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TMI Blog2014 (12) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... re the TPO from time to time and did not contest or, the notice issued by the TPO to compute the arm's length price - Thus the directions of the TPO even on an irregular reference, form a valid ground to reopen the proceedings for reassessment - the notice u/s. 148 was not sent to substitute notice u/s. 143(2) - notice u/s. 143(2) was never issued, therefore, it is wrong to presume that reassessment proceedings u/s. 148 were to substitute the proceedings as stated by the assessee. Reassessment to be based on fresh material/information – Held that:- As decided in Commissioner of Income Tax, Delhi Versus M/s. Kelvinator of India Limited [2010 (1) TMI 11 - SUPREME COURT OF INDIA] - as to what is the relevance of an order passed by the Transfer Pricing Officer’s order, in a situation in which the reference itself is unsustainable in law - such a reference could not have been made under the scheme of the Act because the assessment proceedings had come to an end before the point of time when such a reference was made, and as such the reference itself was legally invalid - The stand of the revenue was that even if reference to the DVO is to be held to be invalid, the DVO’s report const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction while issuing notice under section 148 of the Act, in the absence of any material to form his belief that certain income has escaped assessment. (ii) assuming jurisdiction for re-opening the assessment under section 147 of the Act, thereby taking section 147 as a recourse to substitute the regular assessment proceedings under section 143(2)/143(3) of the Act. 5. That on facts and circumstances of the case and in law, the DRP/AO have grossly erred in making assessment under section 143(3) read with section 144C(4)/147/148 of the Act since: (i) the reference under section 92CA(1) made by Learned AO on December 24, 2009 to the TPO based on which the Learned AO has computed the arm s length price in the draft order was an invalid reference as the same was made before the initiation of the reassessment proceedings under section 147 of the Act without the pendency of any assessment proceedings; (ii) learned AO has himself stated in the order dated November 21, 2011, disposing off the objections to the initiation of the reassessment proceedings that by an inadvertent mistake, the case was referred to the Transfer Pricing Officer (TPO) for determining the Arm s Length Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act to TPO-II(4) New Delhi vide order dated 15/10/2010. The TPOII ( 4) found that the international transactions of the assessee with its associated enterprises were not at arm s length and an adjustment of ₹ 2,80,91,619 was directed to be made to the income of the assessee. As per the order u/s 92CA(3) of the Act, the income of the assessee has to be enhanced by ₹ 2,80,91,619. Considering the above fact of the case, as the assessee has not valued its international transactions with associate enterprises at arm s length, resulting under assessment of income by an amount of ₹ 2,80,91,619 should have been added to the income. 4. The assessee objected to this initiation of reassessment proceedings. It was contended that the time limit for issuance of notice under section 143(2) had expired and the proposed reassessment proceedings are indeed used as a substitute for section 143(2) which, according to the assessee, was not permissible in view of judicial precedent in the case of ACIT vs. M/s. Muthoot Leasing and Finance Ltd., 21 SOT 281. It was also pointed out that reference to Transfer Pricing Officer was made at a point of time when no proceedings wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian Courts also which support this proposition. In view of the above, it may be inferred that the reference to TPO was invalid but it does invalidate the findings of the TPO which are based on the facts of the case. The assessee itself appeared before the TPO from time to time and did not contest or, the notice issued by the TPO to compute the arm's length price. Thus the directions of the TPO even on an irregular reference, form a valid ground to reopen the proceedings for reassessment. In the case of Kalyanji Mavji Co. Vs, CIT (SC) 102 ITR 287 the Hor 'ble Apex Court clarified that It cannot be disputed that the object of the Act was to see that the tax collecting machinery is mode as perfect and effective as possible so that the taxpayer is not allowed to get away with escaped income-tax. It was further observed that it, therefore, follows that information may come from external sources or even from material already on the record or may be derived from the discovery of new and important matter or fresh facts. On the Same lines, Hon'ble Apex Court again reiterated in the case of of Kelvinotor India 2010- TIOL-06-5C-SC-IT-LB that the provision should not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings and file your return in compliance to notice U/s. 148 on the reassessment shall be framed ex-parte. 5. It was in this backdrop that the Assessing Officer, despite objections by the assessee proceeded with reassessment proceedings and, thus, finalized the draft assessment order. Aggrieved by the stand so taken by the Assessing Officer, the assessee raised objection against the same before the Dispute Resolution Penal (DRP), but without any success. The DRP was of the view that once the Transfer Pricing Officer s report was available to the Assessing Officer and the said report indicated that an adjustment of ₹ 2,80,91,619 was required to be made to the Arm s Length Price of international transaction entered into by the assessee, there was indeed sufficient material on record to form a belief that income of the assessee has escaped assessment. As regards the assessee s reliance on the decision in the case of Dharia Construction Co. (supra), the DRP was of the view that the facts of the case were distinguishable, in as much as, while the DVO s report is not binding on the Assessing Off icer, a Transfer Pricing Officer s report is binding on the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) of the Act as there were no proceedings pending before him at any stage. Learned counsel suggested that the provisions of section 92C and 92CA of the Act have to be read in harmony since section 92C relates to computation of Arm s Length Price and section 92CA permits the ITO to make reference for the purpose of determination of Arm s Length Price of the International transactions. It was, thus, imperative that there must be a proceeding for assessment of income in the course of which reference can be made. Reference made without any pending proceeding for assessment of income would be, according to the learned counsel, an exercise in futility since the Assessing Officer was not competent to pass draft order u/s. 144C of the Act. He emphatically argued that reference being made to the Transfer Pricing Officer is not an academic exercise and therefore, unless the Assessing Officer is competent to frame an assessment order, they cannot be bestowing jurisdiction to make a reference. Learned counsel then raised the plea that even if validity of reassessment proceedings is taken to be existing, the impugned order is not sustainable in law, in as much as, a draft assessment order unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus, it cannot be open to the assessee to object to the logical outcome of proceedings before the Transfer Pricing Officer. It was certainly not an academic exercise. The Transfer Pricing Officer was to ascertain the Arm s Length Price of international transaction. It was, according to the learned Departmental Representative, the natural corollary of the ascertainment of Arm s Length Price of international transaction that is entered by the assessee with its associate enterprise, that additions are required to be made in respect of the transactions where the assessee is found not to have entered such transaction at an Arm s Length Price. As regards the issue that the assessee is not eligible assessee since no order under section 92CA(3) was passed after commencement of assessment proceedings, the learned Departmental Representative submitted that section 144C(15) only refers to the existence of an order under section 92CA(3) and that no way requires that such report must be obtained during the related proceedings. This objection raised by the assessee also, according to the learned Departmental Representative, was not sustainable in law. Learned DR also referred to and relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the DVO s report constituted information and as such it could be a good basis for coming to the conclusion that wealth has escaped assessment. Rejecting this plea, Their Lordships observed that, a report called by an authority having no jurisdiction would be a nullity at law and consequently proceedings based solely on such report considering the requirement of s. 17 would be illegal and will have to be quashed . In effect thus, it is held that when reference itself is invalid, the report received as a result of the said reference cannot constitute material for forming the belief that an income or wealth tax escaped assessment. This precisely applies to the situation before us. There is no contrary decision by any of the Hon ble Courts above, including the Hon ble jurisdictional High Court. However, this binding judicial precedent is distinguished by the authorities below on the ground that while DVO s report is not binding on the Assessing Officer, the TPO s order is binding on the Assessing Officer. That aspect of the matter, however, is wholly irrelevant inasmuch the reassessment proceedings were quashed in Sona Properties case (supra) for the short reason of illegality for r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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