AMBICO EXPORTS AND IMPORTS PRIVATE LIMITED, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX 12(1)(1), MUMBAI

ITA 6822/MUM/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 4926 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2013-2014
• Appeal Filed On: 04-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SANJAY CHOKSHI
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Set aside
• Section: 92C; 143(3); 92F; 92A; 92E; 10B; 201; 13; 92CA; 10; 92

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI , ' ,# $ BEFORE VIKAS AWASTHY, JUDICIAL MEMBER & SHRI N.K.PRADHAN, ACCOUNTANT MEMBER . 6822/ / 2017 (. . 2013-14 ) IT(TP)A NO.6822/MUM/2017(A.Y.2013-14) AMBICO EXPORTS AND IMPORTS PVT. LTD., 6, SOMAIYA CHAMBERS, S.V.ROAD, MALAD (WEST), MUMBAI 400 064 PAN: AAECA7406P ...... ) / APPELLANT VS. DY. COMMISSIONER OF INCOME TAX-12(1)(1), AAYKAR BHAVAN, M.K.ROAD, MUMBAI 400 020 ..... '*/ RESPONDENT ASSESSEE BY : SHRI SANJAY CHOKSHI REVENUE BY : SHRI SUNIL DESHPANDE +* / DATE OF HEARING : 21/01/2021 ,-. +* / DATE OF PRONOUNCEMENT : 30/03/2021 / ORDER PER VIKAS AWASTHY, J.M. : THIS APPEAL BY THE ASSESSEE IS AGAINST THE ASSESSM ENT ORDER DATED 18/10/2017 PASSED UNDER SECTION 143(3) R.W.S. 144C(5) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) FOR THE ASSESSMENT YEAR 2013-14. 2 . 6822/ / 2017 (. . 2013-14 ) IT(TP)A NO.6822/MUM/2017(A.Y.2013-14) 2. THE ASSESSEE IN APPEAL HAS RAISED SEVEN GROUNDS. SHRI SANJAY CHOKSHI APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED AT TH E OUTSET THAT HE IS NOT PRESSING GROUND NO.3 TO 5 OF THE APPEAL. THE GROUND OF APPEA L NO.6 AND 7 ARE GENERAL IN NATURE. THUS, THE GROUNDS ON WHICH HE WOULD BE MAK ING SUBMISSIONS ARE GROUND NO.1 & 2 ONLY. 3. IN VIEW OF THE ABOVE STATEMENT MADE BY LD. AUTHO RIZED REPRESENTATIVE OF THE ASSESSEE GROUND NO.3 TO 5 OF THE APPEAL ARE DISMISS ED AS NOT PRESSED. THE EFFECTIVE GROUNDS FOR ADJUDICATION BEFORE THE TRIBUNAL ARE TH US, GROUND NO.1 AND 2 OF THE APPEAL, THE SAME READ AS UNDER:- 1. THE LEARNED ASSESSING OFFICER UNDER DIRECTIONS FROM THE HONOURABLE DISPUTE RESOLUTION PANEL AS WELL AS THE LEARNED TRANSFER PRICING OFFIC ER ERRED IN LAW AND ON FACTS IN APPLYING THE TRANSFER PRICING PROVISIONS (SECTION 92 TO SECTION 92F OF THE ACT) TO YOUR ASSESSEE INSPITE OF THE FACT OF THAT BOTH NARAYAN FOODS LIMITED AND AMB ICO EXPORTS AND IMPORTS PRIVATE LIMITED (UK) ARE NEITHER ASSOCIATED ENTERPRISE AS DEFINED U NDER SECTION 92A OF THE ACT NOR A RELATED PARTY AS DEFINED UNDER SECTION 40A(2)(B) OF THE ACT TO YOUR ASSESSEE. 2. THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON THE BASIS OF FACTS TO MAKE A REFERENCE TO THE LEARNED TRANSFER PRICING OFFICER UNDER SECTION 92CA(1) OF THE ACT FOR DETERMINING ARMS LENGTH PRICE ON TRANSACTIONS WITH NARAYAN FOODS LIM ITED AND AMBICO EXPORTS AND IMPORTS PRIVATE LIMITED (UK) WITHOUT PROVIDING AN OPPORTUNI TY TO YOUR ASSESSEE TO HERD IN THE MATTER. 4. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSE E NARRATING THE FACTS OF CASE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN TRAD ING OF DIAMONDS, EXPORT AND IMPORT OF CHEMICALS, ROUGH DIAMONDS, GENERAL IT EMS AND PROCESSING CUTTING AND POLISHING OF ROUGH DIAMONDS. DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE ENTERED INTO TRANSACTIONS WITH AMBICO EXPORTS & IMPORTS PVT. LTD. UK (IN SHORT AM BICO UK) AND NARAYAN FOODS LTD. UK (IN SHORT NARAYAN UK). SINCE, THE AF ORESAID ENTITIES ARE NOT ASSOCIATED ENTERPRISE (AE) WITHIN THE MEANING OF SE CTION 92A OF THE ACT, THE TRANSACTIONS WITH THE SAID ENTITIES WERE NOT REPORT ED IN TRANSFER PRICING STUDY. 3 . 6822/ / 2017 (. . 2013-14 ) IT(TP)A NO.6822/MUM/2017(A.Y.2013-14) 4.1 THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESS EE SUBMITTED THAT THE TRANSFER PRICING OFFICER (TPO) HAS ERRED IN MAKING ADJUSTMENT OF RS.1,68,66,580/- BY HOLDING THAT THE ASSESSEE HAS E NTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS AES. VIZ.