Bhatia International Ltd. vs Additional Commissioner of Income Tax and Others

S.C. Sharma, J.—Regard being had to the similitude in the controversy involved in the present cases, the writ petitions were analogously heard and by a common order, they are being disposed of by this Court. Facts of Writ Petn. No. 2229 of 2011 are narrated hereunder. The petitioner company before this Court, a company incorporated and registered under the Companies Act, 1956, has filed this present petition challenging the reference made under s. 92CA(1), dt. 26th March, 2009, for the asst. yr. 2008-09 by the Addl. CIT, Range III, Indore for passing an order under s. 92CA(3) of the IT Act, 1961. The petitioner company is also aggrieved by order dt. 29th Oct., 2010 passed by the Addl. CIT (TPO) for the asst. yr. 2008-09 under s. 92CA(3) of the IT Act, 1961. The petitioner company is also aggrieved by the show-cause notice dt. 10th Nov., 2010 and 6th Jan., 2011 issued by the Addl. CIT, Range-3, for the asst. yr. 2008-09. It has been stated in the writ petition that the petitioner company is engaged in the import of coal for the purposes of reselling and while importing coal, the petitioner company engages ships on time charter/voyage charter basis mostly from foreign shipping companies. The petitioner company has further stated that a search was carried out under s. 132 of the IT Act, 1961 at the premises of the petitioner company on 25th Sept., 2007 and thereafter notice dt. 3rd March, 2008 was issued under s. 153A of the IT Act for the asst. yr. 2002-03 to asst. yr. 2007-08. It has been further stated that the petitioner company filed the return of income for the asst. yr. 2008-09 on 25th Sept., 2008 and the assessment was selected for scrutiny. A notice was issued under s. 143(2) dt. 30th Oct., 2008. The petitioner company has further stated that as per the statutory provisions contained under s. 92E of the IT Act, the petitioner company has filed the accountant''s report in Form No. 3CEB with respect to international transactions and thereafter the respondent No. 1, Addl. CIT, Range-3, made a reference to the TPO for computation of ALP in relation to the international transactions. The contention of the petitioner company is that no approval of the CIT was obtained for making a reference under s. 92CA(1) by the first respondent. The petitioner company further stated that the TPO has thereafter passed an order on 29th Oct., 2010 under s. 92CA(3) of the IT Act. 1961 without following the principles of natural justice and fair play, meaning thereby, proper opportunity was not given to the petitioner company by the TPO and documents demanded by the company were also not given to the petitioner company by the TPO. It has also been stated that opportunity to examine one Mr. Deepak Sehgal was also not given to the petitioner company and therefore the order passed by the TPO deserves to be set aside. The petitioner company has also prayed for quashment of subsequent show-cause notice dt. 10th Nov., 2010 and 6th Jan., 2011. The petitioner company has raised various grounds before this Court and has relied upon the judgments delivered by the Hon''ble Supreme Court and various High Courts governing the issue on merits. On the question of availability of alternative remedy, the petitioner company has relied upon the judgment delivered in the case of Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, ; Harbanslal Sahnia and Another Vs. Indian Oil Corpn. Ltd. and Others, Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai and Others, ; A.V. Venkateswaran, Collector of Customs, Bombay Vs. Ramchand Sobhraj Wadhwani and Another,

