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2014 (2) TMI 673 - AT - Income TaxPower of the TPO to determine ALP u/s 92C of the Act Held that - The TPO is empowered only to determine the ALP as per the provisions u/s. 92C by applying any one of the methods stipulated in sub section (1) of Sec.92C and by applying the most appropriate method - The decision in LG Polymers India (P.) Ltd. Versus Additional Commissioner of Income-tax, Range-3 2011 (9) TMI 259 - ITAT VISAKHAPATNAM followed - TPO is not empowered to hold the transaction as sham transaction - He has jurisdiction to decide a method and arrive at the ALP and nothing more thus, the order of the TPO is quashed Decided in favour of Assessee. Validity of reopening of assessment u/s 147 of the Act Held that - The reopening was beyond 4 years from the end of the assessment year in appeal and the assessment under sec. 143(3) has been made, the Assessing Officer while recording the reasons for reopening should indicate what the assessee has omitted to furnish at the time of original proceedings which resulted in escapement of income - The TPO has passed an order on 23.10.2009 for the assessment year 2004-2005 and applied the same criteria for the purpose of determining the arms length price - the Assessing Officer should have given further opportunity to the assessee to provide necessary clarifications and replies so that the assessment can be completed under section 143(3) read with section 147 and not section 144 of the Act. Relying upon CIT v. Kelvinator India Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA re-assessment beyond four years is a condition precedent i.e., failure to disclose material facts necessary for assessment by the assessee - When the assessee made full disclosure and the A.O. examined the issue by raising queries, the assessment cannot be reopened - the information that payment was made to a non-resident partner was available before the Assessing Officer and at the time of completion of regular assessment, a reference was not made to the TPO and consequently, the said amount was disallowed by applying the provisions of section 40(a)(i) of the I.T. Act thus, there is no escapement of income or non-furnishing of any particulars by the assessee thus, the AO is not justified in initiating the proceedings under section 147 of the I.T. Act Decided in favour of Assessee.
Issues Involved:
1. Jurisdiction of the Transfer Pricing Officer (TPO) in determining the Arm's Length Price (ALP) and declaring transactions as sham. 2. Validity of reopening of assessment under section 147 of the Income Tax Act. Detailed Analysis: 1. Jurisdiction of the Transfer Pricing Officer (TPO): - Background: For the assessment year 2004-05, the assessee filed a return of income which was revised and assessed by the Assessing Officer (AO). The Commissioner of Income Tax (CIT) set aside the assessment for referring the matter to the TPO. The TPO determined the ALP for technical know-how fees and reimbursement of expenses as NIL, declaring the international transaction as sham. - Assessee's Argument: The assessee contended that the TPO exceeded his jurisdiction by declaring the transaction as sham. The TPO's role is confined to determining the ALP using methods prescribed under section 92C and Rule 10(B) of the Income Tax Rules. - Tribunal's Findings: The Tribunal agreed with the assessee, stating that the TPO's jurisdiction is limited to determining the ALP and cannot extend to declaring a transaction as sham. The Tribunal cited various judicial precedents supporting this view, including cases from the ITAT Mumbai Bench and the Gujarat High Court. - Conclusion: The Tribunal quashed the TPO's order, allowing the assessee's appeal on this ground and negating the need to address other grounds of appeal. 2. Validity of Reopening of Assessment under Section 147: - Background: For the assessment year 2003-04, the AO reopened the assessment based on the findings for the assessment year 2004-05, issuing a notice under section 148 and subsequently completing the assessment under section 144 read with section 147. - Assessee's Argument: The assessee challenged the validity of the reopening, arguing that it was merely a change of opinion and that all necessary information had been provided during the original assessment. The reopening was beyond the four-year limit without any fresh material indicating escapement of income. - Tribunal's Findings: The Tribunal noted that the original assessment was completed under section 143(3) and that the AO did not bring any new information to justify the reopening. The Tribunal emphasized that for reopening beyond four years, there must be a failure on the part of the assessee to disclose fully and truly all material facts, which was not the case here. - Conclusion: The Tribunal found the reopening of assessment invalid, quashing the assessment order under section 147 and allowing the assessee's appeal on this ground. Overall Judgment: - For ITA.No.281/Hyd/2011 (A.Y. 2004-2005): The Tribunal allowed the appeal, quashing the TPO's order and ruling that the TPO exceeded his jurisdiction. - For ITA.No.1021/Hyd/2012 (A.Y. 2003-2004): The Tribunal allowed the appeal, ruling the reopening of assessment under section 147 invalid due to lack of new material and full disclosure by the assessee. Final Order: - Both appeals, ITA.No.281/Hyd/2011 and ITA.No.1021/Hyd/2012, were allowed by the Tribunal. The orders pronounced in the open court on 23.08.2013.
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