- AMBICO UK AND NARA YAN UK. THE TPO FURTHER ERRED IN HOLDING THAT THE ASSESSEE HAS NOT MAINTAIN ED THE DOCUMENTS AS REQUIRED U/S.92D OF THE ACT AND RULE 10B OF THE INC OME TAX RULES. THOUGH AMBICO UK & NARAYAN UK WERE NOT AES OF THE ASSESSEE , HOWEVER, AS A MATTER OF ABUNDANT CAUTION THE ASSESSEE FURNISHED TP DOCUM ENTATION AND BENCHMARKED THE INTERNATIONAL TRANSACTIONS WITH AFO RESAID FOREIGN ENTITIES BY APPLYING CUP AS THE MOST APPROPRIATE METHOD. THE AS SESSING OFFICER HELD THAT AMBICO UK AND NARAYAN UK ARE AES WITHIN THE MEANING OF CLAUSE (J) OF SECTION 92A(2) OF THE ACT AND MADE REFERENCE TO TPO FOR DET ERMINING ARMS LENGTH PRICE (ALP) OF THE TRANSACTIONS WITH THE SAID ENTIT IES. 4.2. THE LD. AUTHORISED REPRESENTATIVE OF ASSESSEE SUBMITTED THAT HARSHAD DANESH PATEL IS A DIRECTOR OF AMBICO UK AND HOLDS 5 0% SHARES IN AMBICO UK AND NARAYAN UK. THE REMAINING 50% SHARES IN UK ENTI TIES ARE HELD BY HIS BROTHER. IN INDIAN ENTITY I.E. THE ASSESSEE, HARSHA D DANESH PATEL HOLD 2.35% SHARES. THE TOTAL SHAREHOLDING IN THE ASSESSEE COMP ANY BY HARSHAD DANESH PATEL ALONGWITH HIS RELATIVES IS 11.60%. IN THE CAS E OF ASSESSEE, TWIN CONDITIONS SET OUT IN CLAUSE (J) OF SECTION 92A(2) ARE NOT SAT ISFIED. THE DISPUTE RESOLUTION PANEL (DRP) HAS INVOKED THE PROVISIONS OF SECTION 9 2A(1)(B) OF THE ACT ALONE AND HAS COMPLETELY IGNORED THE PROVISIONS OF SECTIO N 92A(2) OF THE ACT TO HOLD AMBICO UK & NARAYAN UK AS AE OF THE ASSESSEE. THE T RIBUNAL IN VARIOUS DECISIONS HAS HELD THAT THE PROVISIONS OF SECTION 9 2A(1) AND 92A(2) HAVE TO BE READ TOGETHER. THE BASIC CONDITIONS SET OUT IN SUB- SECTION(1) ARE NOT 4 . 6822/ / 2017 (. . 2013-14 ) IT(TP)A NO.6822/MUM/2017(A.Y.2013-14) INDEPENDENT OF THE SPECIFIC SITUATIONS SET OUT IN S UB-SECTION (2) OF SECTION 92A OF THE ACT. THE DRP HAS ERRED HOLDING THAT, SINCE C ASE OF THE ASSESSEE SQUARELY FALLS WITHIN THE AMBIT OF SECTION 92A(1)(B) OF THE ACT, THERE IS NO NEED TO TRAVEL TO SUB-SECTION (2) OF SECTION 92A OF THE ACT. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE BUTTRESS HIS CONTENTIONS PLACED REL IANCE ON THE FOLLOWING DECISIONS: (I) ORCHID PHARMA LTD. VS. DCIT, 143 DTR 34 (BANG -TRIB) (II) ACIT VS. VEER GEMS, 77 TAXMANN.COM 127 (AHD-T RIB) (III) KAYBEE PVT. LTD. VS. ITO, 204 TTJ 921 (MUMBA I) (IV) PAGE INDUSTRIES LTD. VS. DCIT, 159 ITD 680 (B ANG) 4.3. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSES SEE SUBMITTED THAT IN GROUND NO.2 OF THE APPEAL THE ASSESSEE HAS RAISED A LEGAL GROUND I.E. THE ASSESSING OFFICER HAS NOT SERVED ANY SHOW CAUSE NOT ICE ON ASSESSEE BEFORE MAKING REFERENCE TO TPO UNDER SECTION 92CA (1) OF T HE ACT. HE ASSERTED THAT THE BASIC PRINCIPLE OF NATURAL JUSTICE WAS VIOLATED BEFORE INVOKING THE PROVISIONS OF CHAPTER-10 OF THE ACT. THE LD. AUTHOR IZED REPRESENTATIVE OF THE ASSESSEE POINTED THAT THE CBDT HAD ISSUED GUIDELINE S FOR IMPLEMENTATION OF TP PROVISIONS VIDE INSTRUCTION NO.3/2016 DATED 10/03/2 016 WHEREIN, IT HAS BEEN CATEGORICALLY MENTIONED THAT WHERE THE ASSESSING OF FICER HAS TO MAKE REFERENCE TO THE TPO, THE ASSESSING OFFICER AS A JU RISDICTIONAL REQUIREMENT IS MANDATORILY REQUIRED TO RECORD HIS SATISFACTION. BE FORE RECODING SATISFACTION FOR MAKING REFERENCE TO THE TPO, IT IS OBLIGATORY FOR T HE ASSESSING OFFICER TO PROVIDE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT IN TH E PRESENT CASE, THE ONLY SO 5 . 6822/ / 2017 (. . 2013-14 ) IT(TP)A NO.6822/MUM/2017(A.Y.2013-14) CALLED OPPORTUNITY THAT WAS GIVEN TO THE ASSESSEE B Y THE ASSESSING OFFICER WAS THROUGH ORDER SHEET ENTRY DATED 07/03/2016. AS PER SAID ENTRY THE ASSESSEE WAS DIRECTED TO FILE AN AFFIDAVIT OF HARSHAD DANESH PATEL REGARDING NO ASSOCIATION WITH AMBICO UK AND NARAYAN UK. THE DIRE CTION TO FILE AN AFFIDAVIT CANNOT BE REGARDED AS SHOW CAUSE NOTICE AS ENVISAGE D UNDER THE PROVISIONS OF THE ACT OR CBDT INSTRUCTIONS (SUPRA). THE ASSESSEE IN ONE OF ITS REPLY (AT PAGE- 12 OF THE PAPER BOOK) HAS CLARIFIED THAT THE REPORT IN FORM-3CCEB IS NOT FILED AS THE SAME IS NOT APPLICABLE. THUS, THE ASSESSEE HAS CATEGORICALLY CONVEYED THAT THE TP PROVISIONS ARE NOT ATTRACTED IN THE INSTANT CASE. THE ASSESSEE IN OBJECTIONS BEFORE THE DRP HAD RAISE D A GROUND AGAINST NOT GRANTING OPPORTUNITY OF HEARING BEFORE MAKING R EFERENCE TO TPO. THE DRP INSTEAD OF DECIDED THE ISSUE ON MERITS HAS REJECTED THE OBJECTIONS OF THE ASSESSEE BY HOLDING THAT THESE ARE DELAYING TACTIC. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT IN TH E CASE OF INDORAMA SYNTHETICS (INDIA) LTD. VS. ADDL. CIT, 143 DTR 15 ( DEL) AND VODAFONE INDIA SERVICES PVT. LTD. VS. ADDL. CIT, 361 ITR 531(BOM), IT HAS BEEN HELD THAT OPPORTUNITY OF HEARING BEFORE MAKING REFERENCE TO TPO IS MUST. 4.4. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSES SEE POINTED THAT IN SO FAR AS MERITS OF THE ADJUSTMENT ON THE INTERNATIONAL T RANSACTIONS ARE CONCERNED, THE SAME WERE DELETED BY THE DRP, HENCE, THE ASSESS EE HAS NO GRIEVANCE ON MERITS OF THE ADDITION. THE LD. AUTHORIZED REPRESEN TATIVE OF THE ASSESSEE FURTHER POINTED THAT THE ASSESSEE HAS BEEN DOING BU SINESS WITH AMBICO UK AND NARAYAN UK IN THE PAST AS WELL, NO ADJUSTMENT WAS M ADE AS THE TRANSACTIONS BETWEEN THE ASSESSEE AND TWO OVERSEAS ENTITIES WERE NEVER CONSIDERED AS 6 . 