A reply has been filed on behalf of the respondents and it has been stated on affidavit that while making a reference under s. 92CA(1) dt. 26th March, 2009, for the asst. yr. 2008-09 approval was obtained from the CIT-I, as per the provisions of the IT Act, 1961. It has also been stated that keeping In view the international transactions, as per the provisions of s. 92CA of the IT Act, 1961, reference was made under s. 92CA(1) of the IT Act, 1961 in case of the petitioner for the asst. yr. 2008-09 for compulation of ALP on 26th March, 2009 to the TPO-I (Addl. CIT, Ahmedabad). It has been further stated that the reference was made correctly after obtaining approval from the CIT and after verifying the details furnished by the assessee in auditor''s report In Form No. 3CEB with respect to the international transactions with associate enterprises. The Department has further stated that the petitioner company had entered into international transactions of substantial magnitude of more than Rs. 832 crores with its associated concerns and keeping in view the aforesaid, a reference was made by the respondent No. 1. It has been further stated that the reference under s. 92CA(1) is as per law and TPO has rightly passed the order keeping in view the statutory provisions as contained under the IT Act, 1961. The Department has further stated that since the case was referred to TPO, the time-limit of 33 months as per the third proviso of s. 153B is duly available for completing the assessment and once the assessment proceedings are open the AO has got all the powers to enquire any issue which has got review implications and assess accordingly within a period of 3 months and mere issuance of show-cause notice does not reflect any satisfaction on the part of respondent No. 1 that provisions of s. 93 are applicable. The respondents have stated that the present petition has been filed after issuance of a show-cause notice and it is premature, hence deserves to be dismissed.

The TPO has also filed an affidavit and all minute details have been furnished by the TPO in the matter of fixing of ALP. It has been stated that the petitioner while appearing before the TPO, despite various opportunities, deliberately did not furnish the requisite details. It has been categorically stated on affidavit that pursuant to the reference received by the TPO vide letter dt. 26th March, 2009 which was received on 3rd April, 2009, letter dt. 3rd April, 2009 was issued to the petitioner asking several details in relation to the transfer pricing proceedings and in response to the letter Issued by the TPO, the petitioner attended the office on 28th April, 2009 and submitted letters dt. 27th April, 2009. The petitioner was asked to file the following details :

Incorporation documents of AE (FZE), details of legal law, where it is registered.

Balance sheet and P&L a/c of AEs.

Freights paid to third parties and comparison with those paid to AEs.

Break up of freight expenses in P&L a/c.

The affidavit further reveals that the petitioner also did not appear on some of the dates, sought adjournments and he was also informed that he should co-operate with the proceedings. The TPO has categorically stated that documents were furnished to the petitioner and in spite of repeated opportunities, a totally non-co-operative attitude was adopted by the petitioner company. The respondents have further stated that reasonable opportunity was granted to the petitioner company. They were heard in the matter and after following the prescribed procedure, the impugned order has been passed. The Department has furnished all minute details while filing affidavits of various officers and the same establishes that the petitioner has participated in the proceedings before the TPO.

The original record was also produced before this Court and the same reveals that there was an approval of the CIT in respect of reference made by the Addl. CIT to the TPO.

Mr. Mohan Parasaran, learned Addl. Solicitor General of India has vehemently argued that there is a complete mechanism provided under the IT Act, 1961 for raising objections in the matter of fixation of ALP and at this stage, the question of interference, does not arise. He has placed reliance upon the judgment delivered by the Division Bench of Bombay High Court in the case of M/s. Hindalco Industries Ltd. Adity Birla Centre, "B" Wing, 3rd floor, S.K. Ahire Marg, Worli, Mumbai - 25 Vs. The Addl. Commissioner of Income Tax Transfer Pricing Officer - 1(5) Room No. 2, Ground floor, Scindia House, Ballard Estate, Mumbai - 400 001 and Others, , and has prayed for dismissal of the writ petition.

Heard learned counsel for the parties at length and perused the record.

In the present case, the petitioner company is aggrieved by a reference made by the Addl. CIT, Range-3, under s. 92CA(1) dt. 26th March, 2009 to the TPO (Addl. CIT, Ahemdabad). The order passed by the TPO dt. 29th Oct., 2010 is also under challenge and the subsequent show cause notice issued pursuant to the order dt. 29th Oct., 2010 are also under challenge.

In the present case, the first ground raised by the petitioner company is that no approval, as required under s. 92CA, has been obtained from the CIT.

Sec. 92CA reads as under :

92CA. Reference to TPO.--(1) Where any person, being the assessee, has entered into an international transaction in any previous year, and the AO considers it necessary or expedient so to do, he may, with the previous approval of the CIT, refer the computation of the ALP in relation to the said international transaction under s. 92C to the TPO.

(2) Where a reference is made under sub-s. (1), the TPO shall serve a notice on the assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the assessee may rely in support of the computation made by him of the ALP in relation to the international transaction referred to in sub-s. (1).

