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2015 (12) TMI 837 - HC - Income TaxTransfer pricing adjustment - Held that - Since the provisions of the Act makes it very clear that under Section 92 CA of I.T. Act the only option is to place the matter to the TPO and the same has not been followed, this Court feels it appropriate to set aside the order of the assessing authority so that the matter can be referred to the TPO. Accordingly, the order impugned in this writ petition is set aside and the matter is remanded to the Assessing Authority who shall in turn refer the matter to the Transfer Pricing Officer. On such reference, the Transfer Pricing Officer shall proceed in accordance with the C.P.D.T. Regulations dated 20.05.2003. This writ petition stands disposed of in the above terms. Connected miscellaneous petition is closed. There shall be no orders as to the costs.
Issues Involved:
1. Non-compliance with Section 144C of the Income Tax Act. 2. Failure to refer the matter to the Transfer Pricing Officer (TPO) as per C.P.D.T. instructions. 3. Validity of the final assessment order without a draft assessment order. Issue-wise Detailed Analysis: 1. Non-compliance with Section 144C of the Income Tax Act: The petitioner challenged the assessment order dated 27.03.2015 and its corrigendum dated 09.04.2015 on the grounds of non-compliance with Section 144C of the Income Tax Act. The petitioner argued that the assessing authority did not pass a draft assessment order before finalizing the assessment, thus violating the mandatory procedure outlined in Section 144C. The court examined Section 144C, which mandates that if the assessing officer proposes any variation in the income or loss returned by the assessee, a draft assessment order must be forwarded to the assessee. The assessee then has the option to file objections with the Dispute Resolution Panel (DRP) or accept the variations. The court cited previous judgments, including the Division Bench of the Andhra Pradesh High Court and the Delhi High Court, which emphasized the mandatory nature of this procedure. The court concluded that the failure to issue a draft assessment order and directly passing a final assessment order was contrary to Section 144C, rendering the assessment order null and void. 2. Failure to refer the matter to the Transfer Pricing Officer (TPO) as per C.P.D.T. instructions: The petitioner contended that as per the C.P.D.T. instructions dated 20.05.2003, any international transaction exceeding Rs. 5 crores must be referred to the TPO. The respondent's counsel argued that under Section 92CA(1), the assessing officer has the discretion to refer the computation of arm's length price to the TPO with prior approval from the competent authority. The court highlighted that the C.P.D.T. instructions act as a guideline to ensure the discretion of the assessing officer is not abused. The court referred to previous judgments, including the Delhi High Court's decision, which upheld the validity of these instructions and emphasized the necessity of referring such matters to the TPO. The court concluded that the assessing officer's failure to refer the matter to the TPO was a violation of the statutory provisions and the C.P.D.T. instructions. 3. Validity of the final assessment order without a draft assessment order: The court examined similar cases where the final assessment order was passed without issuing a draft assessment order. In W.P. No: 1526 and 1527 of 2014, the court held that passing a final order without a draft assessment order is a violation of Section 144C and cannot be considered a mere procedural irregularity. The court also referred to the decision in Zuari Cement Limited vs. Assistant Commissioner of Income Tax, where the Andhra Pradesh High Court declared such final assessment orders as null and void. The Supreme Court upheld this decision by dismissing the Special Leave Petition filed by the Revenue. The court reiterated that the omission to follow the mandatory procedures prescribed in the Act cannot be cured and renders the final assessment order invalid. Conclusion: The court set aside the impugned assessment order and its corrigendum, remanding the matter to the assessing authority with directions to refer it to the TPO. The TPO is to proceed in accordance with the C.P.D.T. Regulations dated 20.05.2003. The writ petition was disposed of accordingly, with no orders as to costs.
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