6822/ / 2017 (. . 2013-14 ) IT(TP)A NO.6822/MUM/2017(A.Y.2013-14) TRANSACTIONS BETWEEN AE. THE IMPUGNED ASSESSMENT Y EAR IS THE FIRST ASSESSMENT YEAR, WHERE TP PROVISIONS HAVE BEEN INVO KED. 5. AU CONTRAIRE , SHRI SUNIL DESHPANDE REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED DIRECTIONS OF THE DRP AND THE A SSESSMENT ORDER. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSE SSEE AND AMBICO UK AND NARAYAN UK ARE AES WITHIN THE MEANING OF SEC. 92A O F THE ACT. HARSHAD DANESH PATEL IS COMMON SHAREHOLDER BETWEEN THE ENTITIES. IN THE OVERSEAS ENTITIES, HE IS HOLDING 50% SHARES AND IN INDIAN ENTITY HE ALONG WITH HIS RELATIVES HOLD NEARLY 12% SHAREHOLDING. THUS, HE EXERCISES HIS INF LUENCE IN MANAGEMENT AND CONTROL ON INDIAN AND OVERSEAS ENTITIES. IN RESPECT OF ISSUE OF AFFORDING OPPORTUNITY OF HE ARING, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSE SSEE WAS GIVEN TWO OPPORTUNITIES TO FILE HIS OBJECTIONS AGAINST REFERE NCE TO THE TPO. THE ASSESSEE FAILED TO AVAIL THOSE OPPORTUNITIES TO MAKE OUT A C ASE IN ITS FAVOUR. THE ASSESSEE THEREAFTER, PARTICIPATED IN THE TP PROCEED INGS WITHOUT RAISING ANY FURTHER OBJECTION. THE LD. DEPARTMENTAL REPRESENTA TIVE PRAYED FOR DISMISSING THE APPEAL FILED BY THE ASSESSEE. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY RIVAL SIDE S AND HAVE EXAMINED THE ORDERS OF AUTHORITIES BELOW. THE TWO ISSUES TH AT HAVE BEEN AGITATED BY THE ASSESSEE BEFORE US ARE: (I) WHETHER THE ASSESSEE, AMBICO UK AND NARAYAN UK ARE AES AS DEFINED UNDER SECTION 92A OF THE ACT; AND 7 . 6822/ / 2017 (. . 2013-14 ) IT(TP)A NO.6822/MUM/2017(A.Y.2013-14) (II) WHETHER PROPER SHOW CAUSE NOTICE WAS SERVED TO THE ASSESSEE BY THE ASSESSING OFFICER BEFORE MAKING REFERENCE TO TPO UN DER SECTION 92CA(1) OF THE ACT. 7. WE WILL FIRST TAKE ISSUE RAISED IN GROUND NO.1 O F THE APPEAL. BEFORE PROCEEDING FURTHER IT WOULD BE RELEVANT TO REFER TO THE MEANING OF ASSOCIATED ENTERPRISES AS DEFINED UNDER SECTION 92A OF THE ACT . 92A (1) FOR THE PURPOSES OF THIS SECTION AND SECTIONS 9 2, 92B, 92C, 92D, 92E AND 92F, 'ASSOCIATED ENTERPRISE', IN RELATION TO ANOTHER ENT ERPRISE, MEANS AN ENTERPRISE (A) WHICH PARTICIPATES, DIRECTLY OR INDIRECTLY, OR THROUGH ONE OR MORE INTERMEDIARIES, IN THE MANAGEMENT OR CONTROL OR CAPITAL OF THE OTHE R ENTERPRISE; OR (B) IN RESPECT OF WHICH ONE OR MORE PERSONS WHO PAR TICIPATE, DIRECTLY OR INDIRECTLY, OR THROUGH ONE OR MORE INTERMEDIARIES, IN ITS MANAGEME NT OR CONTROL OR CAPITAL, ARE THE SAME PERSONS WHO PARTICIPATE, DIRECTLY OR INDIR ECTLY, OR THROUGH ONE OR MORE INTERMEDIARIES, IN THE MANAGEMENT OR CONTROL OR CAP ITAL OF THE OTHER ENTERPRISE. (2) FOR THE PURPOSES OF SUB-SECTION (1), TWO ENTERP RISES SHALL BE DEEMED TO BE ASSOCIATED ENTERPRISES IF, AT ANY TIME DURING THE P REVIOUS YEAR, (A) ONE ENTERPRISE HOLDS, DIRECTLY OR INDIRECTLY, S HARES CARRYING NOT LESS THAN TWENTY-SIX PER CENT OF THE VOTING POWER IN THE OTHER ENTERPRIS E; OR (B) ANY PERSON OR ENTERPRISE HOLDS, DIRECTLY OR IND IRECTLY, SHARES CARRYING NOT LESS THAN TWENTY-SIX PER CENT OF THE VOTING POWER IN EACH OF SUCH ENTERPRISES; OR (C) A LOAN ADVANCED BY ONE ENTERPRISE TO THE OTHER ENTERPRISE CONSTITUTES NOT LESS THAN FIFTY-ONE PER CENT OF THE BOOK VALUE OF THE TOTAL A SSETS OF THE OTHER ENTERPRISE; OR (D) ONE ENTERPRISE GUARANTEES NOT LESS THAN TEN PER CENT OF THE TOTAL BORROWINGS OF THE OTHER ENTERPRISE; OR (E) MORE THAN HALF OF THE BOARD OF DIRECTORS OR MEM BERS OF THE GOVERNING BOARD, OR ONE OR MORE EXECUTIVE DIRECTORS OR EXECUTIVE MEMBER S OF THE GOVERNING BOARD OF ONE ENTERPRISE, ARE APPOINTED BY THE OTHER ENTERPRISE; OR (F) MORE THAN HALF OF THE DIRECTORS OR MEMBERS OF T HE GOVERNING BOARD, OR ONE OR MORE OF THE EXECUTIVE DIRECTORS OR MEMBERS OF THE G OVERNING BOARD, OF EACH OF THE TWO ENTERPRISES ARE APPOINTED BY THE SAME PERSON OR PERSONS; OR (G) THE MANUFACTURE OR PROCESSING OF GOODS OR ARTIC LES OR BUSINESS CARRIED OUT BY ONE ENTERPRISE IS WHOLLY DEPENDENT ON THE USE OF KNOW-H OW, PATENTS, COPYRIGHTS, TRADE- MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS O R COMMERCIAL RIGHTS OF SIMILAR NATURE, OR ANY DATA, DOCUMENTATION, DRAWING OR SPEC IFICATION RELATING TO ANY PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS , OF WHICH THE OTHER ENTERPRISE IS THE OWNER OR IN RESPECT OF WHICH THE OTHER ENTERPRI SE HAS EXCLUSIVE RIGHTS; OR 8 . 