Arm’s length price : Determination : S. 92CA of Income-tax Act, 1961 : Amendment w.e.f. 1-6-2007 : Transfer Pricing Officer must give an opportunity of hearing : Assessee must be given opportunity to inspect material available with Transfer Pricing Office

12. Arm’s length price : Determination : S. 92CA of Income-tax Act, 1961 : Amendment w.e.f. 1-6-2007 : Transfer Pricing Officer must give an opportunity of hearing : Assessee must be given opportunity to inspect material available with Transfer Pricing Officer and file further material.

[Moser Baer India Ltd. v. Addl. CIT, 316 ITR 1 (Del.)]

In this case the petitioners challenged the orders of the Transfer Pricing Officer(TPO) on the following grounds :

(a) The TPO has not granted an oral hearing before determining the arm’s length price in respect of international transactions entered into by the petitioners with their associated enterprises; and

(b) There has been failure on the part of the TPO to consider documents and information filed by the petitioners, as also, non-disclosure of information and documents obtained by the TPO which were used by him in the determination of the arm’s length price.

The Delhi High Court allowed the petitions and held as under :

“(i) S. 92CA was inserted w.e.f. 1-6-2002 and was amended w.e.f. 1-6-2007. Prior to the amendment, the Assessing Officer on receipt of an order passed by the TPO under Ss.(3) of S. 92CA, would proceed to compute the total income of the assessee u/s.92C(4) having regard to the arm’s length price determined by the TPO. After the amendment, the Assessing Officer is required to compute the total income of the assessee u/s.92C(4) in conformity with the arm’s length price determined by the TPO. Thus, prior to the amendment, the Assessing Officer while computing the total income of the assessee, having regard to the arm’s length price so determined by the TPO, was required to give the final opportunity to the assessee before computing the assessee’s total income. This is clear from the language used in Ss.(4) of S. 92CA prior to its amendment, as the determination by the TPO was not binding on the Assessing Officer. The Assessing Officer was thus empowered even at the stage of computation of total income to look into the issues pertaining to the determination of the arm’s length price by the TPO.

(ii) Authorities which have power to decide and whose decisions would prejudice a party, entailing civil consequences, would be required to accord oral hearing even where a statute is silent. The provisions of Ss.(3) of S. 92CA cast an obligation on the TPO to afford a personal hearing to the assessee before he proceeds to pass an order of determining of the arm’s length price in terms of S. 92CA(3).

(iii) Since such a requirement flows from a plain reading of the provisions of S. 92CA(3), the determination of the arm’s length price by the TPO could not be sustained by recourse of the fact that the assessee did not demand an oral hearing.

(iv) To obviate any difficulty in future the show-cause notice issued by the TPO just prior to the determination of the arm’s length price u/s. 92CA(3) should refer to the documents available with the Assessing Officer in relation to the international transaction in issue. The show-cause notice should also give an option to the assessee: (a) both, to inspect the material available with the Assessing Officer as also the leeway to file further material or evidence if he so desires, and (b) to seek a personal hearing in the matter.”