Madras High Court
M/S.Transsys Solutions Private ... vs Assistant Commissioner Of Income ... on 17 February, 2021
W.A.Nos.1133 & 1134 of 2020
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 17.02.2021
CORAM
THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAM
and
THE HONOURABLE MS.JUSTICE R.N.MANJULA
Judgment Reserved On Judgment Pronounced On
03.02.2021 17.02.2021
W.A.Nos.1133 & 1134 of 2020
and
C.M.P.No.13823 of 2020
W.P.No.1133 of 2020 :-
M/s.Transsys Solutions Private Limited,
Rep., by its Directors, Mr.Venkata Krishnan S.,
Plot Super A 16-17, RR Tower IV, 8th Floor,
TVK Industrial Estate, Guindy,
Tamil Nadu-600 032. .. Appellant/Petitioner
-vs-
1.Assistant Commissioner of Income Tax,
Corporate Circle 3(1), Chennai,
Wanarpathy Block,
No.121, Mahathma Gandhi Road,
Nungambakkam, Chennai-600 034.
2.Assistant Commissioner of Income Tax,
TPO Circle 3(2), Chennai,
1/18
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W.A.Nos.1133 & 1134 of 2020
Income Tax Office, BSNL Tower,
No.16, Greams Road, Chennai-600 006. .. Respondents/Respondents
W.P.No.1134 of 2020 :-
M/s.Transsys Solutions Private Limited,
Rep., by its Directors,
Mr.Venkata Krishnan S.,
Plot Super A 16-17,
RR Tower IV, 8th Floor,
TVK Industrial Estate, Guindy,
Tamil Nadu-600 032. .. Appellant/Petitioner
-vs-
1.Assistant Commissioner of Income Tax,
Corporate Circle 3(1), Chennai,
Wanarpathy Block,
No.121, Mahathma Gandhi Road,
Nungambakkam, Chennai-600 034.
2.Assistant Commissioner of Income Tax,
TPO Circle 3(2), Chennai,
Income Tax Office, BSNL Tower,
No.16, Greams Road, Chennai-600 006.
3.Deputy Commissioner of Income Tax,
Corporate Circle-3(2),
121, Nungambakkam High Road,
Chennai-600 034. .. Respondents/Respondents
Appeals under Clause 15 of the Letters Patent against the common
order dated 15.10.2020 made in W.P.Nos.5760 and 35246 of 2019
respectively.
2/18
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W.A.Nos.1133 & 1134 of 2020
For Appellant : Mr.N.V.Balajai,
(In both Appeals) assisted by Ms.N.V.Lakshmi
For Respondents : Ms.Hema Muralikrishnan,
(In both Appeals) Senior Standing Counsel
******
COMMON JUDGMENT
T.S.Sivagnanam, J.
These appeals by the appellant/assessee are directed against the
common order dated 15.10.2020, passed in W.P.Nos.5760 and 35246 of
2019 filed by the assessee.
2.W.P.No.5760 of 2019 was filed challenging the notice dated
19.12.2018, issued by the second respondent, the Transfer Pricing Officer
(TPO), in exercise of his powers under Section 92CA(2) and Section 92D(3)
of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for the
assessment year 2016-17.
3.W.P.No.35246 of 2019 was filed challenging the draft order under
Section 144C of the Act passed by the Deputy Commissioner of Income Tax
on 27.11.2019.
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4.The appellant filed their return of income on 15.10.2016, for the
assessment year under consideration, AY 2016-17. Notice dated
27.07.2017, was issued under Section 143(2) by the first respondent, the
Assessing Officer, which mentions the issue, which has been identified for
examination as to whether “value of international transactions is correctly
shown in Form 3CEB and the return of income”. Subsequently, the TPO
issued notice dated 19.12.2018, stating that a reference has been received
under Section 92CA(1) of the Act from the first respondent to determine the
Arms Length Price (ALP) under Section 92CA(3) in respect of international
transactions entered into by the appellant/assessee during the financial year
2015-16. The appellant was directed to produce evidence or material,
which they may rely upon in support of computation made by them of ALP
of the international transactions.