(2A) Where any other international transaction other than an international transaction referred under sub-s. (1), comes to the notice of the TPO during the course of the proceedings before him, the provisions of this chapter shall apply as if such other international transaction is an international transaction referred to him under sub-s. (1).

(3) On the date specified in the notice under sub-s. (2), or as soon thereafter as may be, after hearing such evidence as the assessee may produce, including any information or documents referred to in sub-s. (3) of s. 92D and after considering such evidence as the TPO may require on any specified points and after taking into account all relevant materials which he has gathered, the TPO shall, by order in writing, determine the ALP in relation to the international transaction in accordance with sub-s. (3) of s. 92C and send a copy of his order to the AO and to the assessee.

(3A) Where a reference was made under sub-s. (1) before the 1st day of June, 2007 but the order under sub-s. (3) has not been made by the TPO before the said date, or a reference under sub-s. (1) is made on or after the 1st day of June, 2007, an order under sub-s. (3) may be made at any time before sixty days prior to the date on which the period of limitation referred to in s. 153, or as the case may be, in s. 153B for making the order of assessment or reassessment or recomputation or fresh assessment, as the case may be, expires.

(4) On receipt of the order under sub-s. (3), the AO shall proceed to compute the total income of the assessee under sub-s. (4) of s. 92C in conformity with the ALP as so determined by the TPO.

(5) With a view to rectifying any mistake apparent from the record, the TPO may amend any order passed by him under sub-s. (3), and the provisions of s. 154 shall, so far as may be, apply accordingly.

(6) Where any amendment is made by the TPO under sub-s. (5), he shall send a copy of his order to the AO who shall thereafter proceed to amend the order of assessment in conformity with such order of the TPO.

(7) The TPO may, for the purposes of determining the ALP under this section, exercise all or any of the powers specified in cls. (a) to (d) of sub-s. (1) or sub-s. (3) or sub-s. (6) of s. 133 or s. 133A.

Explanation.--For the purposes of this section, TPO means a Jt. CIT or Dy. CIT or Asstt. CIT authorised by the Board to perform all or any of the functions of an AO specified in ss. 92C and 92D in respect of any person or class of persons.

The aforesaid statutory provision of law does provide for an approval by the CIT and the original record produced before this Court establishes that there was an approval by the CIT in the matter of reference to the TPO. In the present case, the impugned order has been passed by an authority who is jurisdictionally competent to pass such an order and it can never be said that the order passed by the respondents is without jurisdiction.

Sec. 144C of the IT Act, 1961, reads as under :

144C. Reference to DRP.--(1) The AO shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee.

(2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order,--

(a) file his acceptance of the variations to the AO; or

(b) file his objections, if any, to such variation with,--

(i) the DRP: and

(ii) the AO.

(3) The AO shall complete the assessment on the basis of the draft order, if--

(a) the assessee intimates to the AO the acceptance of the variation; or

(b) no objections are received within the period specified in sub-s. (2).

(4) The AO shall, notwithstanding anything contained in s. 153, pass the assessment order under sub-s. (3) within one month from the end of the month in which,--

(a) the acceptance is received; or

(b) the period of filing of objections under sub-s. (2) expires.

(5) The DRP shall, in a case where any objection is received under sub-s. (2), issue such directions, as it thinks fit, for the guidance of the AO to enable him to complete the assessment.

(6) The DRP shall issue the directions referred to in sub-s. (5), after considering the following, namely :

(a) draft order;

(b) objections filed by the assessee;

(c) evidence furnished by the assessee;

(d) report, if any, of the AO, Valuation Officer or TPO or any other authority;

(e) records relating to the draft order;

(f) evidence collected by, or caused to be collected by, it; and

(g) result of any enquiry made by, or caused to be made by, it.

(7) The DRP may, before issuing any directions referred to in sub-s. (5),--

(a) make such further enquiry, as it thinks fit; or

(b) cause any further enquiry to be made by any IT authority and report the result of the same to it.