6822/ / 2017 (!. . 2013-14 ) IT(TP)A NO.6822/MUM/2017(A.Y.2013-14) (H) NINETY PER CENT OR MORE OF THE RAW MATERIALS AN D CONSUMABLES REQUIRED FOR THE MANUFACTURE OR PROCESSING OF GOODS OR ARTICLES CARR IED OUT BY ONE ENTERPRISE, ARE SUPPLIED BY THE OTHER ENTERPRISE, OR BY PERSONS SPE CIFIED BY THE OTHER ENTERPRISE, AND THE PRICES AND OTHER CONDITIONS RELATING TO THE SUP PLY ARE INFLUENCED BY SUCH OTHER ENTERPRISE; OR (I) THE GOODS OR ARTICLES MANUFACTURED OR PROCESSED BY ONE ENTERPRISE, ARE SOLD TO THE OTHER ENTERPRISE OR TO PERSONS SPECIFIED BY THE OTH ER ENTERPRISE, AND THE PRICES AND OTHER CONDITIONS RELATING THERETO ARE INFLUENCED BY SUCH OTHER ENTERPRISE; OR (J) WHERE ONE ENTERPRISE IS CONTROLLED BY AN INDIVI DUAL, THE OTHER ENTERPRISE IS ALSO CONTROLLED BY SUCH INDIVIDUAL OR HIS RELATIVE OR JO INTLY BY SUCH INDIVIDUAL AND RELATIVE OF SUCH INDIVIDUAL; OR (K) WHERE ONE ENTERPRISE IS CONTROLLED BY A HINDU U NDIVIDED FAMILY, THE OTHER ENTERPRISE IS CONTROLLED BY A MEMBER OF SUCH HINDU UNDIVIDED FAMILY OR BY A RELATIVE OF A MEMBER OF SUCH HINDU UNDIVIDED FAMILY OR JOINT LY BY SUCH MEMBER AND HIS RELATIVE; OR (L) WHERE ONE ENTERPRISE IS A FIRM, ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS, THE OTHER ENTERPRISE HOLDS NOT LESS THAN TEN PER CENT I NTEREST IN SUCH FIRM, ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS; OR (M) THERE EXISTS BETWEEN THE TWO ENTERPRISES, ANY R ELATIONSHIP OF MUTUAL INTEREST, AS MAY BE PRESCRIBED. THE SUB-SECTION (1) OF SECTION 92A OF THE ACT LAYS DOWN BASIC RULES FOR TREATING ENTERPRISES AS AE. AS PER PROVISIONS OF SU B-SECTION (1), MANAGEMENT OR CONTROL OR CAPITAL ARE THE THREE BASIC PARAMETERS THAT DETERMINES WHE THER THE TWO ENTITIES ARE AES. SUB-SECTION (2) ENLISTS SPEC IFIC CIRCUMSTANCES IN CLAUSE (A) TO (M), UPON SATISFACTION OF WHICH TWO OR MORE ENTI TIES SHALL BE DEEM TO BE AE FOR THE PURPOSE OF SUB-SECTION (1). THE SUB-SECTION (2) WAS AMENDED BY FINANCE ACT, 2002. AFTER AMENDMENT FOLLOWING OPENIN G WORDS WERE INSERTED TO SUB-SECTION (2), FOR THE PURPOSE OF SUB-SECTION (1).. . A PERUSAL OF MEMORANDUM TO FINANCE BILL 2002 WOULD SHOW THAT SEC TION 92A(2) WAS AMENDED TO CLARIFY THAT A MERE FACT OF PARTICIPATIO N BY ONE ENTERPRISE IN THE MANAGEMENT OR CAPITAL OR CONTROL OF THE OTHER ENTER PRISE WOULD NOT MAKE THEM AES UNLESS THE CRITERIA SPECIFIED U/S 92A(2) A RE ALSO FULFILLED. THUS, 9 . 6822/ / 2017 (!. . 2013-14 ) IT(TP)A NO.6822/MUM/2017(A.Y.2013-14) PROVISIONS OF SUB-SECTION (2) HAVE TO BE READ ALONG WITH SUB-SECTION (1). IN OTHER WORDS, SUB-SECTION (1) AND (2) OF SECTION 92A OF THE ACT ARE NOT INDEPENDENT PROVISIONS, BUT HAVE TO BE READ IN CONJ UNCTION WITH EACH OTHER. UNLESS THE CONDITIONS SET OUT IN SUB-SECTION (1) AND SUB-SECTION (2) ARE SATISFIED, THE TWO ENTITIES CANNOT BE HELD TO BE AE S. 8. IN THE CASE OF ORCHID PHARMA LTD. (SUPRA), THE T RIBUNAL AFTER CONSIDERING THE PROVISIONS OF SECTION 92A THREADBARE, THE EFFEC T OF AMENDMENT TO SUB- SECTION (2) BY THE FINANCE ACT, 2002 AND VARIOUS DE CISIONS ON THE ISSUE HELD AS UNDER:- [10] A PLAIN READING OF THIS STATUTORY PROVISION M AKES THE LEGAL POSITION QUITE CLEAR. THE BASIC RULE FOR TREATING THE ENTERPRISES AS ASSO CIATED ENTERPRISES IS SET OUT IN SECTION 92A(1). THE ILLUSTRATIONS IN WHICH BASIC RU LE FINDS APPLICATION ARE SET OUT IN SECTION 92A(2). SECTION 92A(1) LAYS DOWN THE BASIC RULE THAT IN ORDER TO BE TREATED AS ASSOCIATED ENTERPRISE ONE ENTERPRISE, IN RELATION T O ANOTHER ENTERPRISE, PARTICIPATE, DIRECTLY OR INDIRECTLY, OR THROUGH ONE OR MORE INTE RMEDIARIES, IN THE MANAGEMENT OR CONTROL OR CAPITAL OF THE OTHER ENTERPRISE OR WHEN ONE OR MORE PERSONS WHO PARTICIPATE, DIRECTLY OR INDIRECTLY, OR THROUGH ONE OR MORE INTERMEDIARIES, IN ITS MANAGEMENT OR CONTROL OR CAPITAL, ARE THE SAME PERS ONS WHO PARTICIPATE, DIRECTLY OR INDIRECTLY, OR THROUGH ONE OR MORE INTERMEDIARIES, IN THE MANAGEMENT OR CONTROL OR CAPITAL OF THE OTHER ENTERPRISE . SECTION 92(A)(2) ONLY PROVIDES ILLUSTRATIONS OF THE CASES IN WHICH SUCH AN ENTERPRISE PARTICIPATES IN M ANAGEMENT, CAPITAL OR CONTROL OF ANOTHER ENTERPRISE. IN OTHER WORDS, WHAT SECTION 92 A (1) DECIDES IS THE PRINCIPLE ON THE BASIS OF WHICH ONE HAS TO EXAMINE WHETHER OR NO T TWO OR MORE ENTERPRISE ARE ASSOCIATED ENTERPRISE OR NOT. THE PRINCIPLE IS, AS WE HAVE NOTED ABOVE, THAT ONE OF THE ENTERPRISE, IN RELATION TO OTHER ENTERPRISE, PARTIC IPATE, DIRECTLY OR INDIRECTLY, IN THE MANAGEMENT OR CONTROL OR CAPITAL OF THE OTHER ENTER PRISE AND THAT PERSONS WHO PARTICIPATE IN