Times Global Broadcasting Company Ltd vs. UOI (Bombay High Court)

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
O.O.C.J.
WRIT PETITION NO. 3386 OF 2018
Times Global Broadcasting Company Ltd .. Petitioner
Versus
Union of India & Ors. .. Respondents
……………….
• Mr. Jehangir Mistri, Sr. Counsel a/w Mr. Harsh Kapadia for the
Petitioner
• Mr. P. C. Chhotaray a/w Mr. P.A. Narayanan for Respondent Nos. 2
to 4
……………….
CORAM : AKIL KURESHI &
SARANG V. KOTWAL, JJ.
DATE : MARCH 15, 2019.
ORAL JUDGMENT (Per Akil Kureshi, J.)
1. The petitioner has challenged an order dated
15.10.2018 as at Annexure “M” to the petition passed by the
Transfer Pricing Officer (“TPO” for short) under Section
92CA(3) of the Income Tax Act, 1961 (“the Act” for short).
2. Brief facts are as under:-
2.1 Petitioner – Times Global Broadcasting Company
Ltd is a company registered under the Companies Act, 1956
and his a wholly owned subsidiary of Benett, Coleman and
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Company Ltd (hereinafter referred to as “BCCL”). The
petitioner is engaged in the business of distribution of
television channels for the Times Group entities. It also
provides support services to Times Group entities in the area
of finance, legal, human resources, commercial,
administration and technical and broadcasting. With effect
from 1.4.2014, the petitioner demerged one of its business
undertakings into BCCL. The scheme of demerger was
approved by the High Court at Bombay by an order dated
16.1.2015. Consequently, the business pertaining to “Times
Now” television channel of the petitioner got vested in BCCL.
All assets and liabilities pertaining to demerged undertaking
were also transferred to BCCL at the book value as on
31.3.2014. The difference between assets and liabilities was
then adjusted against the brought forward profit and loss
account balance as on 31.3.2014. However, no expenditure
or income was charged to the profit and loss account for the
financial year as per the scheme of demerger approved by
the High Court.
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2.2 For the assessment year 2015-16, the petitioner
filed return of income on 28.11.2015 declaring total income
of Rs. 5.90 crores (rounded off). In the said return, the
petitioner had reported following two specified domestic
transactions:-
Sr.
No.
Nature of
transaction
Related
party
Amount
(Rs. in Crs)
Method
adopted for
benchmarking
1 Payment of subscription
fees earned from distribution
services
BCCL
ZENL
39.45
9.73
Transaction Net Margin
Method (‘TNMM’)
2 Payment to Key Management
Personnel
Key Managerial
Personnel
3.00 Other Method (Rule 10AB)
Total 52.19
The petitioner would point out that under the
distribution services, the petitioner distributes television
channels owned by BCCL and Zoom Entertainment Network
Ltd (‘ZENL’ for short), either directly or through its
distribution network. Upon distribution, it receives
subscription fees, retains 8% of the fees as its service
income and remits the balance to BCCL and ZENL based on
their respective revenue share. Likewise, under support
services, the petitioner manages back office operations of its
group companies, including BCCL and ZENL. For this work,
the petitioner is compensated at a cost plus 10% mark-up
basis.
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2.3 According to the petitioner, the distribution services
involved a payment to related parties and accordingly, in
terms of Section 92E of the Act, such transaction was
reported in the prescribed form ‘3CEB’. According to the
petitioner, the support services resulted into an income in
the hands of the petitioner and therefore, the same could not
be considered a specified domestic transaction and was
accordingly, not reported.
2.4 In order to determine the arm’s length of the
specified domestic transaction, the petitioner had adopted
TNMM as the ‘Most Appropriate Method’. The petitioner
presented data to contend that the payment of subscription
fee to the related party was at arm’s length.
2.5 Return of income filed by the petitioner was
selected for scrutiny. The Assessing Officer made a
reference to the TPO for determining the arm’s length price
of the specified domestic transactions reported in from
“3CEB”. The petitioner appeared before the TPO in response
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to the notice issued and besides others, took a contention
that in view of the express omission of clause (i) to Section
92BA of the Act without any saving clause, reference itself
was not competent. Further correspondence ensued
between TPO and the petitioner company during which the
TPO also desired to take within the sweep of transfer pricing
study, the petitioner’s transactions of the adjustment of
assets on demerger of its unit. It may be recorded that the
petitioner opposed such proposal for making transfer pricing
adjustment on merits without specifically raising the
objection of jurisdiction of the TPO to examine the said
transaction in absence of a specific reference by the
Assessing Officer. Be that as it may, the TPO passed the
impugned order on 15.10.2018 in which he provided for a
total adjustment of Rs. 84.09 crores. This comprised of the
arm’s length price adjustment of Rs. 26.55 crores made on
the specified domestic transaction as reported in from 3CEB
towards payment of subscription fees and arm’s length price
adjustment of Rs. 57.54 crores made on the specified
domestic transaction not reported in form 3CEB towards
what revenue contends was payment of creditors in
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demerger process. We may, however, record that the
petitioner does not even accept that there was any such
payment in the process of demerger.
