In a recent case, the Delhi High Court while allowing the writ petition held that the assessing officer should not be deflected from the Arm’s Length Price ( ALP ) determined by the Transfer Pricing Officer ( TPO ) with respect to the international transactions .
The petitioner/Assessee Giesecke and Devrient India Pvt. Ltd is engaged in providing software and information technology enabled services.During the assessment year 2017-18 assessee entered into certain international transactions .Accordingly the assessee filed return of income . Thereafter, the assessee‟s case was picked up for scrutiny and notices under Sections 143(2) and 142(1) of the Act were issued to the assessee.
Thereafter a reference was made by the AO to the TPO for determination of ALP of the said international transactions.Upon considering the reply of the assessee, the TPO passed an order under Section 92CA(3) of the Act and the TPO determined a transfer pricing adjustment of INR 25,58,68,79,196/-. However, on an even date, the TPO passed a rectified order and adjusted the ALP to the tune of INR 16,84,51,531/-
In the said rectified order, while determining the ALP, the TPO also suggested the AO to examine the taxability of the value of the „demerged business‟ of the assessee to the tune of INR 25,41,84,27,665/-. Thereafter the AO passed the draft assessment order without considering the order of TPO. Subsequently the Assessee filed the writ petition before the court.
Deepak Chopra, Counsel for the assessee/petitioner argued that while referring to the rectified order of the TPO, 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 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/-.
Shlok Chandra,Counsel for the revenue/respondent submitted that as per the mandate of Section 92CA of the 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.
Hence the TPO computed the ALP of the said international transactions and the AO computed the total income of the assessee in conformity with the ALP ascertained by the TPO.
During the proceedings the bench observed that “ as per Section 92CA in order to compute the ALP of the international transactions, the AO „may‟ refer the matter to the office of the TPO, with prior permission of the Principal Commissioner of Income Tax or Commissioner of Income Tax . Furthermore, the mandate of Section 92CA(4) of the Act would reflect that the AO shall calculate the total income of the assessee in conformity with the ALP determined by the TPO”
Therefore relied upon the decision of the Louis Dreyfus Company India Pvt. Ltd. v. DCIT, it was observed that “wherein, after examining the underlying scheme of Section 92CA of the Act, this Court has also observed that the AO is obliged to compute the total income of the assessee in conformity with the determination made by the TPO”.
After analyzing the facts and arguments of both parties, a division bench of Justice Purushaindra Kumar Kaurav and Justice Yashwant Varma observed that 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.
Therefore the assessing officer should not be deflected from the Arm’s Length Price ( ALP ) determined by the Transfer Pricing Officer ( TPO ) with respect to the international transactions.
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