SUCH MANAGEMENT, CONTROL OR CAPITAL OF BOTH THE ENTERPRISES ARE COMMON. AS LONG AS AN ENTERPRISE PARTICIPATES IN AN Y OF THE THREE ASPECTS OF THE OTHER ENTERPRISE, I.E. (A) MANAGEMENT; (B) CAPITAL; OR (C) CONTROL, THESE ENTERPRISES ARE REQUIRED TO BE TREATED AS ASSOCIATED ENTERPRISE, AS ALSO IS THE POSITION WHEN COMMON PERSONS PARTICIPATE IN MANAGEMENT, CONTROL OR CAPIT AL OF BOTH THE ENTERPRISES. HOWEVER, THE EXPRESSION PARTICIPATION IN MANAGEMEN T OR CAPITAL OR CONTROL IS NOT A DEFINED EXPRESSION. TO FIND THE MEANING OF THIS EXP RESSION, ONE HAS TAKE RECOURSE TO SECTION 92(2) WHICH GIVES PRACTICAL ILLUSTRATIONS , WHICH ARE EXHAUSTIVE AND NOT SIMPLY ILLUSTRATIVE- AS CLARIFIED IN THE MEMORANDUM EXPLAINING THE PROVI SIONS OF THE FINANCE BILL 2002 WHICH, WHILE INSERTING THE WORDS FOR THE PURPOSE OF SUB SECTION 10 . 6822/ / 2017 (!. . 2013-14 ) IT(TP)A NO.6822/MUM/2017(A.Y.2013-14) (1) OF SECTION 92A IN SECTION 92A(2), OBSERVED THA T IT IS PROPOSED TO AMEND SUB- SECTION (2) OF THE SAID SECTION TO CLARIFY THAT THE MERE FACT OF PARTICIPATION BY ONE ENTERPRISE IN THE MANAGEMENT OR CONTROL OR CAPITAL OF THE OTHER ENTERPRISE, OR THE PARTICIPATION OF ONE OR MORE PERSONS IN THE MANAGEM ENT OR CONTROL OR CAPITAL OF BOTH THE ENTERPRISES SHALL NOT MAKE THEM ASSOCIATED ENTERPRISES, UNLESS THE CRITERIA SPECIFIED IN SUB-SECTION (2) ARE FULFILLED. IN THI S SENSE, SECTION 92A(2) GOVERNS THE OPERATION OF SECTION 92A(1) BY CONTROLLING THE DEFI NITION OF PARTICIPATION IN MANAGEMENT OR CAPITAL OR CONTROL BY ONE OF THE ENTE RPRISE IN THE OTHER ENTERPRISE. IF A FORM OF PARTICIPATION IN MANAGEMENT, CAPITAL O R CONTROL IS NOT RECOGNIZED BY SECTION 92A(2), EVEN IF IT ENDS UP IN DE FACTO OR E VEN DE JURE PARTICIPATION IN MANAGEMENT, CAPITAL OR CONTROL BY ONE OF THE ENTERP RISE IN THE OTHER ENTERPRISE, IT DOES NOT RESULT IN THE RELATED ENTERPRISES BEING TR EATED AS ASSOCIATED ENTERPRISES. SECTION 92A(1) AND (2), IN THAT SENSE, ARE REQUIRED TO BE READ TOGETHER, EVEN THOUGH SECTION 92A(2) DOES PROVIDE SEVERAL DEEMING FICTION S WHICH PRIMA FACIE STRETCH THE BASIC RULE IN SECTION 92A(1) QUITE CONSIDERABLY ON THE BASIS OF, WHAT APPEARS TO BE, MANNER OF PARTICIPATION IN CONTROL OF THE OTHER E NTERPRISE. [EMPHASIZED BY US] 9. IN THE CASE OF VEER GEMS (SUPRA), THE TRIBUNAL R EITERATED THAT IF PARTICIPATION IN MANAGEMENT OR CAPITAL OR CONTROL I S NOT RECOGNISED BY SECTION 92A(2), EVEN IF IT RESULTS IN DE FACTO OR DE JURE P ARTICIPATION IN MANAGEMENT, CAPITAL OR CONTROL BY ONE OF THE ENTERPRISES, IT DO ES NOT RESULT IN TREATING THE RELATED ENTERPRISES AS ASSOCIATED ENTERPRISES. TH E RELEVANT EXTRACT OF THE OBSERVATIONS OF THE TRIBUNAL ARE AS UNDER: 8. AS WE DEAL WITH THIS ISSUE, LETS FIRST APPRECI ATE THE SCHEME OF SECTION 92A. A PLAIN READING OF THIS STATUTORY PROVISION MAKES THE LEGAL POSITION QUITE CLEAR. THE BASIC RULE FOR TREATING THE ENTERPRISES AS ASSOCIATED ENTERPRI SES IS SET OUT IN SECTION 92A(1). THE ILLUSTRATIONS IN WHICH BASIC RULE FINDS APPLICATION ARE SET OUT IN SECTION 92A(2). SECTION 92A(1) LAYS DOWN THE BASIC RULE THAT IN ORDER TO BE TREATED AS ASSOCIATED ENTERPRISE ONE ENTERPRISE, IN RELATION TO ANOTHER ENTERPRISE, PARTICIPATE, DIRECTLY OR INDIRECTLY, OR THROUGH ONE OR MORE INTERMEDIARIES, IN THE MANAGEM ENT OR CONTROL OR CAPITAL OF THE OTHER ENTERPRISE OR WHEN ONE OR MORE PERSONS WHO PARTICIPATE, DIRECTLY OR INDIRECTLY, OR THROUGH ONE OR MORE INTERMEDIARIES, IN ITS MANAGEMENT OR CONTROL OR CAPITAL, ARE THE SAME PERSONS WHO PARTICIPATE, DIRE CTLY OR INDIRECTLY, OR THROUGH ONE OR MORE INTERMEDIARIES, IN THE MANAGEMENT OR CONTRO L OR CAPITAL OF THE OTHER ENTERPRISE . SECTION 92(A)(2) ONLY PROVIDES ILLUST RATIONS OF THE CASES IN WHICH SUCH AN ENTERPRISE PARTICIPATES IN MANAGEMENT, CAPITAL OR C ONTROL OF ANOTHER ENTERPRISE. IN OTHER WORDS, WHAT SECTION 92A (1) DECIDES IS THE PR INCIPLE ON THE BASIS OF WHICH ONE 11 . 6822/ / 2017 (!. . 