Calance Software Pvt. Ltd vs. DCIT (ITAT Delhi)

DATE: March 23, 2018 (Date of pronouncement)
DATE: March 26, 2018 (Date of publication)
AY: 2006-07
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Transfer Pricing: CBDT's Instruction No. 3/2003 is binding on the AO. Consequently, the ALP of international transactions where the quantum is less than Rs. 5 crore has to be determined by the AO and cannot be referred to the TPO. If such reference is made, it is invalid and the extended time for completing the assessment is not available to the AO. The assessment is void as it is time-barred

The Tribunal had to consider the following ground of appeal:

“The reference to the Transfer Pricing Officer u/s 92CA of the Income Tax Act, 1961 by the Assessing Officer was illegal being contrary to (i) the binding Instruction No. 3/2003, (ii) the provisions of Section 92CA and the binding decision of the Special Bench in the case of Aztec Software and Technology Services Ltd. 107 ITD 141 (Bang) (SB). Consequently, the impugned assessment is time barred and, therefore, bad in law.”

The assessee submitted that the reference made to the TPO is bad in law. There are two limbs of this ground. Firstly, the Assessing Officer has not taken any approval from the Commissioner in this regard and secondly, as the quantum of the international transaction is below Rs. 5 crore the Assessing Officer ought to have determined the ALP himself and not referred to the TPO. The order of the TPO makes it clear that quantum of international transaction is Rs.2,15,04,878/- which means the same is below the monetary limit of Rs. 5 crore.

It was submitted that though the limit of Rs. 5 crore is not mentioned anywhere in the provisions of Transfer Pricing, CBDT vide its Instruction dated 20.03.2003 being Instruction No. 03 of 2003 categorically provided that only those cases where the quantum of international transaction is above Rs. 5 crore would be referred to the TPO.

The Ld. AR submitted that the CBDT made it clear that “it would be appropriate if a small number of cases are selected for scrutiny of transfer price and these are dealt with effectively.” Therefore, it can be said that the reference made to the TPO was bad in law and hence the adjustment made by the TPO was also bad in law.

This argument further finds support from the Instruction No. 3 of 2016 wherein it has been categorically mentioned that all references made to TPO, which are not in consonance with the instruction of Board, should be withdrawn.

The Ld. AR relied upon the decision of the Jurisdictional High Court in case of CIT vs. SPL’s Siddhartha Ltd. (2012) 345 ITR 223 and also relied upon the decision of Special Bench of this Tribunal in case of Aztec Software & Technology Services Ltd. vs. ACIT (2007) 107 ITD 0141 (SB).

HELD by the Tribunal upholding the contention:

(i) At the time of hearing the Ld. AR has taken a ground which is on legal point that as per the Instruction No. 3/2003 issued by the CBDT, the Assessing Officer should have decided the issue of international transaction himself instead of referring it to Transfer Pricing Officer as the quantum of International Transaction is below the monetary limit of Rs.5 crore. Prima facie, it appears that the contention of the Ld. AR is supported by the Instruction No. 3/2003. Therefore, we have to verify whether that Instruction has a binding force or it is just an administrative Instruction within the Departments day to day activities.

(ii) The Circular has been considered by the Andhra Pradesh High Court in case of CIT Vs. Nayana P Dedhia 270 ITR 572 wherein it is held that the authorities responsible for administration of the Act shall observe and follow any such orders, instructions and directions of the board. This is actually reiterated from the decision of the Hon’ble Apex Court in case of UCO Bank Vs. CIT 237 ITR 889. But at the same time the Hon’ble Supreme Court also held that the Circulars can be adverse to the IT Department but still are binding on the authorities of the Income Tax Departments but cannot be binding on the assessee if they are adverse to the assessee.

(iii) These ratio laid down by the Apex Court has an impact on the argument of the Ld. AR regarding the Board’s Instruction to be followed. The Special Bench of this Tribunal also in case of Aztec Software & Technology Services Ltd. vs. ACIT held that CBDT directions are mandatory and binding on the Assessing Officer and CIT. Further the Jurisdictional High Court in case of CIT vs. SPL’s Siddhartha Ltd. (supra) held that “Section 116 of the Act also defines the income-tax authorities as different and distinct authorities. Such different and distinct authorities have to exercise their powers in accordance with law as per the powers given to them in specified circumstances. If powers conferred on a particular authority are arrogated by other authority without mandate of law, it will create chaos in the administration of law and hierarchy of administration will mean nothing. Satisfaction of one authority cannot be substituted by the satisfaction of the other authority. It is trite that when a statue requires, a thing to be done in a certain manner, it shall be done in that manner alone and the court would not expect its being done in some other manner.”

(iv) Therefore, the additional Ground of the assessee is allowed. At this juncture, the assessment has become time barred as the reference made to TPO itself is not sustainable and the Assessing Officer should have passed Assessment Order at the prescribed time provided under the statute. We are not deciding on the merit of the case as the additional ground is decided in favour of the assesse.

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