5.In paragraph 3 of the notice dated 19.12.2018, the list of
information and documents, which the assessee was required to
furnish/produce were mentioned. The assessee submitted their objection
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W.A.Nos.1133 & 1134 of 2020
dated 03.01.2019, to the Assessing Officer through their Chartered
Accountant, objecting for the reference made under Section 92CA(2) and
Section 92D(3) to the TPO (second respondent) to determine the ALP. In
the said objection, the appellant/assessee stated that the notice issued under
Section 143(2) of the Act dated 27.07.2017, is for a limited scrutiny to
identify as to whether the value of international transactions is correctly
shown in Form 3CEB and return of income, whereas the notice issued by
the TPO states that a reference has been received to determine the ALP
under Section 92CA(3) in respect of international transactions entered into
by the assessee during the financial year 2015-16. It was submitted that in
terms of the reasons given in the Computer Aided Scrutiny Selection
(CASS), is 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.
Therefore, it was submitted that the reference to the TPO for determination
of ALP of international transactions, as done by the first respondent, is not
authorized as per Instruction No.3 of 2016 dated 10.03.2016, issued by the
Central Board of Direct Taxes (CBDT) and therefore, the consequent
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W.A.Nos.1133 & 1134 of 2020
process of determination of ALP is also not in accordance with law and
requested for withdrawal of the reference made to the TPO.
6.The assessee addressed the TPO through their Chartered
Accountant by letter dated 03.01.2019, informing the TPO about their
objection given to the first respondent questioning the reference to the TPO
and without prejudice to the said objection, certain documents were
forwarded. Subsequently, by letter dated 25.01.2019, the assessee furnished
further details to the TPO. Subsequently, the assessee filed W.P.No.5760 of
2019 challenging the notice issued by the TPO dated 19.12.2018.
7.While entertaining the writ petition, the learned Single Bench
granted a limited interim order dated 28.02.2019, after observing that the
proceedings before the authority can continue, however, no orders shall be
passed till the next hearing date. The writ petition was directed to be listed
on 08.03.2019. The interim order was extended till 14.03.2019, by order
dated 08.03.2019, and further extended till 29.03.2019, by order dated
14.03.2019. Subsequently, the interim order was not extended. The
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W.A.Nos.1133 & 1134 of 2020
TPO has passed an order dated 31.10.2019, under Section 92CA(3) of the
Act determining the ALP of the international transactions.
8.The Deputy Commissioner of Income Tax, Corporate Circle-3(2),
Chennai, issued notice dated 25.11.2019, to the assessee informing them
that they have received the order of the TPO dated 31.10.2019 and that the
Department is not in possession of any order staying the proceedings as on
the said date and if there is any order of stay granted in the assessee's case,
the same may be communicated to the Department on or before 27.11.2019.
In response to the said notice, the assessee by reply dated 27.11.2019,
informed the Deputy Commissioner of Income Tax that when the writ
petition was posted for hearing, for extension of stay, the learned Standing
Counsel for the Department submitted that an assessment order was already
passed for the assessment year 2016-17 and therefore, the writ petition
(W.P.No.5760 of 2019) is infructuous.
9.Further, the assessee stated that their counsel objected to the
passing of the assessment order, when the writ petition was pending and that
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the Court adjourned the matter by a week to ascertain as to whether
assessment order has been passed. A draft order under Section 144C of the
Act was passed by the Deputy Commissioner of Income Tax on 27.11.2019.
This order was challenged by the appellant in W.P.No.35246 of 2019.
10.The writ petition filed in W.P.No.5760 of 2019 challenging the
notice dated 19.12.2019 was clubbed along with W.P.No.35246 of 2019 and
both the writ petitions have been dismissed by a common order. This is
how the assessee is before us by way of these appeals.
11.Before us, the assessee seeks to prosecute W.A.No.1134 of 2020,
which has been filed challenging the dismissal of W.P.No.35246 of 2019.
As stated above, the said writ petition was filed challenging the draft order
under Section 144C of the Act dated 27.11.2019, passed by the Deputy
Commissioner of Income Tax.
12.We have elaborately heard Mr.N.V.Balaji, learned counsel assisted
by Ms.N.V.Lakshmi, learned counsel for the appellant/assessee and
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W.A.Nos.1133 & 1134 of 2020
Ms.Hema Muralikrishnan, learned Senior Standing Counsel for the
respondents/Revenue.
13.The argument of the learned counsel for the appellant is that the
solitary issue, which was identified for examination in the limited scrutiny
as per the notice issued under Section 143(2) of the Act dated 27.07.2017, is
whether value of international transactions is correctly shown in Form
3CEB and return of income and that whether transactions reported are at
arms length or not, was not the issue for which, the assessee's case was
taken up for limited scrutiny. Further, 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 is submitted that the reference to the TPO under
Section 92CA(1) of the Act is wholly without jurisdiction.
