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TMI Blog2015 (2) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... e statute, forbidding the AO fromaltering the TPO’s determination of ALP in any manner. As such, we hold that the AO was incompetent to accept the assessee’s claim for reducing the operating costs with the amount of depreciation for the purpose of calculating the ALP of its international transaction, in making the extant assessment u/s 147. The final conclusion drawn by the authorities below in this regard is, therefore, upheld. However, we make it clear that it is open to the assessee to seek any legal remedy, if available, as per law for getting the needful done in this regard. - Decided against assessee. Addition on account of transfer pricing adjustment - exclusion of transactions with branch office seeked by assessee - Held that:- Merely because the assessee took an inadvertent appreciation of the transactions with self as international transactions, that cannot prevent it from claiming before the authorities that the correct legal position should prevail. In view of the fact that the assessee’s office in Canada is its branch office, the transactions between the head office and the branch office, under the provisions of the Act, cannot be considered as international transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of transfer pricing adjustment. 3. Briefly stated, the facts of the case are that original assessment for this year was completed by the Assessing Officer (AO) on 10.10.2006. During the course of assessment proceedings for the AY 2008-09, it was noticed that the assessee had claimed depreciation on building against the Business income , whereas the rental income from the same building was offered under the head Income from house property . On being called upon to explain as to why depreciation claimed on the rented building be not disallowed, the assessee candidly accepted that depreciation on building was erroneously claimed as deduction. That is how, the assessment for the AY 2008-09 was finalized by granting standard deduction @ 30% against the Income from house property and denying the claim of depreciation in the computation of income under the head Profits and gains of business or profession. On the basis of his order passed for the AY 2008-09, the AO initiated re-assessment proceedings for the year in question by issuing notice u/s 148. During the course of reassessment proceedings, the assessee admitted that depreciation on building was wrongly considered a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion allowance or any other allowance, as the case may be, for the assessment year concerned . Thus it is vivid that the scope of reassessment proceedings is not only restricted to the issues for which notice was issued u/s 148 but also extends to any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section. We are not going deep into the nuances about the scope of reassessment on other aspects, with which we are not presently concerned. To suffice, there is no mandate in the provision entitling the assessee to put forth a fresh claim for deduction or allowance etc. in the reassessment proceedings. It transpires that the re-assessment proceedings are for the benefit of the Revenue. Ergo, it follows that no deduction etc. can be claimed in the reassessment proceedings, even if otherwise admissible under the law, which was omitted to be claimed during the original assessment proceedings. 7. If we revisit the prescription of sub-section (1) of section 147, it comes to the fore that the issues qua the income which the AO seeks to assess or reassess are thrown open before him in the reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he operating costs directly flows from the non-admissibility of such depreciation, which is the subject matter of reassessment, we hold in principle, that such a claim cannot be ousted at the very outset on the premise that it cannot be entertained in reassessment proceedings. However, the rider remains that any fresh claim made during the course of reassessment proceedings, relating to the income which earlier escaped assessment, must be otherwise permissible under law. 9. Coming to the examination of the admissibility of the assessee s claim for reduction in the operating costs by the amount of depreciation not allowable, we find that the first proviso to section 92C(4) carries some restrictions on the question of grant of deductions etc. qua the amount of income by which the total income of the assessee gets enhanced due to the addition towards transfer pricing adjustment. This proviso provides that : no deduction under section 10A or section 10AA or section 10B or under Chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section . The essence of this provision is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therto sub-section (4) read out as under:- On receipt of the order under sub-section (3), the AO shall proceed to compute the total income of the assessee under subsection (4) of section 92C having regard to the arm s length price determined under sub-section (3) by the transfer pricing officer. 