(8) The DRP may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-s. (5) for further enquiry and passing of the assessment order.

(9) If the members of the DRP differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members.

(10) Every direction issued by the DRP shall be binding on the AO.

(11) No direction under sub-s. (5) shall be issued unless an opportunity of being heard is given to the assessee and the AO on such directions which are prejudicial to the interest of the assessee or the Interest of the Revenue, respectively.

(12) No direction under sub-s. (5) shall be issued after nine months from the end of the month in which the draft order is forwarded to the eligible assessee.

(13) Upon receipt of the directions issued under sub-s. (3), the AO shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in s. 153, the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received.

(14) The Board may make rules for the purposes of the efficient functioning of the DRP and expeditious disposal of the objections filed under sub-s. (2) by the eligible assessee.

(15) For the purposes of this section,--

(a) "DRP" means a collegium comprising of three CITs constituted by the Board for this purpose;

(b) "eligible assessee" means,--

(i) any person in whose case the variation referred to in sub-s. (1) arises as a consequence of the order of the TPO passed under sub-s. (3) of s. 92CA; and

(ii) any foreign company.

The aforesaid statutory provision of law provides for submitting objections to the DRP and the AO. The DRP comprises of three CITs constituted by the Board for the purpose. Thus, a complete mechanism has been provided under the Act itself for resolving such a dispute and, therefore, this Court does not find any reason to interfere at this stage in the matter.

The Division Bench of the Bombay High Court while dealing with an order passed by the Addl. CIT-I, (TPO) in the case of Hindalco Industries Ltd. vs. Addl CIT (supra) in paras 10 to 13 has held as under :

Sec. 92(1) provides that any income arising from an international transaction shall be computed having regard to the ALP. Sec. 92B(1) defines the expression "international transaction" while s. 92C provides for the computation of the ALP. Under sub-s. (3) of s. 92C, the AO is empowered to determine the ALP in relation to an international transaction on the basis of the provisions of sub-ss. (1) and (2) taking account of such material, information or documents as is available with him, where he is of the opinion inter alia that the price charged or paid in an international transaction has not been determined in accordance with sub-ss. (1) and (2), or where the information and documents relating to the transaction have not been kept by the assessee in accordance with the statutory provisions; or where the information or data used in the computation is not reliable or correct or the assessee has failed to furnish within a specified time any document which he is required to furnish. Sec. 92CA empowers the AO to make a reference to the TPO. Under sub-s. (1) of s. 92CA, where any person being an assessee has entered into an international transaction in any previous year and the AO considers it necessary or expedient so to do, he may, with the CIT''s approval refer the computation of the ALP in relation to the international transaction under s. 92C to the TPO. Upon a reference being made to him, the TPO is required to serve upon the assessee a notice requiring the assessee to produce any evidence on which the assessee may rely upon in support of the computation made by him of the ALP in relation to the international transaction. After considering the evidence which the assessee may produce and after taking into account all relevant materials which he has gathered, the TPO can determine the ALP in accordance with sub-s. (3) of s. 92C. The proviso to sub-s. (3) requires the AO to furnish a notice calling upon the assessee to show cause why the ALP should not be determined on the basis of material, information or documents in the possession of the AO. Once a determination is made by the TPO. the AO under s. 92CA(4) has to compute the total income of the assessee in conformity with the ALP as determined by the TPO. Sec. 144C mandates that the AO shall forward a draft of the proposed order of assessment if he proposes to make any variation in the income or loss returned which is prejudicial to the interest of the assessee. Upon receipt of the draft order, the assessee is entitled to submit his objections to the variation with the DRP and the AO under sub-s. (5) of s. 144C. The DRP where it has received any objections from the assessee is empowered to issue such directions, as it thinks fit, for the guidance of the AO. The DRP is empowered under sub-s. (7) to make its own enquiry or to cause any further enquiry to be made by any IT authority. Under sub-s. (8) the Panel may confirm, reduce or enhance the variation of the draft order so, however, that it shall not set aside any variation or issue any direction under sub-s. (5) for further enquiry and passing of the assessment order. Under s. 253(1)(d), an order passed by the AO under s. 143(3) or s. 147 in pursuance of the directions of the DRP is subject to an appeal before the Tribunal.

