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2016 (11) TMI 1383 - HC - Income TaxReference to TPO - Held that - It is an undisputed fact that no speaking order has been passed by the Assessing Officer while making a reference to the TPO, which is a requirement as per the Instruction No.3/2016 dated 10th March, 2016, issued by the CBDT. Before making a reference to the TPO, the assessee is required to be given an opportunity to showcause why the reference may not be made to the TPO and thereafter a speaking order is required to be passed by the Assessing Officer while making a reference to the TPO. Under the circumstances, on the aforesaid ground alone, the impugned reference made by the Assessing Officer to the TPO deserves to be quashed and set aside and the matter is required to be remanded to the Assessing Officer to pass a speaking order while making a reference to the TPO.
Issues:
1. Quashing and setting aside the reference made by the Assessing Officer to the Transfer Pricing Officer (TPO) without a speaking order. 2. Interpretation of CBDT Instruction No.3/2016 dated 10th March, 2016 regarding the procedure for making a reference to the TPO. 3. Dispute over whether the transaction in question falls under Section 92E and requires a reference to the TPO. 4. Concerns regarding limitation if the matter is remanded to the Assessing Officer for a fresh order. Issue 1: The petitioner sought to quash the reference made by the Assessing Officer to the TPO, arguing that no speaking order was passed despite specific instructions from the CBDT. The petitioner contended that the Assessing Officer should have dealt with the objections raised before making the reference. The court noted the absence of a speaking order, which is a mandatory requirement as per the CBDT instructions. Consequently, the court quashed the reference and remanded the matter to the Assessing Officer to pass a speaking order before referring it to the TPO. Issue 2: The dispute revolved around the interpretation of CBDT Instruction No.3/2016 dated 10th March, 2016. The petitioner relied on specific paragraphs of the instructions and a decision of the Delhi High Court to support the argument that the Assessing Officer must pass a speaking order before referring the matter to the TPO. On the other hand, the revenue argued that the reference was justified due to the assessee's failure to file the accountant's report under Section 92E. The court emphasized the necessity of following the CBDT instructions and ensuring the assessee's opportunity to present objections before making a reference to the TPO. Issue 3: A disagreement arose regarding whether the transaction in question fell under Section 92E, requiring a reference to the TPO. The revenue contended that the assessee had entered into specified domestic transactions but failed to file the necessary report. The assessee claimed it was a mistake by the Chartered Accountant and that the transaction did not involve a relative, hence not attracting Section 92E. The court acknowledged the conflicting positions but focused on the procedural irregularity of not passing a speaking order before the reference to the TPO. Issue 4: Concerns were raised about potential limitation issues if the matter was remanded to the Assessing Officer for a fresh order. The revenue apprehended that a question of limitation might arise if a new speaking order was required. However, the petitioner assured that they would not raise any limitation issues if the matter was remanded for a fresh order. The court considered this assurance and directed the Assessing Officer to complete the necessary procedures within four weeks, ensuring compliance with the CBDT instructions and addressing the objections raised by the petitioner. This judgment highlights the importance of adherence to procedural requirements, specifically passing a speaking order before referring a matter to the TPO, as mandated by CBDT instructions. It also underscores the significance of providing the assessee with an opportunity to present objections and clarifications before initiating transfer pricing assessments.
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