11. A conjoint reading of the existing and the earlier provisions of sub-section (4) makes it overt that whereas the TPO s report determining the ALP was earlier not binding on the AO, who could change the computation of ALP as per his wisdom, but now with the substitution of sub-section (4), the AO has become functus officio as regards the ALP determined by the TPO. Now, the AO is obliged to compute the total income of the assessee in conformity with and not having regard to the ALP determined by the TPO. Now, the AO cannot tinker with such determination done by the TPO. 12. As the instant assessment order has been passed by the AO u/s 143(3) read with section 147 on 28.12.2011, the case falls for consideration under the substituted provision presently existing on the statute, forbidding the AO fromaltering the TPO s determination of ALP in any manner. As such, we hold that the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and determined their average operating profit rate. The transfer pricing adjustment was calculated by applying such margin to the base of the assessee s international transactions with its AE in USA and also its branch office in Canada. 19. First point assailed by the ld. AR before us is that the transactions with branch office were not in the nature of transactions with AEs and, hence, the sameshould have been excluded. 20. We have heard the rival submissions and perused the relevant material on record. Before evaluating the rival contentions, it is paramount to ascertain thefactual position in this regard. It can be noticed that the assessee is an Indian holding company with a subsidiary in USA. It also has a branch office in Canada. In so far as the transactions with its AE in USA are concerned, there is no dispute that these are international transactions by their very nature. But, as regards transactions with the branch office in Canada, it can be observed that the assessee has computed its total income by aggregating the Indian Head Office s accounts along with the branch office in Canada. This fact is unmistakably borne out from the assessee s audit report for the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the transactions of the assessee with its branch office in Canada can be considered as international transactions. The answer is obviously in negative because section 92B(1) categorically provides that: For the purposes of this section and sections 92, 92C, 92D and 92E, an international transaction means a transaction between two or more associated enterprises .. . A bare perusal of the definition of international transaction brings to light that for treating any transaction as an international transaction, it is sine qua non that there should be two or more separate AEs. When we consider the definition of International transaction given u/s 92B along with the meaningof the AE given in section 92A, it clearly transpires that in order to describe a transaction as an international transaction , there must be two or more separate entities. 23. It is simple and plain that no person can transact with himself in common parlance. As such, one cannot earn any profit or suffer loss from oneself. The same is true in the context of income-tax as well. Neither any person can earn income nor suffer loss from itself. It is called the principle of mutuality. When expanded commerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns with its AE and also with the branch office in Canada. Such cost base is directed to be considered as exclusive of transactions with the Canada branch. We, therefore, set aside the impugned order on this issue and direct the AO/TPO to recompute the ALP in the light of our above directions. 26. The other objection taken by the ld. AR against the determination of ALP under this segment is in not allowing adjustment on account of idle capacity. The assessee claimed that during the year 63% of its employees remained idle and, hence, sought reduction in its operating cost to the extent of such extraordinary expense. The TPO jettisoned this proposition. The assessee now seeks reduction in its operating costs on account of such idle labour cost for the purposes of computing the transfer pricing adjustment. 27. We have heard both the sides and perused the relevant material on record. It is obvious that the TPO used the TNMM as the most appropriate method for calculating the ALP of this transaction, which was also considered by the assessee as the most appropriate method. The mechanism for determining the ALP under this method has been set out in Rule 10B(1)(e) as under:- (e) tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s remained idle is, ergo, incapable of acceptance. The adjustment, if any, could have been allowed, if the assessee had demonstrated that the comparable companies had more under-utilization of their labour force vis- -vis the assessee. The onus to prove such under-utilization of employees of the comparables, for claiming adjustment, squarely lies on the assessee. On a specific query, the ld. AR could not point out that the utilization of employees by the comparable companies was less than the assessee. Under such circumstances, we are of the considered opinion that no such adjustment can be granted. We, therefore, approve the view taken by the authorities on this issue. 29. The only issue raised in the assessee s appeal emanating from the CIT(A) s order dated 25.02.2013 based on the assessment order u/s 143(3) read with section 147, is against the non-exclusion of depreciation on building from operating expenses while making transfer pricing adjustment. 30. Both the sides are in agreement that the facts and circumstances of this ground are, mutatis mutandis, similar to those of the AY 2005-06. Following the view taken by us for such preceding year in a separate order, we upho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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