Transfer pricing is one of the most litigated areas of International Tax around the World. There are so many controversies since the inception of the TP provisions in India in 2002. In this series, we shall be discussing key controversies under Transfer Pricing– Practical Issues Series
Q: Whether before a case is referred to Transfer Pricing Officer (TPO) under section 92CA(1) of the Income-tax Act, 1961 for computation of arm’s length price (ALP) Assessing Officer should prima facie demonstrate that any one or more of circumstances set out in clauses (a), (b), ( c) and/or (d ) of section 92C(3) of the Income-tax Act, 1961 are satisfied?
Q: Whether the Assessing Officer is required to record his opinion/reason before seeking the previous approval of the Commissioner under section 92CA(1) of the Income-tax Act, 1961?
Q: Whether before making a reference to the Transfer Pricing Officer under section 92CA(1) read with section 92C(3) of the Income-tax Act, 1961, is it is a condition precedent that the Assessing Officer shall provide to the assesse an opportunity of being heard?
Q: Is the approval granted by the Commissioner under section 92CA(1) of the Income-tax Act, 1961 justiciable? If so, can it be called in question in appeal on the ground that it was accorded without due diligence or proper application of mind?
Q: What is the legal effect of Instruction No. 3 of 2016 dated 20th March, 2016 issued by the Central Board of Direct Taxes on Transfer Pricing matters?”
A perusal of the provisions of sections 92C and 92CA of the Income-tax Act, 1961 reveals that these provisions can be invoked by the Assessing Officer and he can proceed to determine ALP where he either finds the existence of the circumstances mentioned in clauses (a) to (d) of section 92C(3) of the Income-tax Act, 1961 or where he considers it necessary and expedient to refer the determination of ALP to the TPO. . There is no other requirement for invoking these provisions by the Assessing Officer.
Assessing Officer is not required to demonstrate the existence of the circumstances set out in clauses (a) to ( d) of sub-section (3) of section 92C of the Act before referring the case of the assesse to the TPO for determining the ALP under section 92CA(1) of the Act for the reasons given hereafter:
(i) where the taxpayer has not filed the Accountant’s report under section 92E of the Act but the international transactions or specified domestic transactions undertaken by it come to the notice of the AO;
(ii) where the taxpayer has not declared one or more international transaction or specified domestic transaction in the Accountant’s report filed under section 92E of the Act and the said transaction or transactions come to the notice of the AO; and
(iii) where the taxpayer has declared the international transactions or specified domestic transactions in the Accountant’s report filed under section 92E of the Act but has made certain qualifying remarks to the effect that the said transactions are not international transactions or specified domestic transactions or they do not impact the income of the taxpayer.
Now the controversy whether the assessing office is obliged to provide opportunities to the assesse before referring the case to Transfer Pricing Offices (TPO) for computation of Arm’s Length Price of the international transaction. All other allied queries also being discussed above stated case laws.
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