2013-14 ) IT(TP)A NO.6822/MUM/2017(A.Y.2013-14) HAS TO EXAMINE WHETHER OR NOT TWO OR MORE ENTERPRIS E ARE ASSOCIATED ENTERPRISE OR NOT. THE PRINCIPLE IS, AS WE HAVE NOTED ABOVE, THAT ONE OF THE ENTERPRISE, IN RELATION TO OTHER ENTERPRISE, PARTICIPATE, DIRECTLY OR INDIRECT LY, IN THE MANAGEMENT OR CONTROL OR CAPITAL OF THE OTHER ENTERPRISE AND THAT PERSONS WH O PARTICIPATE IN SUCH MANAGEMENT, CONTROL OR CAPITAL OF BOTH THE ENTERPRI SES ARE COMMON. AS LONG AS AN ENTERPRISE PARTICIPATES IN ANY OF THE THREE ASPECTS OF THE OTHER ENTERPRISE, I.E. (A) MANAGEMENT; (B) CAPITAL; OR (C) CONTROL, THESE ENTE RPRISES ARE REQUIRED TO BE TREATED AS ASSOCIATED ENTERPRISE, AS ALSO IS THE POSITION W HEN COMMON PERSONS PARTICIPATE IN MANAGEMENT, CONTROL OR CAPITAL OF BOTH THE ENTERPRI SES. HOWEVER, THE EXPRESSION PARTICIPATION IN MANAGEMENT OR CAPITAL OR CONTROL IS NOT A DEFINED EXPRESSION. TO FIND THE MEANING OF THIS EXPRESSION, ONE HAS TAKE R ECOURSE TO SECTION 92(2) WHICH GIVES PRACTICAL ILLUSTRATIONS, WHICH ARE EXHAUSTIVE AND NOT SIMPLY ILLUSTRATIVE- AS CLARIFIED IN THE MEMORANDUM EXPLAINING THE PROVISIO NS OF THE FINANCE BILL 2002 WHICH, WHILE INSERTING THE WORDS FOR THE PURPOSE O F SUB SECTION (1) OF SECTION 92A IN SECTION 92A(2), OBSERVED THAT IT IS PROPOSED TO AM END SUBSECTION (2) OF THE SAID SECTION TO CLARIFY THAT THE MERE FACT OF PARTICIPAT ION BY ONE ENTERPRISE IN THE MANAGEMENT OR CONTROL OR CAPITAL OF THE OTHER ENTER PRISE, OR THE PARTICIPATION OF ONE OR MORE PERSONS IN THE MANAGEMENT OR CONTROL OR CAP ITAL OF BOTH THE ENTERPRISES SHALL NOT MAKE THEM ASSOCIATED ENTERPRISES, UNLESS THE CR ITERIA SPECIFIED IN SUB-SECTION (2) ARE FULFILLED. IN THIS SENSE, SECTION 92A(2) GOVERNS THE OPERATION OF SECTION 92A (1) BY CONTROLLING THE DEFINITION OF PARTICIPATION IN M ANAGEMENT OR CAPITAL OR CONTROL BY ONE OF THE ENTERPRISE IN THE OTHER ENTERPRISE. IF A FORM OF PARTICIPATION IN MANAGEMENT, CAPITAL OR CONTROL IS NOT RECOGNIZED BY SECTION 92A(2), EVEN IF IT ENDS UP IN DE FACTO OR EVEN DE JURE PARTICIPATION IN MAN AGEMENT, CAPITAL OR CONTROL BY ONE OF THE ENTERPRISE IN THE OTHER ENTERPRISE, IT D OES NOT RESULT IN THE RELATED ENTERPRISES BEING TREATED AS ASSOCIATED ENTERPRISE S. SECTION 92A(1) AND (2), IN THAT SENSE, ARE REQUIRED TO BE READ TOGETHER, EVEN THOUG H SECTION 92A(2) DOES PROVIDE SEVERAL DEEMING FICTIONS WHICH PRIMA FACIE STRETCH THE BASIC RULE IN SECTION 92A(1) QUITE CONSIDERABLY ON THE BASIS OF, WHAT APPEARS TO BE, MANNER OF PARTICIPATION IN CONTROL OF THE OTHER ENTERPRISE. WHAT IS THUS CLEAR THAT AS LONG AS THE PROVISIONS OF ONE OF THE CLAUSES IN SECTION 92A(2) ARE NOT SAT ISFIED, EVEN IF AN ENTERPRISE HAS A DE FACTO PARTICIPATION CAPITAL, MANAGEMENT OR CONTR OL OVER THE OTHER ENTERPRISES, THE TWO ENTERPRISES CANNOT BE SAID TO BE ASSOCIATED ENTERPRISES. THAT IS A WHAT COORDINATE BENCH DECISIONS IN THE CASES OF ORCHID P HARMA LTD VS DCIT [(2016) 76 TAXMANN.COM 63 (CHENNAI - TRIB.)] AND PAGE INDUSTRI ES LTD VS DCIT {(2016) 159 ITD 680 (BANG)] ALSO HOLD. [EMPHASISED BY US] 10. THE HON'BLE GUJARAT HIGH COURT IN AN APPEAL FIL ED BY THE REVENUE I.E. PR.CIT VS VEER GEMS, 407 ITR 639 HAS UPHELD THE DEC ISION OF THE TRIBUNAL. THE HONBLE APEX COURT (256 TAXMAN 298) WHILE DISMISSIN G THE SLP FILED BY THE 12 . 6822/ / 2017 (!. . 2013-14 ) IT(TP)A NO.6822/MUM/2017(A.Y.2013-14) REVENUE HAS APPROVED THE DECISION OF HON'BLE GUJARA T HIGH COURT. THUS, THE VIEW TAKEN BY THE TRIBUNAL, THAT THE PROVISIONS CON TAINED IN SUB-SECTION (1) AND SUB-SECTION (2) OF SECTION 92A HAVE TO BE READ IN C ONJUNCTION, HAS ATTAINED FINALITY. 11. IN A RECENT DECISION THE COORDINATE BENCH OF TH E TRIBUNAL IN THE CASE OF KAYBEE PVT. LTD VS ITO (SUPRA) HAS DISTINGUISHED TH E DECISION OF TRIBUNAL IN THE CASE OF DIAGEO INDIA PVT. LTD. VS. DCIT 47 SOT 252 AND FOLLOWED THE DECISION OF HONBLE GUJRAT HIGH COURT IN THE CASE OF VEER GEMS (SUPRA). THE BENCH AFTER EMPHASIZING THE IMPORTANCE OF MAINTAINING JUDICIAL DISCIPLINE IN FOLLOWING THE DECISIONS OF HIGHER FORUMS, FINALLY CONCLUDED BY OB SERVING: 18. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE CASE OF THE ASSESSING OFFICER HINGES ONLY ON APPLICATION OF SECTION 92A(1) AND IT DOES N OT MEET ANY OF THE SPECIFIC CONDITIONS SET OUT IN SECTION 92A(2). ONCE WE HOLD THAT SECTION 92A(1) CANNOT BE APPLIED ON STANDALONE BASIS, AND HAS TO BE ESSENTIA LLY CONSIDERED IN CONJUNCTION OF SECTION 92A(2) ONLY WHEN IT SATISFIES AT LEAST ON E OF THE CONDITIONS SET OUT THEREIN, IT IS CLEAR THAT THE RELATIONSHIP BETWEEN THE ASSESSEE COMPANY AND ITS KE-S CANNOT BE SAID TO BE THAT OF THE ASSOCIATED ENTERPRISES. THE CASE OF THE REVENUE MUST, THEREFORE, FAIL ON THIS TEST. 12. IN THE INSTANT CASE, THE DRP HAS HELD THAT THE BASIC CONDITIONS LAID DOWN IN SUB-SECTION (1)(B) OF SECTION 92A OF THE ACT ARE SATISFIED, THEREFORE, THERE IS NO NEED TO TRAVEL TO THE PROVISIONS OF SUB-SECTION( 2) OF SECTION 92A OF THE ACT. THE DRP FURTHER OBSERVED THAT THERE NO REQUIREMENT UNDER THE SECTION TO SIMULTANEOUS SATISFY THE CONDITIONS SET OUT IN SUB- SECTION (1) & (2). THE DRP FURTHER WENT ON TO REMARK THAT DRAWING SUCH AN INFE RENCE WOULD RENDER THE PROVISIONS OF SECTION 92A(1) OTIOSE. THE OBSERVATIO NS OF THE DRP ARE CONTRARY TO THE LAW SETTLED BY THE HONBLE APEX COURT AND VA RIOUS DECISIONS RENDERED BY THE TRIBUNAL OVER THE PERIOD OF TIME. THE REVENUE H AS FAILED TO MAKE OUT A 13 . 