2.6 With respect to the adjustment towards payment
of subscription fees, the TPO carried out detailed analysis
and examination, considered the petitioner’s submissions
and arrived at said figure of Rs. 26.55 crore in following
manner:-
Description Amount in Rs.
Total Operating Revenue of the Distribution Segment 53,91,00,265
Total Operating Expenses of the Distribution Segment 80,49,04,800
Operating Profit (26,58,04,535)
Operating Margins (49.30%)
Operating Margins of Comparables (0.05%)
ALP adjustment with reference to variance in margins @ (49.25%) of
Operating Revenue
26,55,06,880
With respect to suo motu adjustment towards payment
of creditors in demerger process, in order to arrive at the
figure of Rs. 57.54 crores, he made following observations:-
” In this instant case of assessee, the Creditors of assessee which
are transferred to Holding Company and also admittedly an
Associates Enterprise in a non-cash transaction of demerger
represents both revenue as well as capital items as per the breakup
provided by assessee in its submissions. Therefore, the same are
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within the ambit of “Any Expenditure” as provided under Section
92BA of the Act and arms length price of the transactions is required
to be computed in accordance with provisions of the Act.
The amount of outstanding creditors pertaining to the demerged unit
of assessee is Nil and its books as on 31.5.2015 and hence,this
amounts to a payment as envisaged under the provisions of Section
92BA of the Act.
7.7 As per the provisions of Section 92C of the Act, the arm’s
length price in relation to a specified domestic transaction shall be
determined by any of the methods, being the most appropriate
method, having regard to the nature of transaction or class of
transaction or class of associated persons or functions performed by
such persons or such other relevant factors as the Board may
prescribe. The assessee has however not done the transfer pricing
study of the above stated transactions nor applied any method to
determine Arm’s Length Price of the transactions.
7.8 As per provisions of section 92E of the Act, every person who
has entered into an international transaction or specified domestic
transaction during a previous year shall obtain a report from an
accountant and furnish such report on or before the specified date in
the prescribed form duly signed and verified in the prescribed
manner by such accountant and setting forth such particulars as may
be prescribed. The assessee is required to report the Specified
Domestic Transaction in column No. 22 of Form 3CEB filed.
However, no such reporting was made in the form No. 3CEB filed in
respect of other SDT’s already discussed above.
7.9 In view of the above discussed legal position and facts of the
case and gross amount of creditors paid amounting to Rs.
57,54,00,000/- as reconciled by assessee in the course of
proceedings failed to report these transactions in the report filed in
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Form No. 3CEB and also failed to maintain and furnish proper details
for determination of ALP for the transactions. The gross
consideration paid being the value of asset transferred against these
creditors is Rs. 62,31,00,000/- as reconciled by assessee in the
course of proceedings. The assessee has however did not submit
the fair market valuation and its cost of acquisition of the assets
adjusted against the creditors despite repeated opportunities availed.
Therefore, any excess payment over the book value of the creditors
could not be taken into account in determination of the ALP of the
creditors so paid or adjusted.
7.10 The assessee having squared off the creditors in its books
through book entires, the provisions of Section 40A(3A) are triggered
and thus, allowable expenditure representing these creditors paid will
be Nil as it becomes deemed income of the assessee as per the said
provisions of the Act. Accordingly, the Arms Length price of the
transactions is determined at Nil by using this method considering the
same to be “other method” recognized under the Act. An adjustment
of Rs. 57,54,00,000/- is accordingly made to the total income of
assessee representing ALP adjustment of the creators tranferred
through demerger.
The AO may also alternatively and without prejudice to the above
adjustment bring the above amount to tax u/s. 40A(3A) of the Act.
(Adjustment – Rs. 57,54,00,000/-)
7.11 The penalty proceedings u/s. 271AA, u/s. 271BA and 271G of
the Act for non-compliance to the provisions of Section 92C, 92D and
92E of the Act in respect of above stated International Transaction
with AE’s are being separately initiated or intimated to the AO as the
case may be.
