Indorama Synthetics (India) Ltd. vs. Addl. CIT; [2016] 71 taxmann.com 349 (Delhi):
The assessee-company entered into transactions of import of raw material amounting from ‘TPL’, a company incorporated in Thailand. It filed return of income declaring ‘Nil’ income. During pendency of assessment proceedings, the Assessing Officer referred the assessee’s case to TPO for determination of ALP in relation to the international transactions undertaken by the assessee with AE
The assessee filed writ petition contending that Assessing Officer could not have referred the matter to TPO without giving it an opportunity of being heard. The Delhi High Court allowed the assessee’s writ petition and held as under:
“i) The main issue is whether it was incumbent on the Assessing Officer to have given the assessee an opportunity of being heard before making a reference to the TPO u/s. 92CA(1). Section 92CA reveals that there are certain jurisdictional prerequisites for the making of a reference by the Assessing Officer to the TPO. In the first place, the Assessing Officer has to be satisfied that the assessee has entered into an international transaction or a specified domestic transaction. Whereas in the present case, the assessee raises a threshold objection that it has not entered into any international transaction within the meaning of section 92B, it is imperative for the Assessing Officer to deal with such an objection. If the Assessing Officer decides to nevertheless make a reference, he has to record the reasons, even prima facie, why he considers it necessary and expedient to make such a reference to the TPO.
ii) What is referred to the TPO is the determination of the ALP of the said international transaction or specified domestic transaction. Therefore, the satisfaction to be arrived at by the Assessing Officer regarding the existence of the international transaction or specified domestic transaction, even prima facie, is a sine qua non for making the reference to the TPO. Where such an accountant’s report is submitted by the assessee in Form 3CEB, then there should be no difficulty for the Assessing Officer to form an opinion, even a prima facie one, that it is necessary and expedient to make a reference to the TPO on the question of the determination of the ALP of such international transaction involving the assessee.
iii) CBDT’s Instruction No. 3 of 2003 categorically states that in order to make a reference to the TPO, the Assessing Officer has to satisfy himself that the assessee has entered into an international transaction with its AE. One of the sources from which the factual information regarding the international transaction can be gathered is Form No. 3 CEB filed with the return which is in the nature of an accountant’s report containing the details of the international transaction entered into by the taxpayer during the assessment year in question. Where no such report in Form 3 CEB is filed by the assessee, what will be the basis for the Assessing Officer to record that it is necessary and expedient to refer the question of determination of the ALP of such transaction to the TPO? Where the Assessing Officer is of the view that a transaction reflected in the filed return partakes of the character of an international transaction, he will put the assessee on notice of his proposal to make a reference to the TPO u/s. 92CA (1) of the Act. Before making a reference to the TPO, the Assessing Officer has to seek approval of the Commissioner/Director as contemplated under the Act. Therefore, all transactions have to be explicitly mentioned in the letter of reference. The very nature of this exercise is such that the Assessing Officer will first put the assessee on notice of his proposing to make a reference to the TPO and seek information and clarification from the assessee. If at this stage, the assessee raises an objection as to the very jurisdiction of the Assessing Officer to make the reference, then it will be incumbent on the Assessing Officer to deal with such objection on merits.
iv) While section 92CA (1) does not itself talk about a hearing having to be given to the assessee upon the latter raising an objection as to the jurisdiction of the Assessing Officer to make a reference, such requirement appears to be implicit in the very nature of the procedure that is expected to be followed by the Assessing Officer. As already noticed, the Assessing Officer has to record that he considers it necessary and expedient to make a reference. The Assessing Officer has to deal with the objections raised by the assessee. It is only thereafter that the Assessing Officer can come to the conclusion, even prime facie, that it is necessary and expedient to make the reference. This has to be done prior to making a reference
v) As far as the present case is concerned, the assessee has not filed the accountant’s report u/s. 92E yet the Assessing Officer has to proceed to determine the ALP u/s. 92C (3) or refer the matter to the TPO to determine the ALP u/s. 92CA (1) in case the assessee has not declared one or more international transactions in the report filed u/s. 92E of the Act. As explained above, the Assessing Officer must provide an opportunity of being heard to the taxpayer before recording his satisfaction or otherwise
vi) For all the aforesaid reasons, it is opined that the references made by the Assessing Officer to the TPO on the question of determination of ALP of the alleged international transactions involving the petitioner and its AE have been made without affording the petitioner an opportunity of being heard as was required by law. Accordingly, the said reference made by the Assessing Officer to the TPO is hereby set aside.
vii) The question of whether or not a reference should be made to the TPO, has to be determined by the Assessing Officer afresh after giving the assessee an opportunity of being heard.”
