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Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI G. MANJUNATHA, HONBLE
O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals) – 15 Mumbai [hereinafter in short “Ld.CIT(A)”] dated 10.01.2014 for the A.Y. 2010-11.
At the outset, Ld. Counsel for the assessee submitted that during the assessment year under appeal assessee had entered into international transactions with its AE for more than ₹.5 Crores and in which (A.Y: 2010-11) M/s. SkillNet Solutions India Pvt. Ltd., case in view of the CBDT Instruction No. 3/2003 dated 20.05.2003 the Assessing Officer ought to have referred the international transaction to the TPO for determining the arm’s length price. However, instead of referring the international transactions to the TPO, the Assessing Officer himself made adjustment u/s.92C(3) of the Act while completing the assessment on 18.02.2013 u/s.143(3) of the Act.
The Ld. Counsel for the assessee referring to the recent decision of the Hon'ble Supreme Court in the case of PCIT v. M/s. S.G. Asia Holdings (India) Pvt. Ltd., in Civil Appeal No. 6144 of 2019 dated 13.08.2018 (copy of the order is placed on record), submitted that the Hon'ble Supreme Court upheld the decision of the Tribunal and Hon'ble High Court in holding that the Assessing Officer had breached mandatory instructions issued by the CBDT by not referring the international transactions for determining arm’s length price, to the TPO when the transactions were more than ₹.5 Crores. The Hon'ble Supreme Court further held that the Tribunal should have considered the matter for restoration to the Assessing Officer for appropriate reference to be made to the TPO. Therefore, the Ld. Counsel for the assessee relying on this decision submitted that the matter may be restored to the file of the Assessing Officer for reference to the TPO for determining the arm’s length price of the international transactions since it is mandatory requirement as per the (A.Y: 2010-11) M/s. SkillNet Solutions India Pvt. Ltd., CBDT instruction that when once the international transactions were more than ₹.5 Crores there should be a reference to the TPO for determining the arm’s length price of the transactions.
Ld. DR has no serious objection in restoring the matter to the file of the Assessing Officer for appropriate reference to TPO for determination of the arm’s length price of international transactions.
Heard both sides, perused the orders of the Authorities below and the case laws relied on. We observe that the Hon'ble Supreme Court in the case of PCIT v. M/s. S.G. Asia Holdings (India) Pvt. Ltd., (supra) held as under: - “5. It was submitted by Mr. Mahabir Singh, learned Senior Advocate that the expression “…..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” occurring in Section 92CA of the Act signified that discretion was vested in the Assessing Officer and it would not be mandatory in every single case that he must refer the issue of computation of the Arm’s Length Price to the TPO.
6. However, the following expressions employed in Instruction No.3/2003 put the matter in a different perspective: - “… ...The Assessing Officer can arrive at prima facie belief on the basis of these details whether a reference is considered necessary. No detailed enquiries are needed at this stage and the Assessing Officer should not embark upon scrutinizing the correctness or otherwise of the price of the international transaction at this stage…… If there are more than one transaction with an associated enterprise or there are transactions with more than one associated enterprise the aggregate value of which exceeds Rs.5 crores, the transactions should be referred to the TPO. …… Since the case will be selected for (A.Y: 2010-11) M/s. SkillNet Solutions India Pvt. Ltd., scrutiny before making reference to the TPO, 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 international transaction before making final assessment. …… (vi) Role of the Assessing Officer after receipt of “arm’s length price”: Under sub-section (4) of section 92C, the Assessing Officer has to compute total income of the assessee having regard to the arm’s length price so determined by the TPO.”
7. In view of the guidelines issued by the CBDT in Instruction No.3/2003 the Tribunal was right in observing that by not making reference to the TPO, the Assessing Officer had breached the mandatory instructions issued by the CBDT. We do not find the conclusion so arrived at by the Tribunal to be incorrect.
However, the Tribunal ought to have accepted the submission made by the Departmental Representative as quoted in para 16.2 of its order and the matter ought to have been restored to the file of the Assessing Officer so that appropriate reference could be made to the TPO. It would therefore be upto the authorities and the Commissioner concerned to consider the matter in terms of Sub- Section (1) of Section 92CA of the Act.
We, therefore, allow this Appeal to the aforesaid extent and direct that it would now be upto the Assessing Officer to take appropriate steps in terms of Instruction No.3/2003.”
As could be observed from the above, the Hon'ble Supreme Court held that in view of the guidelines issued by the CBDT in Instruction No.3/2003 the Tribunal was right in observing that by not making reference to the TPO, the Assessing Officer had breached the mandatory instructions of the CBDT. In the case on hand before us facts are identical. The Assessing Officer himself without making any reference to the TPO made adjustments u/s. 92C(3) of the Act on the international transactions entered into by the assessee with its AE while completing the (A.Y: 2010-11) M/s. SkillNet Solutions India Pvt. Ltd., assessment u/s. 143(3) of the Act whereby the Assessing Officer had breached the mandatory instructions of the CBDT by not referring the international transactions to TPO. Thus, respectfully following the said decision of the Hon'ble Supreme Court in the case of PCIT v. M/s. S.G. Asia Holdings (India) Pvt. Ltd., (supra) we restore the issue of transfer pricing adjustment to the file of the Assessing Officer and the Assessing Officer shall refer these transactions to the TPO for determining the arm’s length price. We order accordingly.
In the result, appeal of the assessee is allowed for statistical purpose.
Order pronounced in the open court on the 06th November, 2019