14.Reverting back to the notice dated 27.07.2017, and referring to the
reason for which the assessee's case was selected for limited scrutiny, it is
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W.A.Nos.1133 & 1134 of 2020
submitted that in the counter affidavit filed in the writ petitions, the scope
has been increased and this is impermissible in law. In this regard, the
learned counsel referred to the decision in Mohinder Singh Gill & Anr. vs.
The Chief Election Commissioner, New Delhi & Ors., [AIR 1978 SC 851].
Further, in response to the query raised by the Court qua, the finding
rendered by the learned Single Bench in paragraph 13 of the impugned
order that the assessee had cooperated and participated in the assessment
proceedings and has also filed objections to the draft order before the
Dispute Resolution Panel (DRP), which is pending, as to how the appellant
would be justified in prosecuting these appeals as already, the assessee is
before the DRP raising all contentions. Mr.N.V.Balaji, would respond by
referring to Section 144C(8) and submit that the issue raised in the writ
petitions cannot be agitated before the DRP, nor adjudicated by the DRP
and therefore, the assessee is justified in prosecuting these appeals.
Therefore, it is submitted that the learned Single Bench ought to have
granted the relief sought for in the writ petitions.
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W.A.Nos.1133 & 1134 of 2020
15.Ms.Hema Muralikrishnan, would submit that the understanding of
the appellant/assessee is wholly incorrect and this has been clearly brought
out in the counter affidavit filed in the writ petitions and it is not a case,
where the Assessing Officer was denuded of jurisdiction to make a
reference to the TPO. The learned Standing Counsel referred to the reasons
given in the CASS selection and the assessee is not right in contending that
the case was selected for limited scrutiny only. Further, the learned counsel
referred to relevant paragraphs in the impugned order and submitted that the
learned Writ Court rightly rejected the relief sought for.
16.In reply, Mr.N.V.Balaji while briefly reiterating the submissions
made earlier, had referred to the directions issued by the CBDT in
Instruction No.7/2014 dated 26.09.2014 and Instruction No.20/2015 dated
29.12.2015 and that information cannot be called for in a routine manner
and a separate instruction has also been issued fixing monetary limits for
selecting cases for scrutiny.
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W.A.Nos.1133 & 1134 of 2020
17.What is required to be considered in the instant case is whether the
assessee is right in contending that the assessee's case was selected for a
limited scrutiny and the reference to the TPO was beyond the scope of the
scrutiny. In this regard, it would be relevant to see the reason and the issue
for which, the assessee's case was selected for scrutiny, which is as
hereunder:-
Reason Underlying
Code Reason Description Issue Information Rationale
Elements
TP 01.04 Large Aggregate value of total Whether value of
employee cost in comparison to international
Aggregate value of international transactions are
transactions as per books of correctly shown
accounts (T.P.Risk Parameter) in Form 3CEB
(S.No.8 of Form 3CEB and Part and return of
A-P&L of ITR) income.
18.From the above, it is seen that the reason stated for selection of
scrutiny was the large aggregate value of the total employee cost in
comparison to aggregate value of international transactions as per books of
accounts and TP risk parameters. The issue was whether the value of
international transactions are correctly shown in Form 3CEB and return of
income. If the above is the reason and issue for which the assessee's case
was selected for scrutiny, can it be said that it is a case of a limited scrutiny.
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W.A.Nos.1133 & 1134 of 2020
In our considered view, such narrow interpretation cannot be given to the
case on hand.
19.As rightly contended by Ms.Hema Muralikrishnan, the first
respondent is not competent to check whether the value of the international
transactions as furnished in Form 3CEB by a Chartered Accountant and
return of income is correctly shown. Further, the Assessing Officer, being
not competent to examine the said issue, necessarily, the case has to be
referred to the TPO as per Section 92CA of the Act. Therefore, we are of
the view that the contention of the appellant/assessee that the case was
selected for mere reconciliation is an incorrect interpretation. This is clear
from the reason for which the case was selected for scrutiny and the issue
arising there from. Thus, we find that there is no violation of the
instructions issued by the CBDT.