In the present case, the AO, while making a reference to the TPO stated in her order dt. 9th Oct., 2009 that she considered it necessary or expedient so to do. While seeking the approval of the CIT, the AO relied upon an instruction of the CBDT which stipulates that all cases where international transactions exceeding Rs. 15 crores are involved, shall within the meaning of s. 92 be selected for compulsory scrutiny. The CIT granted his approval on 30th Sept., 2009. The TPO issued a notice to the assessee as far back as on 3rd March, 2010 upon receipt of the reference. The petitioner participated in the proceedings before the TPO. Eight hearings took place before the TPO in the course of which the petitioner submitted its representations. The TPO has now rendered a determination on 31st Oct., 2011. At this stage, we are of the considered view that it would be inappropriate for this Court to exercise its writ jurisdiction under Art. 226 of the Constitution to entertain a petition challenging the validity of the reference made by the AO to the TPO on 9th Oct., 2009 and the underlying approval of the CIT dt. 30th Sept., 2009, both of which have been issued over two years ago. The petitioner, in any case had notice before the TPO as far back as on 3rd March, 2010 and participated in those proceedings. Under the statutory provisions, to which a reference is made earlier, a comprehensive remedy is available to the petitioner before the AO frames an order of assessment. A draft order has to be prepared to which the petitioner is entitled to submit its objections. Even against the draft order, the petitioner has a remedy of moving the DRP. Though the AO is bound by the determination of the ALP by the TPO, it is evident from the statutory scheme that the Tribunal before which remedy of an appeal is available would be entitled to consider every aspect of the matter when it renders its decision in the exercise of its appellate powers.

In this view of the matter, we are not inclined to exercise the writ jurisdiction under Art. 226of the Constitution of India at this stage. We find no merit in the submission that there was a breach of the principles of natural justice by the TPO. Under sub-s. (3) of s. 92CA the TPO is required to comply with the principles of natural justice and to render a determination of the ALP in relation to the international transaction in accordance with s. 92C(3), the proviso to which has been noted earlier. The Delhi High Court in its decision in ''Maruti'' Suzuki India Ltd. Vs. Additional Commissioner of Income Tax Transfer Pricing Officer, ) has affirmed the importance of complying with the principles of natural justice for the purposes of the proceeding. In this case, the petitioner was on notice of the nature of the enquiry which was being pursued by the TPO. The TPO addressed a communication on 4th Oct., 2011 detailing the information that was required and the basis on which disclosure was sought. The petitioner adduced detailed submissions by its letter dt. 14th and 21st Oct., 2011.

We are of the view that there is no breach of the principles of natural justice which would warrant the interference of this Court under Art. 226 of the Constitution, at this stage. We however clarify that in the remedy which is available to the petitioner in appeal, it would be open to the petitioner to urge all appropriate grounds and contentions and these observations are made by the Court confined to the question as to whether a petition under Art. 226 of the Constitution should be entertained at this stage. Before we conclude, we may also note that in the present case, there is no challenge to the validity of the instructions issued by the CBDT (Instruction No. 3 of 2003). The validity thereof has been upheld by the Delhi High Court in Sony India (P.) Ltd. Vs. Central Board of Direct Taxes and Another,

Keeping in view the aforesaid judgment passed by the Division Bench of the Bombay High Court, as reasonable opportunity was granted to the petitioner which is evident from the affidavit filed by the Department and also keeping in view the fact that the order has been passed by an authority competent to pass such an order, the question of interference, at this stage, under Art. 226 of the Constitution of India, does not arise. The petitioner is certainly at liberty to raise all appropriate grounds and contentions before the appropriate fora and the observations made by this Court are only confined to the issue whether a petition under Art. 226 of the Constitution of India should be entertained at this stage or not. This Court is of the considered opinion that at this stage as the petitioner Company is having alternative and efficacious remedy, the question of interference in the peculiar facts and circumstances of the case does not arise and the writ petition is accordingly dismissed. No order as to costs.