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

[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.”