FITNESS OF THINGS IF THE IMPUGNED ORDER IS SET ASIDE AND THE MATTER I S RESTORED TO THE FILE OF TPO/AO FOR A FRESH DETERMINATION OF THE QUESTION AS TO WHETHER THERE EXISTS AN INTERNATIONAL TRANSACTION OF AMP EXPENSES . IF THE EXISTENCE OF ITA NO.6314/DEL/2015 22 SUCH AN INTERNATIONAL TRANSACTION IS NOT PROVED, TH E MATTER WILL END THERE AND THEN, CALLING FOR NO TRANSFER PRICING ADDITION. IF, ON THE OTHER HAND, THE INTERNATIONAL TRANSACTION IS FOUND TO BE EXISTI NG, THEN THE TPO WILL DETERMINE THE ALP OF SUCH AN INTERNATIONAL TRANSACT ION IN THE LIGHT OF THE RELEVANT JUDGMENTS OF THE HONBLE HIGH COURT, AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. IN DOING SO, THE SELLING EXPENSES DIRECTLY INCURRED IN CONNECTION WI TH SALES NOT LEADING TO BRAND PROMOTION, SHOULD NOT BE BROUGHT WITHIN THE A MBIT OF AMP EXPENSES. THIS VIEW TAKEN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF LG ELECTRONICS INDIA PVT. LTD. VS. ACIT (2013) 152 TTJ (DEL) 273 (SB) HAS BEEN UPHELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD . VS. CIT (2015) 374 ITR 118 (DEL. THE CONTENTION OF THE LD. DR THAT SLP HAS BEEN ADMITTED AGAINST THE EXCLUSION OF SELLING EXPENSES FROM THE AMBIT OF AMP EXPENSES IN THE CASE OF AMADUS INDIA LTD. , DOES NOT ALTER THE LEGAL POSITION PREVAILING AS ON TODAY. ITA NO.6314/DEL/2015 23 20. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FO R STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 15.07.201 6. SD/- SD/- [SUDHANSHU SRIVASTAVA] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 15 TH JULY, 2016. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.