Clarification on reference to the TPO u/s 92CA(1) of the IT Act 1961 in search cases - Income Tax - F. No. 299/131/2012/lnv-III/565

F. No. 299/131/2012/lnv-III/565 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, dated 28th January, 2013 To The Chief Commissioner of income Tax (Central), New Delhi. Sir, Sub : Clarification on reference to the TPO u/s 92CA(1) of the IT Act 1961 in search cases- Reg. I am directed to refer to your letter No. CCIT (Central)/Del/2012-13/2631 dated 01.11.2012 on the above mentioned subject through which the following reference was made to the Board: During the course of assessment proceedings u/s 153A/153C of the income Tax Act, 1961, the Assessing Officers of the Central Charge usually come across cases where international transactions of the value exceeding Rs. 15 crores are involved. As per the extant instructions of the CBDT, in such cases reference to the Transfer Pricing Officer (TPO) has to be mandatorily made by the Assessing Officer, . It is noticed that for some of the assessment years covered in the proceedings u/s 153A/153C, reference to the TPO had been made earlier during the course of assessment proceedings u/s 143(3) /147 prior to the date of search. In this regard, the following two types of cases are noticed. i) In the earlier reference made to the TPO, no transfer pricing adjustment was suggested by the TPO in the order u/s 92CA(3) passed by him and consequently no addition was made in this regard by the AO in the order u/s143(3) /147. ii) In the earlier reference made to the TPO, addition was made by the AO in the order u/s 143(3) /147 on the bases of transfer pricing adjustment suggested by the TPO and the matter is pending before the appellate authorities. The issue for consideration is as to whether in either of the two situations mentioned above, reference u/s 92CA(1) to the TPO is again required during the course of proceedings u/s 153A/153C due to international transactions being more than Rs. 15 crore when no fresh evidence in respect of such international transactions has been found during the course of search. It is requested that the matter kindly be examined by the Board and clarification in this regard kindly be issued. 2. The basis of observation in the reference of the CCIT (Central), Delhi, mentioned above that as per the extant instructions of the CBDT, where international transactions of the value exceeding Rs. 15 crore are involved, reference to the TPO has to be mandatorily made by the Assessing Officer, has not been provided in the reference. However, in absence of the same it appears that the said impression emanates from the letter of the CBDT F.No.225/97/2012/ITA. II dated 23rd August 2012, through which the guidelines for selection of cases for scrutiny through manual selection for F.Y. 2012-13 were issued. On the other hand the issue under consideration is as to whether following the search, a fresh reference to TPO is mandatory in the assessment of an assessee for a particular Assessment Year u/s 153A/153C, involving transfer pricing issues where the assessment for that very year, involving the same transfer pricing issue, was completed prior to the search, after duly considering the report of the TPO, where no further facts relevant for transfer pricing have come to the notice of the AO subsequent to the search? Thus the context of the reference and the guidelines referred above appear to be different. 3. The matter has been examined in the Board and the requisite clarification is conveyed as follows: 3.1 Section 92CA(1) which deals with the subject matter of reference to TPO says Where any person, being the assesses, has entered into an international transaction or specified domestic transaction in any previous year, and the Assessing Officer considers it necessary or expedient so to do, he may, with the previous approval of the Commissioner, refer the computation of the arm s length price in relation to the said international transaction or specified domestic transaction under section 92C to the Transfer Pricing Officer. Thus the reference to TPO requires satisfaction of the AO regarding its necessity or expediency. 3.2 As per section 153A/153C, in a case where search is initiated u/s 132 or requisition has been made under section 132A, the AO is required to issue notice for six assessment years prior to the assessment year relevant to the previous year in which action u/s 132 or 132A has been taken. This has been provided to overcome the challenge faced by the department on account of failure of action u/s 147 to withstand the test of judicial scrutiny in a number of cases. However, reopening of cases for six years in such cases may result in multiple parallel proceedings. Therefore, with a view to avoid such multiple proceedings it has been provided in section 153A that any assessment or reassessment pending on the date of initiation of action u/s 132 or 132A, for these six assessment years shall abate. However, if the proceedings under section 153 or 153C are annulled, the abated proceedings shall stand revived. 3.3 It emanates from the above that in a case where a notice u/s 153A or 153C is issued and any assessment or reassessment is pending, it shall abate. Accordingly, in a case where AO has made a reference to the TPO and the TPO has not given his report or given the report but AO has not completed the assessment on the date of initiation of search u/s 132 or making of requisition under section 132A, such assessment shall abate. In such a case, during the course of proceedings u/s 153A/153C, the Assessing Officer will be required to make a reference to the TPO in accordance with the provisions of section 92CA. However, in a case where the AO has passed the assessment order on the relevant date taking into account the report of the TPO, such assessment order having been completed on the date of initiation of search or making of requisition, shall not abate. Logically in such case reference to TPO will be required only if any further facts have been found out as a result of action u/s 132 or 132A or otherwise. Yours faithfully (S.L Anuragi) Under Secretary (Inv-lll) Tel : 011-23547590