A Division Bench of the Delhi High Court observed that the Assessing Officer ( AO ) is not empowered to ascertain arm length price ( ALP ) of international transaction.
The present writ petition, at the instance of the assessee, sought to assail the impugned order passed under Section 144C read with Sections 143(3) and 144B of the Income Tax Act, 1961, whereby, the Assessing Officer [ AO ] made an adjustment of INR 25,58,68,79,196/-, to the total income of the assessee.
It may be noted that since the assessee had entered into international transactions during the relevant AY, which is also duly reflected in Form 3CEB filled by the assessee in accordance with Section 92E of the Act, therefore, a reference was made by the AO to the Transfer Pricing Officer [ TPO ] for determination of Arm’s Length Price [ ALP ] of the said international transactions.
The counsel appearing on behalf of the assessee, submitted that the impugned order was liable to be set aside in light of the mandate of Section 92CA of the Income Tax Act and that the TPO has never determined the ALP of the international transactions by incorporating the demerger of the mobile security division of the assessee. Despite the order of the TPO, the AO, while passing the impugned order under Section 144C(1) read with Sections 143(3) and 144B of the Income Tax Act, proceeded to make transfer pricing adjustment by computing the ALP of the value of the demerged business to the tune of INR 25,41,84,27,665/-.
The counsel appearing on behalf of the Revenue, opposed the submissions advanced by the assessee and submitted that the impugned order does not suffer from any infirmity on the basis of the assumption of wrong jurisdiction. It was submitted that as per the mandate of Section 92CA of the Income Tax Act, the AO referred the matter to the TPO for determination of the ALP and the TPO examined the international transaction related to the demerger.
A Division Bench of Justices Yashwant Varma and Purushaindra Kumar Kaurav observed that “It is abundantly clear that as per the legislative mandate behind Section 92CA of the Income Tax Act, the ALP determination of any international transactions falls in the domain of the TPO. Moreover, the dictum laid down in CIT v. S.G. Asia Holdings noticeably elucidates that the AO is not clothed with the powers to ascertain the ALP of any international transaction that is selected on the transfer pricing risk parameters. Furthermore, Section 92CA(4) of the Income Tax Act evidently mandates that the AO cannot deviate itself from the TPO order while computing the total income of the assessee.”
“In the present case, the TPO order solely reflects the transfer pricing adjustment to the tune of INR 16,84,51,531/-. However, the AO, without affording an opportunity of hearing to the assessee, proceeded to add an amount of INR 25,41,84,27,665/- to the total income of the assessee, which addition was neither determined nor directed by the TPO, as the ALP of the international transaction related to the demerger of the business. The said course of action was not available to the AO and it is a clear case of excess” the Court noted.
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