6822/ / 2017 (!. . 2013-14 ) IT(TP)A NO.6822/MUM/2017(A.Y.2013-14) CASE THAT THE ASSESSEE AND THE TWO FOREIGN ENTERPRI SES FALL IN ANY OF THE DEEMING PROVISIONS ENLISTED IN CLAUSE (A) TO (M) OF SUB-SECTION (2) OF SECTION 92A OF THE ACT. IN THE LIGHT OF THE ABOVE FACTS AND THE DECISIONS DISCUSSED ABOVE WE HAVE NO HESITATION IN HOLDING THAT THE ASS ESSEE, AMBICO UK AND NARAYAN UK DO NOT FALL WITHIN THE DEFINITION OF AE AS DEFINED U/S 92A OF THE ACT. HENCE, THE TRANSACTIONS BETWEEN THE ASSESSEE A ND TWO FOREIGN ENTITIES ARE OUTSIDE THE REALM OF TP PROVISIONS. WE FIND MERIT I N THE CONTENTIONS OF THE ASSESSEE. THE GROUND NO.1 OF THE APPEAL IS ALLOWED, ACCORDINGL Y. 13. IN GROUND NO.2 OF THE APPEAL THE ASSESSEE HAS A SSAILED REFERENCE TO TPO U/S 92CA(1) OF THE ACT. THE CONTENTION OF THE ASSE SSEE IS THAT SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE BEFORE MAKING REF ERENCE TO THE TPO. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE REFERRED TO NOTING SHEET ENTRY DATED 07/03/2016, WHEREIN THE ASSESSEE WAS ASKED TO FURNISH AFFIDAVIT OF HARSHAD DANESH PATEL REGARDING NO ASSOCIATION WITH OVERSEAS ENTITIES. WE FIND THAT THE ASSESSEE HAD RAISED THIS ISSUE BEFORE DRP AS WELL. THE DRP IN PARA 5.11 OF THE DIRECTIONS RECORDED THAT THE ASSESSEE H AS ADMITTED THAT TWICE THROUGH ORDER SHEET ENTRY THE ASSESSEE WAS ASKED TO RESPOND TO ITS RELATIONSHIP WITH AMBICO UK AND NARAYAN UK. 14. THE CBDT VIDE INSTRUCTION NO.3/2016 (SUPRA) HAS ISSUED GUIDELINES FOR IMPLEMENTATION OF TP PROVISIONS. IN THE SAID INSTR UCTION THE MANNER AND PROCEDURE FOR MAKING REFERENCE TO TPO HAS ALSO BEEN EXPLAINED. A PERUSAL OF THE SAME SHOWS THAT IT HAS BEEN CATEGORICALLY MENTI ONED IN THE CBDT INSTRUCTION THAT ASSESSING OFFICER MUST PROVIDE AN OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE RECORDING HIS SATISFACTION IN T HE FOLLOWING THREE SITUATIONS: 14 . 6822/ / 2017 (!. . 2013-14 ) IT(TP)A NO.6822/MUM/2017(A.Y.2013-14) - WHERE THE TAXPAYER HAS NOT FILED THE ACCOUNTANT' S REPORT UNDER SECTION 92E OF THE ACT BUT THE INTERNATIONAL TRANSACTIONS OR SPECIFIED DOMESTIC TRANSACTIONS UNDERTAKEN BY IT COME TO THE NOTICE OF THE AO; - WHERE THE TAXPAYER HAS NOT DECLARED ONE OR MORE INTERNATIONAL TRANSACTION OR SPECIFIED DOMESTIC 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 - WHERE THE TAXPAYER HAS DECLARED THE INTERNATIONAL TRANSACTIONS OR SPECIFIED DOMESTIC TRANSACTIONS IN THE ACCOUNTANT'S REPORT FI LED UNDER SECTION 92E OF THE ACT BUT HAS MADE CERTAIN QUALIFYING REMARKS TO THE EFFECT THAT THE SAID TRANSACTIONS ARE NOT INTERNATIONAL TRANSACTIONS OR SPECIFIED DOMESTIC TRANSACTIONS OR THEY DO NOT IMPACT THE INCOME OF THE TAXPAYER. IN CASE, NO OBJECTION IS RAISED BY THE ASSESSEE TO THE APPLICATION OF PROVISIONS OF CHAPTER-10 OF THE ACT, THEN THE ASSES SING OFFICER SHOULD REFER INTERNATIONAL TRANSACTION OR SPECIFIED DOMESTIC TRA NSACTION TO THE TPO. THOUGH NO SPECIFIC MANNER OF AFFORDING OPPORTUNITY OF HEAR ING HAS BEEN DETAILED IN THE SAID INSTRUCTION BUT IN LEGAL JURISPRUDENCE ISSUANC E OF SHOW CAUSE NOTICE IS THE FOUNDATION OF ANY LEGAL PROCEEDINGS. SHOW CAUSE NOT ICE IS NOT MERELY A FORMALITY. IT PROVIDES AN OPPORTUNITY TO THE NOTICE E TO RAISE OBJECTION AND PUT FORTH HIS CONTENTION BEFORE THE INITIATION OF LIS. 15. THE HONBLE DELHI HIGH COURT IN THE CASE OF IND ORAMA SYNTHETIC (INDIA) LTD.(SURPA) AFTER CONSIDERING THE DECISION RENDERED IN THE CASE OF VODAFONE INDIA SERVICES LTD. VS. UNION OF INDIA (SUPRA), 361 ITR 531(BOM) AND CBDT INSTRUCTION NO.3/2016 HAS HELD AS UNDER: 21. AS FAR AS THE PRESENT CASE IS CONCERNED, THE A SSESSEE HAS NOT FILED THE ACCOUNTANTS REPORT UNDER SECTION 92E OF THE ACT. Y ET THE AO HAS TO PROCEED TO DETERMINE THE ALP UNDER SECTION 92C (3) OF THE ACT OR REFER THE MATTER TO THE TPO TO DETERMINE THE ALP UNDER SECTION 92CA (1) OF THE ACT IN CASE THE ASSESSEE HAS NOT DECLARED ONE OR MORE INTERNATIONAL TRANSACTIONS IN THE REPORT FILED UNDER SECTION 92E OF THE ACT. AS EXPLAINED IN THE ABOVE SITUATION S IN PARA 3.2, THE AO MUST PROVIDE AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER BEFOR E RECORDING HIS SATISFACTION OR OTHERWISE. 15 . 6822/ / 2017 (!. . 