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TMI Blog2016 (7) TMI 1053X X X X Extracts X X X X X X X X Extracts X X X X ..... – III [2015 (3) TMI 580 - DELHI HIGH COURT ] - ITA No. 6314/Del/2015 - - - Dated:- 15-7-2016 - SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAV, JUDICIAL MEMBER For The Assessee : Shri Mukesh Bhutani and Shri Vishal Kalra, Advocates For The Department : Shri Amrendra Kumar, CIT, DR ORDER PER R.S. SYAL, AM: This appeal filed by the assessee is directed against the final assessment order passed by the AO u/s 143(3) read with section 144C of the Income-tax Act, 1961 (hereinafter also called the Act ) in relation to the assessment year 2011-12. 2. The ld. AR challenged the jurisdiction of the Assessing Officer (AO) / Transfer Pricing Officer (TPO) in determining the arm s length price (ALP) of the international transaction of Advertising, marketing and promotion expenses (AMP expenses). He submitted that the authorities embarked on treating the AMP expenses as an international transaction; determining its ALP; and then making transfer pricing addition, without any jurisdiction. This was countered by the ld. DR, who made two-fold submissions on this issue, viz., first, that the assessee could not take up the jurisdiction issue before the tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. The above para is in the nature of a challenge to the jurisdiction of the TPO to determine the ALP of the AMP expenses. Insofar as the second objection of the ld. DR is concerned about there being no specific ground in the memorandum of appeal, we find that ground no. 3 simply states that the `existence of an international transaction between two Associated Enterprises ( AE ) under the provisions of section 92B of the Act, was not satisfied or existed in the present case. The ground only challenges the existence of an international transaction and not the jurisdiction of the TPO to determine the ALP of the AMP expenses. There is a vast difference between saying that AMP expenses is not an international transaction and that the TPO did not have jurisdiction to determine the ALP of AMP expenses. Be that as it may, in our considered opinion, this is not going to help the Revenue in forbidding the assessee from challenging the jurisdiction of the TPO, even in the absence of any specific ground in this regard. This being a legal issue can be taken up before the Tribunal even for the first time notwithstanding the same having not been raised either before the authorities below o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... struction issued by the CBDT laying down a particular procedure to be followed by the authorities, can ever be retrospective in nature. He also relied on the judgment of the Hon ble Supreme Court in the case of Anandji Haridas Co. (P) Ltd. vs. Engineering Mazdoor Sangh and Another (1975) 99 ITR 592 (SC) to put forth that only where a statute is not exhaustive or where its language is uncertain, the external evidence can be looked into. He submitted that since the provisions of section 92CA(2A) and (2B) are clear and unambiguous which do not admit of any doubt in providing that the jurisdiction of the TPO is not limited to the international transactions either reported by the assessee or referred to by the AO, there is no need to look into the Instruction, at least before the date of its applicability. 8. We find that there are two aspects of this issue requiring our decision, first, the content of the Instruction and second, the prospective or retrospective effect of the Instruction. 9. The ld. AR relied on para 3.4 of the Instruction to bolster his argument that the AO could not have referred the matter of ALP of AMP expenses to the TPO without recording his satisfaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PCIT or CIT. 10. The ld. AR submitted that his case falls under the second bullet point of the para inasmuch as the assessee did not report AMP expenses as an international transaction. We find that the language of the above para makes it clear that before making a reference by the AO to the TPO, there is a jurisdictional requirement on the part of the AO to record his satisfaction that there is an income or a potential of an income arising on determination of the ALP of an international transaction before seeking approval of the CIT where the assessee, inter alia , has not declared a particular transaction as international transaction in its report filed u/s 92E. Before recording such a satisfaction, it is incumbent on the part of the AO to provide an opportunity of hearing to the assessee and, thereafter, pass a speaking order, if the assessee objects to the AO s version. It is only when the taxpayer fails to declare an international transaction, which comes to the notice of the AO, who makes reference to the TPO for determining its ALP, that the pre satisfaction has to be recorded by him after giving an opportunity of hearing to the assessee. We do not find the assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndate of the Instruction, it becomes palpable that though the original jurisdiction of the TPO is confined to the international transactions referred to him by the AO for determination of the ALP, but, such jurisdiction is extendable to other international transactions which come to his notice during the course of proceedings before him. It is nowhere laid down that the power of the TPO to determine the ALP of an international transaction is restricted to those referred by the AO alone. This part of the Instruction is in line with the statutory mandate contained in sub-section (2A) and (2B) of section 92CA, which reads as under :- `(2A) Where any other international transaction other than an international transaction referred under sub-section (1), comes to the notice of the Transfer Pricing Officer during the course of the proceedings before him, the provisions of this Chapter shall apply as if such other international transaction is an international transaction referred to him under sub-section (1). (2B) Where in respect of an international transaction, the assessee has not furnished the report under section 92E and such transaction comes to the notice of the Transfer Prici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court in Vatika Township Pvt. Ltd. (supra) is completely out of context. The question in that case was as to whether the proviso to section 113 introduced by the Finance Act, 2002 w.e.f. 1st June, 2002 should be considered as retrospective or prospective. The Hon ble Supreme Court held that such proviso casting additional burden on the tax payer, must be construed as prospective in nature. We do not approve the borrowing by the ld. AR of certain observations made in this judgment laying down that the beneficial provisions should be applied retrospectively and then canvassing that the Instruction should also be given retrospective effect. Our reason for not accepting the applicability of this judgment to the facts of the instant case is that we are not interpreting any statutory provision, either substantive or procedural, to find out whether it is retrospective or prospective. It is a simple case of an Instruction dated 10th March, 2016 put in place by the CBDT as a guideline to be followed by the AOs and TPOs in implementing the transfer pricing provisions. This Instruction is in supersession of the earlier Instruction No.15 of 2015. It has been clearly mentioned in para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means that the TPOs/AOs will follow the same qua the matters under their consideration on 10th March, 2016 and onwards. We, therefore, jettison the contention advanced by the ld. AR that this Instruction be given retrospective effect. 16. It is, ergo, held that the TPO was within his jurisdiction in proceeding to determine the ALP of the international transaction of AMP expenses and further, in principle, there is no flaw in the AO making transfer pricing addition, which action is also intra vires . 17. Now we are left with the merits of addition on account of transfer pricing adjustment of AMP expenses. The ld. AR contended that the incurring of AMP expenses is not an international transaction at all and, hence, there can be no question of determining the arm s length price of this transaction or making any addition thereon. He relied on the judgment of the Hon ble Delhi High Court in the case of CIT vs. Whirlpool of India Ltd. (2015) 94 CCH 156 DEL-HC to contend that the AMP expenses could not be considered as an international transaction. The ld. AR submitted that he has got all the relevant material with him to demonstrate that his case qualifies to be a non-internat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three sets of judgments by the Hon ble Delhi High Court - in favour of the Revenue (Sony Ericsson, the earlier judgment); in favour of the assessee (Whirlpool and Maruti etc.); and restoring the matter for a fresh determination (Yum Restaurant and Sony Ericsson, the later judgment). These tribunal orders include Fuji Film India Pvt. Ltd. vs. DCIT (ITA No.6916 2535/Del/2015 dated 29.4.2016) and Toshiba India Pvt. Ltd. vs. DCIT (ITA No.944/Del/2016, order dated 8.4.2016 ). 19. We have heard the rival submissions and perused the relevant material on record. The ld. AR tried to harp on certain agreements and other documents to buttress his point that there was no international transaction on account of AMP expenses in terms of the judgment in the case of Whirlpool (supra) . On perusal of the order of the TPO, it emerges that there is no discussion about any of these documents. Since the TPO held AMP expenses to be an international transaction, he did not have any occasion to consider these documents in the light of the judicial view now available for consideration. Respectfully following the Tribunal orders of co-ordinate benches, placed on record by the ld. DR, we are of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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