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2022 (12) TMI 416 - AT - Income TaxTP Adjustment - validity of the reference made by the AO to the TPO u/s 92CA - HELD THAT - Parameters laid down in para 3.3(b) was the basis on which the AO made reference to the TPO viz., where there has been a transfer pricing adjustment of Rs.10 Crore or more in an earlier assessment year and such adjustment has been upheld by the judicial authorities or is pending in appeal . Admittedly, the parameter laid down therein has not been satisfied in the present case and consequently, the reference by the AO to the TPO u/s.92CA of the Act is invalid. On the validity of an order u/s.92CA and invalidity and sustainability of the consequent addition made to the total income on the basis of such invalid order u/s.92CA we are of the view that order of reference to the TPO in the present case is invalid, therefore the addition made based on the basis an order passed by the TPO on an invalid reference by the AO is a nullity and the addition made consequent to such illegal order is liable to be deleted in this short ground. Accordingly, we allow ground No.2 raised by the assessee.
Issues Involved:
1. Validity of the reference made by the Assessing Officer (AO) to the Transfer Pricing Officer (TPO) under Section 92CA of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Validity of the Reference to the TPO: The primary issue in this appeal was the validity of the reference made by the AO to the TPO under Section 92CA of the Income-tax Act, 1961. The assessee contested that the reference was not in accordance with the relevant instructions issued by the Central Board of Direct Taxes (CBDT), specifically Instruction No. 3 of 2016. Factual Background: The AO observed that the assessee had international transactions exceeding Rs. 15 crores with its associated enterprise (AE) and referred the case to the TPO for determining the Arm's Length Price (ALP). The TPO determined a shortfall in ALP amounting to Rs. 29,60,30,584, which was incorporated into the draft assessment order. The assessee filed objections before the Dispute Resolution Panel (DRP), which led to the final assessment order being passed by the AO. The assessee appealed against this addition, arguing that the reference to the TPO was invalid. Assessee's Contentions: The assessee argued that the reference to the TPO was not in accordance with the CBDT Instruction No. 3 of 2016, which mandates specific conditions under which a case can be referred to the TPO. The assessee contended that none of the conditions specified in paragraphs 3.2 and 3.3 of the Instruction were met. Specifically, the assessee pointed out that there was no TP adjustment of Rs. 10 crores or more in any earlier assessment year, a condition required under para 3.3(b) of the Instruction. DRP's Findings: The DRP rejected the assessee's objections, stating that the AO had followed proper procedure and obtained the necessary approval from the CIT before referring the case to the TPO. The DRP also noted that the assessee did not raise any jurisdictional objections before the TPO and fully cooperated in the proceedings. The DRP cited various court decisions to support its position that procedural errors do not invalidate the evidence gathered. Tribunal's Analysis: The Tribunal examined the instructions and found that the reference to the TPO was based on the incorrect premise that there was a TP adjustment of Rs. 10 crores or more in an earlier assessment year. The Tribunal reviewed the final assessment order and ITAT order for AY 2011-12 and confirmed that the TP adjustment for that year was only Rs. 1,23,43,326, far below the Rs. 10 crore threshold. Conclusion: The Tribunal concluded that the reference to the TPO was invalid as it did not meet the conditions specified in para 3.3(b) of the CBDT Instruction No. 3 of 2016. Consequently, the order passed by the TPO and the subsequent addition made to the total income of the assessee were also invalid. The Tribunal allowed the assessee's appeal on this ground and did not find it necessary to adjudicate on other issues raised by the assessee. Final Order: The appeal of the assessee was allowed, and the addition made based on the TPO's order was deleted. The order was pronounced in the open court on 28th June 2022.
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