2019 (3) TMI 1309 - HC - Income Tax

TP adjustment - payment of creditors in demerger process - petitioner, holding a belief that this transaction was not a specified domestic transaction, had not reported in the form 3CEB - reference made to TPO in respect of reported transaction - TPO suo motu examined the transaction and made transfer pricing adjustment - Power of TPO - challenge of TPO action in writ - HELD THAT - It is indisputable that by virtue of sub-sections (2A) and (2B) of Section 92CA, in case of an international transaction, the TPO would have an authority to examine any international transaction which comes to his notice during the proceedings, whether a reference in this respect was made by the Assessing Officer or not and whether the assessee had reported such transaction under Section 92E or not. However, in view of specific non-inclusion of the specified domestic transaction under the said subsections, in so far as the domestic transactions are concerned, the situation would be vastly different. Inescapable conclusion that we have reached is that in relation to a specified domestic transaction, the TPO can under take transfer pricing study only in relation to those transactions which are referred to him under sub-section (1) of Section 92C of the Act. Revenue is correct in pointing out that in the present case, the assessee did not report such transaction at all and therefore, the Assessing Officer had no occasion to notice such transaction as specified domestic transaction. His reference, therefore, was necessarily confined to the reported transactions. The TPO noticed this anomaly, he proceeded to determine the arm's length price after full opportunity of hearing to the petitioner. There may be number of cases where the assessee may bonafide hold a belief that certain transaction is not a specified domestic transaction and therefore, would not report the same under Section 92E of the Act. Whether bonafide or not, not making a report by the assessee of a specified domestic transaction would not leave the revenue without remedy. As clarified by CBDT in the instructions dated 20.5.2013, it is always open for the TPO who notices such transaction during the course of the proceedings before him to call for a reference by the Assessing Officer. Thus in relation to the transaction of payment to creditors in demerger process, the TPO had no jurisdiction to make any adjustments. Under these circumstances and even otherwise, we are not inclined to examine the adjustment on merits though it was argued before us by the learned counsel for the petitioner. Relying on decision of supreme court in case of Calcutta Discount Co Ltd Vs. ITO Anr. 1960 (11) TMI 8 - SUPREME COURT court held that if we find that the action of the TPO or a part of it which can be severed from the rest was wholly without jurisdiction, we would not hesitate in striking down such order or part thereof merely because the statute provides certain appeal remedies to the aggrieved assessee. Payment of subscription fee to the related party - arm's length of the specified domestic transaction - exercising writ jurisdiction when statutory appeal remedies are available - petitioner presented data to contend that the payment of subscription fee to the related party was at arm's length - HELD THAT - Even though the petitioner may have certain arguable points, that by itself, would not enable us to bypass the entire statutory scheme of assessment, appeal and revision. Once the TPO makes his report, the provisions are made in the statute how such report would be acted upon. The petitioner would have full innings to oppose the contents of such report and take such challenge in the appeal in case the petitioner fails at the first stage. When a statute that too, fiscal statute makes detail provisions for assessment, appeals and revisions, ordinarily the Court would not examine the issues on merits bypassing such statutory remedies All the contentions on merits raised by the learned counsel for the petitioner in relation to this adjustment require minute examination of documents and materials on record and accounts. Even the contention of breach of natural justice is not possible of summary consideration. The TPO had issued several notices during the proceedings. Whether precise query was raised in relation to the adjustment ultimately suggested would require minute and detailed examination of documents on record, an exercise we are not inclined to undertake in this petition. When the Act provides for statutory appeals and further appeal to the High Court on substantial question of law, such exercise, we would be well advised not to undertake in a writ petition.

Summary

Issues Involved:
1. Jurisdiction of the Transfer Pricing Officer (TPO) to examine specified domestic transactions not referred by the Assessing Officer.
2. Legality of the TPO's adjustment towards payment of subscription fees.
3. Maintainability of the writ petition in the presence of alternative statutory remedies.

Issue-wise Detailed Analysis:

1. Jurisdiction of the TPO to Examine Specified Domestic Transactions Not Referred by the Assessing Officer:

The petitioner challenged the TPO's jurisdiction to make adjustments on transactions not specifically referred by the Assessing Officer. The court analyzed the statutory provisions under Chapter X of the Income Tax Act, 1961, particularly Sections 92, 92CA, and 92E. It was noted that sub-sections (2A) and (2B) of Section 92CA empower the TPO to examine international transactions not referred by the Assessing Officer, but these provisions do not extend to specified domestic transactions. The court concluded that the TPO could undertake a transfer pricing study only for transactions referred to him under sub-section (1) of Section 92CA. The court emphasized that the legislature consciously excluded specified domestic transactions from the ambit of sub-sections (2A) and (2B). Consequently, the TPO lacked jurisdiction to make adjustments for the payment of creditors in the demerger process, as this transaction was not referred by the Assessing Officer.

2. Legality of the TPO's Adjustment Towards Payment of Subscription Fees:

The petitioner argued that the adjustment towards payment of subscription fees was made without proper notice and was ex facie bad. The court acknowledged that while the petitioner might have arguable points, it would not bypass the statutory scheme of assessment, appeal, and revision. The court noted that the petitioner would have the opportunity to challenge the TPO's report through the statutory appeal process. The court refrained from examining the merits of the adjustment, emphasizing that detailed provisions for assessment, appeals, and revisions are provided in the statute, and these should be followed.

3. Maintainability of the Writ Petition in the Presence of Alternative Statutory Remedies:

The Revenue raised a preliminary objection regarding the maintainability of the writ petition, arguing that the petitioner should be relegated to the departmental proceedings and appeals. The court reiterated that the writ jurisdiction under Article 226 of the Constitution is extremely wide and can be exercised to strike down actions taken without jurisdiction. The court cited the Supreme Court's judgment in Calcutta Discount Co Ltd Vs. ITO & Anr., which held that High Courts have the power to issue orders prohibiting executive authorities from acting without jurisdiction. The court concluded that if a jurisdictional error is pointed out, it would not hesitate to strike down such actions, even if alternative remedies are available.

Conclusion:

The court quashed the impugned order of the TPO insofar as it provided an adjustment of ?57.54 crores towards payment of creditors in the demerger process, holding that the TPO lacked jurisdiction. The rest of the impugned order, including the adjustment towards payment of subscription fees, remained as it is. The petition was disposed of accordingly.