Lack of Jurisdictional Competency of TPO in Making Upward Adjustment in TP: ITAT Deletes Income Tax Addition [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) held that the addition made by the Assessing Officer (AO) Transfer pricing Officer (TPO) on account Transfer Pricing (TP) adjustment is without having valid jurisdiction therefore directed such income tax addition to be deleted.

The assessee company Yizumi Precision Machinery (India) Private Limited is subsidiary of M/s Guandong Yuzumi Precision Machinery Ltd Co of China, in which 10% shares also held by a person of Indian resident namely Ramesh Vardhan.

The AO during the assessment proceeding refer the case of the assessee company to TPO under Section 92CA of the Income Tax Act, 1961 for determination of Arm’s length Price (ALP) of International transaction. The TPO in his order made upward TP adjustment of Rs. 1,05,96,120/- on account of purchase of goods/spares from its Account Executive (AE).

Aggrieved by the order, the assessee filed an appeal before the the Commissioner of Income Tax (Appeals) [CIT(A)], the CIT(A)  considering the submission of the AO confirmed the TP adjustment on purchase of goods/spares. Further aggrieved the assessee filed an appeal before ITAT.

The Authorised Representative (AR) of the assessee contended that the AO/TPO exceeded their jurisdiction by making adjustment under Section 92 of the Income Tax Act for international transaction though the same was not subject matter of the assessment as the case was selected for limited scrutiny.

The Departmental Representative (DR), supported the order of the lower authorities.

The Bench comprising of Waseem Ahmed, Accountant Member and Siddhartha Nautiyal, Judicial Member, observed that the right course of action for the AO was to take the approval from the competent authority for expanding the scope of Limited Scrutiny to the regular assessment but he failed to do so.

Further the Bench noted that, the DR has also not brought anything on record justifying that the “Limited Scrutiny” was converted by the Assessing Officer under normal/ regular scrutiny after obtaining necessary approval from the appropriate authority.

Thus, the Tribunal held that the Assessing Officer/TPO has exceeded his jurisdiction by making upward adjustment in TP report on account of purchase of goods/spares from the AE.

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