AO bound to refer to TPO for Computation of Domestic specified Transactions: ITAT rules in favour of Zydus Healthcare [Read Order]

In as significant case of Zydus Healthcare, the Kolkata bench of the Income Tax Appellate Tribunal (ITAT) has held that AO is bound to refer to TPO for computation of domestic specified transactions.

Shri Ajit Kumar Jain, CA & Sonal Pandey, CA, appeared on behalf of the assessee  and Shri S. Venkatramani, CIT, appeared on behalf of the Revenue

The assessee is in appeal before the Tribunal against the order of Principal Commissioner of Income Tax, Siliguri dated 17.03.2021 and Corrigendum in this order dated 31.03.2021 passed under section 263 of the Income Tax Act, 1961 in the assessment year 2016-17. 

 Zydus Healthcare Limited, the assessee filed its return of income electronically on 26.11.2016 declaring total income at ‘NIL’ after claiming a deduction of Rs.411,07,12,348/- under Chapter VIA of the Act. The Assessing Officer passed an assessment order under section 143(3) of the Income Tax Act. He accepted the returned income filed by the assessee.

On scrutiny of the assessment record, Commissioner formed an opinion that the assessee had entered into specified domestic transactions with its Associated Enterprises, namely Cadilla Healthcare Limited. He referred to such a transaction and observed that the Assessing Officer should have referred to the TPO as per CBDT Instruction No. 3/2016.

The assessee contended that for taking action under section 263, Commissioner has briefly assigned the reason that a reference to the TPO ought to have been made for a specific domestic transaction with the assessee’s Associated Enterprises, namely Cadilla Healthcare Limited.

According to the Commissioner, as per CBDT Instruction No. 3/2016, such reference was mandatory at the end of the Assessing Officer. As far as Clause (b) is concerned, he submitted that it postulates a condition that there has been a transfer pricing adjustment of Rs.10 crores or more in an earlier assessment order and such adjustment has been upheld by the Judicial Authorities or is pending in an appeal.

But in the case of the assessee, neither any survey nor any search has been carried out. It was stated that only clause (b) can be attracted because, under clause (a), the failure at the end of the assessee is for non-submission of the Accountant’s report under section 92E or nondisclosure of the specified domestic transaction in that report.

A Coram comprising of Shri Rajpal Yadav, Vice-President (KZ)  & Shri Rajesh Kumar, Accountant Member observed that the third condition contemplated in the Instruction which mandates the search and survey is missing in the case of the assessee. Therefore, the case of the assessee does not fall under any of the conditions of the Instructions.

The Tribunal held that the Commissioner failed to take cognizance of all these facts and did not record any analytical finding in the impugned order and quashed the order under section 263 of the Income Tax Act.

To Read the full text of the Order CLICK HERE

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