20.In our considered view, the learned 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
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W.A.Nos.1133 & 1134 of 2020
be necessary, has to be explicitly mentioned in the Assessing Officer's letter
seeking reference to the TPO and such letter of the Assessing Officer dated
17.07.2018, was found to have complied with the said condition. The said
letter is as follows:-
"PAN: AADCT4603N/2018-19 Dated: 17/07/2018
To
The Principal Commissioner of Income-tax,
Chennai-3,
Chennai.
THROUGH THE ADDL. CIT, CORPORATE RANGE-3,
CHENNAI
Respected Sir,
\ Sub: Computation of Arms Length Price – Request for
approval – reference to Transfer Pricing Officer (TPO) –
in the following case – AY 2016-17 – Reg.
*****
For the A.Y. 2016-17, the following scrutiny case has been selected
for Limited scrutiny through CASS and notice u/s 143(2) was duly served on
the assessee. On examination of Form 3CEBN in this case, it is observed that
the assessee has entered into international transactions with its associated
enterprises as mentioned below:
S.No. Name of the PAN A.Y CASS Reason
Assessee
1 M/s.Transsys AADCT4603N 2016-17 (v) Large
Solutions Pvt. Aggregate value of
Ltd. total employee cost
in comparison to
aggregate value of
International
transactions as per
books of accounts.
(Form 3CEB)
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Name and Description of services Amount Method used
address of the provided/availed to/from paid/received or for
associated the associated enterprise payable/receivable determining
enterprise with for the services the arm’s
whom the provided/taken. length price
International [Sec section
transaction has 92C(1)]
been entered
into.
Name Address Type Description Type As per As computed
Books by the
Account assessee
having regard
to the arm’s
length price Comparable
Transsys UAE Provided Software Received/ 217203133 217203133 uncontrolled
solutions to AE solutions Receivable price method
FCZUAE
2. In view of the above, it is considered necessary that a reference
u/s. 92CA(1) be made to the Transfer Pricing Officer for determination of
Arm’s length Price for the said Transactions. As per Sec.92CA(1) of the
IT Act, a reference to TPO could be made only with the prior approval of
the Commissioner of Income-tax. Hence, it is requested that the necessary
approval may kindly be granted for referring the case to the TPO.
3. Copies of Form 3CEB and CASS reasons screen shot in the
above mentioned case are enclosed herewith for your kind reference.”
21.Further, we also agree and endorse the finding rendered by the
learned Single Bench that the reason for selection of scrutiny by CASS was
only for numerical reconciliation is a over simplification of the reason stated
for selection. In fact, the learned Single Bench has observed that the officer
might have been more detailed in the choice of words employed so as to
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specifically refer to the issue of total employee cost, however, non-reference
to this, is not fatal, as the reason for selection by CASS has been produced
and placed on record by the officer while seeking approval of a Principal
Commissioner of Income Tax (PCIT) for reference to the TPO.
22.Further, the Court noted that after the interim order, which was
initially granted, was not extended, the Assessing Officer 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 Assessing Officer. However, the affidavit filed in support
of the writ petitions was silent with regard to these facts. Thus, the learned
Single Bench rightly concluded that the appellant has not only cooperated
and participated in the conduct of assessment, but has also filed objections
before the DRP that are pending disposal. Hence, we are of the considered
view that the learned Single Bench rightly dismissed the writ petitions and
the order does not call for any interference.
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23.For the above reasons, W.A.No.1134 of 2020 is dismissed.
Consequently, there is no merit in W.A.No.1133 of 2020.
24.In the result, the appeals are dismissed. No costs. Consequently,
connected miscellaneous petition is closed.
(T.S.S., J.) (R.N.M., J.)
17.02.2021
Index: Yes
Speaking Order : Yes
abr
To
1.Assistant Commissioner of Income Tax,
Corporate Circle 3(1), Chennai,
Wanarpathy Block, No.121, Mahathma Gandhi Road,
Nungambakkam, Chennai-600 034.
2.Assistant Commissioner of Income Tax,
TPO Circle 3(2), Chennai,
Income Tax Office, BSNL Tower,
No.16, Greams Road, Chennai-600 006.
3.Deputy Commissioner of Income Tax,
Corporate Circle-3(2),
121, Nungambakkam High Road,
Chennai-600 034.
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W.A.Nos.1133 & 1134 of 2020
T.S.Sivagnanam, J.
and
R.N.Manjula, J.
(abr)
Pre-delivery Judgment made in
W.A.Nos.1133 & 1134 of 2020
17.02.2021
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