2013-14 ) IT(TP)A NO.6822/MUM/2017(A.Y.2013-14) 22. ALTHOUGH MR. MANCHANDA TRIED TO CONTEND THAT TH E ABOVE INSTRUCTION OF THE CBDT WAS PROSPECTIVE, IN THE CONSIDERED VIEW OF THE COUR T, THE ABOVE CBDTS INSTRUCTION NO. 15 OF 2015 AS REPLACED BY CBDT INSTRUCTION NO.3 OF 2016 DATED 10TH MARCH 2016 CLARIFIES THE CORRECT LEGAL POSITION AND CANNOT BE CONSTRUED AS NOT APPLYING TO THE FACTS ON HAND. SINCE IT ISA PROCEDURAL ASPECT AND I S INTENDED TO THE BENEFIT TO THE ASSESSEE, IT REQUIRES TO BE APPLIED EVEN IN THE PRE SENT CASE WHERE A REFERENCE WAS EARLIER MADE BY THE AO TO THE TPO ON 31ST MARCH 201 3 AND THEREAFTER. 23. FOR ALL THE AFORESAID REASONS, THE COURT IS OF THE VIEW THAT THE THREE REFERENCES MADE BY THE AO TO THE TPO ON THE QUESTION OF DETERM INATION OF ALP OF THE ALLEGED INTERNATIONAL TRANSACTIONS INVOLVING THE PETITIONER AND ITS AE HAVE BEEN MADE WITHOUT AFFORDING THE PETITIONER AN OPPORTUNITY OF BEING HEARD AS WAS REQUIRED BY LAW. THIS, AS EXPLAINED BY THE BOMBAY HIGH COURT IN VODAFONE INDIA SERVICES (P) LIMITED V. UNION OF INDIA (SUPRA), AND REAFFIRMED B Y THE CBDTS INSTRUCTION NO. 3 OF 2016, IS A PROCEDURAL REQUIREMENT IMPLICIT IN SECTI ON 92 CA (1) OF THE ACT. ACCORDINGLY, THE SAID THREE REFERENCES MADE BY THE AO TO THE TPO FOR DETERMINATION OF THE SAID QUESTION FOR THE AYS 2011-12, 2012-13 AND 2013-14 A RE HEREBY SET ASIDE. 24. THE QUESTION OF WHETHER OR NOT A REFERENCE SHOU LD BE MADE TO THE TPO, FOR THE THREE AYS IN QUESTION, WILL NOW BE DETERMINED BY TH E AO AFRESH AFTER GIVING THE PETITIONER AN OPPORTUNITY OF BEING HEARD IN RESPECT OF EACH OF THE AYS WITHIN THE NEXT 15 DAYS. AT LEAST ONE WEEK'S ADVANCE NOTICE BE GIVE N TO THE PETITIONER OF THE EXACT DATE OF HEARING BEFORE THE AO. 25. AFTER HEARING THE PETITIONER, AND WITHIN A PERI OD OF FOUR WEEKS AFTER THE CONCLUSION OF SUCH HEARING, THE AO WILL ISSUE A FRE SH ORDER STATING WHETHER THE AO CONSIDERS IT NECESSARY AND EXPEDIENT TO MAKE A REFE RENCE TO THE TPO ON THE QUESTION OF DETERMINATION OF THE ALP OF THE INTERNATIONAL TR ANSACTIONS, IF ANY, INVOLVING THE PETITIONER. THE SAID DECISION WILL BE COMMUNICATED FORTHWITH TO THE PETITIONER AND IN ANY EVENT NOT LATER THAN ONE WEEK FROM THE DATE IT IS ISSUED. 26. IF AGGRIEVED BY SUCH DECISION, IT WILL BE OPEN TO THE PETITIONER TO SEEK APPROPRIATE RELIEF WHICH MAY BE AVAILABLE TO THE PETITIONER IN ACCORDANCE WITH LAW. THE HONBLE HIGH COURT HAS HELD THAT OPPORTUNITY OF HEARING IS A PROCEDURAL REQUIREMENT IMPLICIT IN SECTION 92CA(1) OF THE ACT. THE HONBLE HIGH COURT SET ASIDE THE REFERENCES MADE TO TPO IN THE IMPUGNED ASSESSMENT YEARS AND REFERRED THE ISSUE BACK TO THE ASSESSING OFFICER FOR FRESH DETERMINATION AFTER AFFORDING OPPORTUNITY OF HEARIN G TO THE ASSESSEE. 16 . 6822/ / 2017 (!. . 2013-14 ) IT(TP)A NO.6822/MUM/2017(A.Y.2013-14) 16. THE PRESENT CASE UNDISPUTEDLY FALLS UNDER ONE O F THE THREE SITUATIONS LISTED BY THE CBDT WHERE OPPORTUNITY OF HEARING SHO ULD HAVE BEEN GRANTED BY THE ASSESSING OFFICER BEFORE MAKING REFERENCE TO TH E TPO. AS IS EVIDENT FROM RECORDS, NO SHOW CAUSE NOTICE WAS EVER SERVED ON TH E ASSESSEE BY THE ASSESSING OFFICER BEFORE MAKING REFERENCE TO THE TP O. THE ASSESSING OFFICER ONLY DIRECTED THE ASSESSEE THROUGH ORDER SHEET ENTR Y TO FILE AND AFFIDAVIT OF HARSHAD DANESH PATEL. WE ARE OF CONSIDERED VIEW THA T IN THE LIGHT OF CBDT INSTRUCTION (SUPRA) AND THE JUDGEMENT REFERRED ABOV E, THE REFERENCE MADE TO TPO BY THE ASSESSING OFFICER SUFFERS FROM INFIRMITY . CONSEQUENTLY, THE SAID REFERENCE IS LIABLE TO BE SET ASIDE. IN THE PRESENT CASE, SINCE, WE HAVE HELD THAT THE REVENUE HAS NOT BEEN ABLE TO PROVE THAT THERE I S AN INTERNATIONAL TRANSACTION BETWEEN ASSOCIATED ENTERPRISES, SETT ING ASIDE REFERENCE U/S 92CA(1) AND RESTORING THE ISSUE TO ASSESSING OFFICE R FOR ALLOWING OPPORTUNITY TO THE ASSESSEE OF BEING HEARD AFTER ISSUING NOTICE ON MAKING REFERENCE WOULD BE AN EXERCISE IN FUTILITY. IN THE LIGHT OF OUR DECISI ON ON GROUND NO.1 OF APPEAL, THE GROUND NO.2 OF APPEAL HAS BECOME ACADEMIC. 17. IN THE RESULT, APPEAL BY THE ASSESSEE IS PARTLY ALLOWED IN THE TERMS AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ONTUESDAY, THE 3 0 TH DAY OF MARCH, 2021. SD/- SD/- (N.K.PRADHAN) (VIKAS AWAST HY) # / ACCOUNTANT MEMBER / JUDICIAL MEMBER / MUMBAI, 0!/ DATED 30/03/2021 VM , SR. PS (O/S) 17 . 6822/ / 2017 (!. . 2013-14 ) IT(TP)A NO.6822/MUM/2017(A.Y.2013-14) '*1 2.* COPY OF THE ORDER FORWARDED TO : 1. ) / THE APPELLANT , 2. '* / THE RESPONDENT. 3. 3* ( ) / THE CIT(A)- 4. 3* CIT 5. 45 '*! , . . . , / DR, ITAT, MUMBAI 6. 567 89 / GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI