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TMI Blog2017 (2) TMI 629X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. Consequently, we hold that the reasons recorded for reopening the assessment under section 147 of the Act do not meet the requirements of the section and hence the Assessing Officer had no jurisdiction to issue notice under section 148 of the Act. Consequently, the subsequent order passed by the Assessing Officer under section 143(3) r.w.s. 147 and 144C of the Act is liable to be quashed. Accordingly, we hold so. - Decided in favour of assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... based on order passed by the Transfer Pricing Officer (in short 'the TPO') under section 92CA of the Act. The TPO had passed the order under section 92CA(3) of the Act on a date when there were no pending assessment proceedings. Thereafter, the Assessing Officer records reasons for reopening the assessment under section 148 of the Act, based on such order passed by the Assessing Officer alleging that the income has escaped assessment in the hands of assessee on account of arm's length price of international transaction. The assessee is aggrieved by re-assessment proceedings initiated against it under section 147 / 148 of the Act and has raised two issues that the transfer pricing order passed was without jurisdiction and consequently, re-assessment could not be made under section 148 of the Act. Without prejudice, it is further pointed out that the transfer pricing adjustment made in the hands of assessee vide order passed under section 143(3) r.w.s. 147 of the Act is invalid being made pursuant to transfer pricing order which was bad in law. The assessee has filed written submissions before us and has referred to the sequence of events to establish its case that the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuous and the Cross Objections raised by the assessee on merits become academic. 8. The learned Departmental Representative for the Revenue on the other hand, relied on the orders of authorities below. 9. We have heard the rival contentions and perused the record. Before adjudicating the issue on merits, we adjudicate the additional Cross Objections raised by the assessee before us, wherein the assessee has challenged the reopening of assessment under section 147 / 148 of the Act. In order to appreciate the facts of the case, reference is made to the sequence of events which are tabulated by the assessee in its written propositions, as under:- Date Particulars 30/10/2007 The assessee has filed return of income showing income of Rs.Nil 30/10/2008 Last date for issuance of notice under section 143(2) of the Act i.e. 12 months from the end of the month in which the return is filed 15/10/2010 Show Cause Notice u/s 92(C)(3) was passed 26/10/2010 Reply to SCN was filed 29/10/2010 TP Order issued making an adjustment of ₹ 85,63,973/- 14/01/2011 Notice u/s 148 was issued as well as certain information u/s 142(1) / 143(2) notice was issued calling for some infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 143(3) r.w.s. 147 of the Act was passed on 29.02.2012. The assessee is aggrieved by the proceedings before the Assessing Officer / TPO and has alleged that in the absence of any proceedings pending, reference made to the TPO was invalid. Further, initiation of re-assessment proceedings on the basis of order passed by the TPO was to circumvent the normal provisions of the Act, wherein time limit was provided for issuance of notice under section 143(2) of the Act. The next aspect of the issue is that where the Assessing Officer had relied on the order passed by the TPO in order to initiate re-assessment proceedings and since the order of TPO was void ab initio being issued without any authority, then the proceedings completed against the assessee were void. 11. The perusal of the reasons recorded for reopening the assessment reflect the TPO had worked out the adjustment in relation to international transaction of ₹ 85,63,973/- under section 92CA(3) of the Act, on a reference made by the Assessing Officer under section 92CA(1) of the Act. In view of the same, according to the Assessing Officer, adjustment of ₹ 85,63,973/- was to be made to the total income and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... By making reference to the reasons recorded for reopening of the assessment, the Ld. Authorized Representative for the assessee pointed out that the basis for holding that the income has escaped assessment is the adjustment worked out by the TPO under section 92CA of the Act, as per which adjustment of ₹ 85,63,973/- was to be made to the total income and consequently income chargeable to tax had escaped assessment within the meaning of section 147 of the Act. Where the satisfaction of reason to believe that income had escaped assessment for the impugned assessment year was based on the order passed by the TPO under section 92CA of the Act, it cannot be said to be the belief of the Assessing Officer, a s under the provisions of section 147 of the Act, it is the belief of the Assessing Officer which can form the basis for reopening the assessment and notice issued/served under section 148 of the Act. Another point raised by the Ld. Authorized Representative for the assessee was that the reference to the provisions of section 147(C)(i) of the Act by the Assessing Officer was without application of mind and on this account also the reopening of the assessment has to fail. 13. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f computing arm's length price in relation to the international transaction, when no assessment proceedings were pending in relation to the relevant assessment year. The relevant observations of the Tribunal (supra) are in paras 10 to 23, which read as under :- "10. The crux of the controversy revolves around the provisions of section 147/148 of the Act which empower an Assessing Officer to assess or re-assess such income which has escaped assessment. Section 147 of the Act postulates that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of sections 148 to 153 of the Act, assess or re-assess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section. A significant expression contained in section 147 of the Act is "reason to believe". It is judicially well-settled that such belief of the Assessing Officer must be based on some material on record. In other words, there must be some material on record to enable the Assessing Officer to entertain a belief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are relevant to compute arm's length price, etc. in terms of sections 92 to 92F of the Act. 13. Notably, the entire scheme and mechanism to compute any income arising from an international transaction entered between associated enterprises is contained in sections 92 to 92F of the Act. Now, we may deal in slight detail the provisions of transfer pricing assessment which are relevant in the context of controversy before us. Section 92(1) of the Act mandates that any income arising from an international transaction shall be computed having regard to the arm's length price. Section 92C, inter-alia, prescribes the methods for computation of arm's length price in relation to an international transaction. Sub-section (3) of section 92C of the Act empowers the Assessing Officer to determine the arm's length price in relation to an international transaction in accordance with the methods prescribed in sub-section (1), on the basis of material or information or documents available with him, after allowing the assessee an opportunity in this regard; and, sub-section (4) of section 92C provides that where the Assessing Officer so determines the arm's length price, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lear that the process of determination of arm's length price is to be carried out during the course of assessment proceedings, may it be, under subsection (3) of section 92C where the Assessing Officer determines the arm's length price or under sub-sections (1) to (3) of section 92CA, where the Assessing Officer refers the determination of arm's length price to the TPO. We may also refer to the provisions of section 143(3) of the Act dealing with assessment of income. In terms of clause (ii) of sub-section (3) of section 143, it is prescribed that the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund on any amount due to him on the basis of such assessment. It is only in the course of such assessment of total income, that the Assessing Officer is obligated to compute any income arising from an international transaction of an assessee with associated enterprises, having regard to the arm's length price. In this background, is it not appropriate to infer that the provisions of section 92 to 92F of the Act get triggered only during the pendency of the process o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the reference to the TPO for determining the arm's length price in relation to an international transaction is envisaged only in the course of the assessment proceedings, which is the only process known to the Act, whereby the assessment of total income is done. As per the CBDT (supra), the Assessing Officer may proceed to examine other aspects of the case during pendency of assessment proceedings but await the report of the TPO on the value of the international transactions before making assessment since the case would be selected for scrutiny before making reference to the TPO. 18. In the context of the aforesaid controversy, we may refer to the arguments raised by the Ld. CIT-DR whereby it is contended that it was open for the Assessing Officer to make a reference to the TPO for determination of arm's length price without issuing notice u/s 143(2) of the Act; in other words, as per the Revenue, reference to the TPO u/s 92CA of the Act can be made even if no assessment proceeding is pending before the Assessing Officer. In this context, it is submitted that the annual norms for selection of cases for scrutiny prescribed by the CBDT for assessment year 2007-08, inter- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nternational transaction or a reference to the TPO to determine arm's length price can be initiated in the absence of any proceeding for computing total income of the assessee. 20. Further, in our view, the Ld. CIT-DR has relied on one of the norms prescribed for picking a return for scrutiny assessment to say that certain exercise is required to be done on the part of the Assessing Officer to record his satisfaction before the matter is put-up to the CCIT/DGIT who shall approve the selection of case for scrutiny. According to her, the recording of such satisfaction contemplated in the CBDT Instruction, would, inter-alia, envisage a reference to the TPO also. In our considered opinion, the reliance placed by the Ld. CIT-DR on the aforesaid CBDT Procedure for selection of cases for scrutiny, cannot distract from the relevant statutory provisions relating to the controversy before us. In-fact, the scheme of the Act which we have dealt earlier, establishes that the work of computing the arm's length price in relation to international transaction arises only and only when the income from such international transaction is being assessed. Certainly, the reference to the TPO for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is an on-going assessment proceeding. Therefore, reference made by the Ld. CIT-DR to the phraseology of section 92CA(1) without considering the entire schematic arrangement of sections 92 to 92F would be incorrect. 23. Therefore, we conclude this aspect by holding that the Assessing Officer is precluded from making a reference to the TPO u/s 92CA(1) of the Act for the purposes of computing arm's length price in relation to the international transaction when no assessment proceedings are pending in relation to the relevant assessment year." 15. The Tribunal further held that when reference was made to the TPO by the Assessing Officer for determination of arm's length price in relation to the international transaction, no assessment proceedings were pending and hence it was an invalid reference. Consequently, the subsequent order passed by the TPO determining the adjustment to the international transaction was a nullity in law and void ab initio. The relevant findings of the Tribunal vide paras 24 to 27 read as under :- "24. Now, we may come back to the facts of the present case. In this case, return of income was filed on 05.11.2007, which was processed u/s 143(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... processed and no notice under sub-section (2) of section 143 thereafter is served on the assessee within the stipulated period, the assessment proceedings u/s 143 come to an end and matter becomes final. As per the Hon'ble High Court, although technically no assessment is framed in such a case, yet the proceedings for assessment stand terminated. To the similar effect is the ratio of the judgements of the Hon'ble Madras High Court in the case of (i) CIT vs. M. Chellappan and Another, 281 ITR 444 (Madras); and, (ii) CIT vs. Deep Baruah, 329 ITR 362 (madras). 26. In this background, if on the date of making of reference to the TPO, the assessment proceedings u/s 143 of the Act had come to an end and the proceedings for assessment stood terminated, there was no occasion for the Assessing Officer to have made a reference to the TPO for determination of arm's length price of the international transactions in terms of section 92CA of the Act. We have already inferred in the earlier paras that under the provisions of section 92CA of the Act, a reference to the TPO for computation of arm's length price in relation to international transactions is permissible only in the course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled in Circle 1(1), Pune on 31.10.2007. It is only on 28.07.2009, Form No.3CE B was received by the present Assessing Officer i.e. Circle 1(1) wherein it was seen that assessee had entered into international transactions with associated enterprises. For this reason, the case of the assessee had escaped from compulsory selection for scrutiny. On this basis, it is sought to be pointed out that the re-opening of assessment by issuance of notice u/s 147/148 of the Act is justified. 30. Apart from the aforesaid, it was also vehemently argued that any illegality or irregularity in making of a reference to the TPO u/s 92CA of the Act cannot render the subsequent order passed by the TPO u/s 92CA(3) of the Act as a nullity qua the belief entertained by the Assessing Officer that certain income chargeable to tax had escaped assessment on account of determination of arm's length price of the international transaction with the associated enterprise. The Ld. CIT-DR submitted that in the case of the Pooran Mal vs. DIT, (1974) 93 ITR 505 (SC), the Court had refused to exclude from the purview of assessment even the material and evidence which was obtained by the Department even through a i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sreeramachandra Murthy vs. DCIT, (2000) 243 ITR 427 (AP). held as under :- "The ratio laid down in all these cases is that, having regard to the entire scheme and purpose of the Act, the validity of the assumption of jurisdiction under Section 147 can be tested only by reference to the reasons recorded under Section 148(2) of the Act and the Assessing Officer is not authorized to refer to any other reason even if it can be otherwise inferred and/or gathered from the records. He is confined to the recorded reasons to support the assumption of jurisdiction. He cannot record only some of the reasons and keep the others up his sleeves to be disclosed before the Court if his action is ever challenged in a Court of law." 32. To the similar effect is the judgement of the Hon'ble Bombay High Court in the case of 31 Infotech Ltd. vs. ACIT, (2010) 329 ITR 25 7 (Bom.) wherein it has been held that the validity of the reopening of assessment has to be determined with reference to the reasons which had weighed with the Assessing Officer and those cannot be added to or supported on a basis which was not present to the mind of the Assessing Officer when he issued the notice to reopen the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered opinion, the ratio of the judgement of the Hon'ble Rajasthan High Court in the case of Brig B. Lal (supra) is squarely applicable in the present case. Therefore, having regard to the peculiar facts of the present case, the proposition sought to be canvassed by the Ld. CIT-DR based on the decision in the case of Pooran Mal (supra) does not validate the issuance of notice u/s 148 of the Act to reopen the assessment in the present case. 34. The Ld. CIT-DR also relied upon the judgement of the Punjab & Haryana High Court in the case of M/s Coca Cola India Inc vs. ACIT, (2009) 17 7 taxmann.com 103 to say that an order passed by the TPO can be a reason for reassessment of income u/s 147/148 of the Act. The above proposition canvassed by the Ld. CIT-DR is not an absolute proposition, and the judgement of the Hon'ble Punjab & Haryana High Court in the case of M/s Coca Cola India Inc (supra) has to be appreciated in the light of the fact-situation therein. In the case of M/s Coca Cola India Inc (supra), the stand of the Revenue was that assessee was suppressing its profit in its transactions with its associated enterprises in the period prior to the assessment year 2002-03. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act. The only point was whether order of the TPO passed u/s 92CA(3) of the Act for a subsequent assessment year could form a basis for the Assessing Officer to formulate a belief about the escapement of income in a preceding assessment year when the amended regime of Chapter X was not on the statute. The facts and circumstances in the present case are entirely different and therefore the judgement of the Punjab & Haryana High Court in the case of M/s Coca Cola India Inc (supra) does not help the case of the Revenue. 35. As a consequence, we conclude by holding that the reasons recorded by the Assessing Officer in the present case do not meet with the requirements of section 147 of the Act and therefore the Assessing Officer had no jurisdiction to issue notice u/s 148 of the Act dated 14.01.2011. As a consequence, the subsequent assessment order passed u/s 143(3) r.w.s. 147 and 144C(13) of the Act is liable to be quashed. We hold so." 17. Similar proposition has been applied by the Pune Bench of Tribunal in Kaeser Compressors (India) Pvt. Ltd. Vs. ACIT (supra). 18. The Hon'ble High Court of Delhi in CIT Vs. XL India Business Services (P) Ltd. (supra) has laid down the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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