The Tax Publishers2021 TaxPub(DT) 1153 (Mad-HC) : (2021) 432 ITR 0375


Section 92CA Section 92D(3) Section 144C

Where AO issued show-cause notice to assessee for scrutiny of case under CASS and for international transaction with AE and reference to TPO was also made, the Single Judge rightly came to the conclusion that it was a scrutiny case, and not limited scrutiny case and court had, therefore, rightly taken the AO's reference in order.

Transfer pricing - Determination of ALP - Scrutiny of case under CASS, whether includes international transactions for making reference to TPO -

It was submitted by assessee that in terms of the reasons given in the Computer Aided Scrutiny Selection (CASS), was for a limited scrutiny, it only requires reconciliation between Form 3CEB and return of income and it does not involve any TP risk parameters, which call for determination of ALP by reference to TPO. It was therefore, submitted that the reference to the TPO for determination of ALP of international transactions, as done by the AO, was not authorized as per CBDT Instruction No.3 of 2016, dated 10-3-2016, issued by the Central Board of Direct Taxes (CBDT) and therefore, the consequent process of determination of ALP was also not in accordance with law and requested for withdrawal of the reference made to the TPO. Objections was raised to the AO questioning the reference to the TPO and without prejudice to the said objection, certain documents were forwarded. Subsequently, the assessee furnished further details to the TPO. Subsequently, assessee filed W.P.No.5760 of 2019 challenging the notice issued by the TPO dated 19-12-2018. While entertaining the writ petition, the Single Bench granted a limited interim order, dated 28-2-2019. The interim order was extended on three occasions till 29-3-2019, by Order, dated 14-3-2019. Subsequently, the interim order was not extended. TPO had passed an Order dated 31-10-2019, under section 92CA(3)(ii) determining the ALP of the international transactions. A draft order under section 144C was passed by Dy. CIT on 7-11-2019. The writ petition was filed challenging the draft order under section 144C, dated 7-11-2019, passed by Dy. CIT. The argument of the assessee was that the TPO could not have taken up for determination of the ALP of the international transactions firstly on the ground that the assessee's case was not selected for limited scrutiny on the said ground and secondly, it would be in violation of the instructions issued by the CBDT. Therefore, it was submitted that the reference to the TPO under section 92CA(1) was wholly without jurisdiction. Held: It was clear from the reason for which the case was selected for scrutiny and the issue arising therefrom. Thus, there was no violation of the instructions issued by the CBDT. The Single Bench rightly took note of these aspects as well as paragraph 3.4 of the CBDT Instruction No.15/2015, which states that the issue on which a reference was thought to be necessary, had to be explicitly mentioned in the AO's letter seeking reference to the TPO and such letter of the AO dated 17-7-2018, was found to have complied with the said condition. In fact, the Single Bench has observed that the AO might have been more detailed in the choice of words employed so as to specifically refer to the issue of total employee cost, however, non-reference to this, was not fatal, as the reason for selection by CASS had been produced and placed on record by the AO while seeking approval of Pr. CIT for reference to the TPO. Further, the Court noted that after the interim order, which was initially granted, was not extended, the AO issued show-cause Notice dated 11-10-2019, the appellant-assessee submitted their reply dated 23-10-2019, enclosing various details on the computation of the ALP as sought for by the AO. However, the affidavit filed in support of the writ petitions was silent with regard to these facts. Thus, the Single Bench rightly concluded that the assessee has not only cooperated and participated in the conduct of assessment, but had also filed objections before the DRP that were pending disposal. Hence, the Single Bench rightly dismissed the writ petitions and the order did not call for any interference.