7.12 AO is also requested to initiate penalty proceedings u/s. 271(1)
(c) of the Act in respect of other adjustments made to total income on
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account of furnishing inaccurate particulars of taxable income.
8. TPO’s conclusions:
In view of the above following adjustment is made in ALP.
Adjustment to taxable income:
SR.
NO.
Adjustments on account of Amount in Rs.
1 ALP adjustment made on SDT’s reported in the form
3CEB towards payment of subscription fees.
26,55,06,880
2 ALP adjustment made on SDT’s not reported in the form
3CEB towards payment of creditors in the Demerger
Process
57,54,00,000
Total Adjustments made 84,09,06,880
2.7 The petitioner has challenged both these
adjustments on various grounds. With respect to adjustment
of Rs. 57.54 crores towards payment of creditors in demerger
process, the case of the petitioner is that in absence of any
specific reference by the Assessing Officer of this transaction,
it was not competent for the TPO to make any such sue motu
adjustment. It was contended that even on merits, the
adjustment is wholly impermissible, since in the process, no
expenditure was made by the assessee, the transaction
would not be covered under Section 92BA(i) of the Act. With
respect to the adjustment towards payment of subscription
fees, the case of the petitioner is that the same was made
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without proper notice. It is even otherwise ex facie bad and
is against the judgments of the High Court.
2.8 The case of the Revenue in brief is that the TPO
can examine any specified domestic transaction even if not
specifically referred by the Assessing Officer. The petitioner
had not reported the transaction in question though it was a
specified domestic transaction. TPO, therefore, correctly
examined the same after putting the petitioner to notice.
With respect to adjustment towards payment of subscription
fees, the case of the department is that the TPO has
undertaken a detail analysis, the same is subject to
opposition by the petitioner before the Revenue Authorities.
This Court should not entertain a challenge on this ground
and the petitioner be relegated to appeal route.
3. Before deciding the rival contentions, we may record
that learned counsel Mr. Chhotaray for the department had
raised an objection to the very maintainability of this petition
contending that the petition is filed at a premature stage.
His argument was that whatever be the nature of the order
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passed by the TPO, the petitioner must be reletgated to the
departmental proceedings and thereafter, appeal. At this
stage, the Court should not examine the legality or otherwise
of the report of the TPO.
4. We would first deal with this preliminary objection of
the department. It is well settled through series of
judgments of the High Courts and Supreme Court that writ
jurisdiction of the High Courts in exercise of powers under
Article 226 of Constitution of India is extremely wide. If a
jurisdictional error is pointed out or it is shown that an
authority has acted wholly without jurisdiction, the Court can,
without relegating the petitioner to the departmental or even
statutory remedies, strike down exercise of such powers. In
case of Calcutta Discount Co Ltd Vs. ITO & Anr.1, the
Constitution Bench of the Supreme Court in the context of a
notice of reopening of assessment issued by the Assessing
Officer had held and observed that, though the writ of
prohibition or certiorary will not issue against an executive
authority, the High Courts have power to issue in a fit case
an order prohibiting an executive authority from acting
1 41 ITR 191
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without jurisdiction. Where such action of an executive
authority acting without jurisdiction subjects or is likely to
subject a person to lengthy proceedings and unnecessary
harassment, the High Courts, it is well settled, will issue
appropriate orders or directions to prevent such
consequences. The existence of such alternative remedy is
not however always a sufficient reason for refusing a party
quick relief by a writ or order prohibiting an authority acting
without jurisdiction from continuing such action. It was
further observed that, when the Constitution confers on the
High Courts the power to give relief it becomes the duty of
the courts to give such relief in fit cases and the courts
would be failing to perform their duty if relief is refused
without adequate reasons. It is not necessary to refer to
large number of authorities on the point in this context.
Therefore, if we find that the action of the TPO or a part of it
which can be severed from the rest was wholly without
jurisdiction, we would not hesitate in striking down such
order or part thereof merely because the statute provides
certain appeal remedies to the aggrieved assessee.
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5. In this background, we may first advert to the transfer
pricing adjustment in relation to the payment of creditors in
demerger process. We may recall, admitted position is that
the petitioner, holding a belief that this transaction was not a
specified domestic transaction, had not reported the same in
the form 3CEB. The reference made by the Assessing Officer
to the TPO was confined to those specified domestic
transactions reported by the petitioner. Consequently,
undisputed fact that emerges from the record is that this
transaction was not part of the reference made by the
Assessing Officer. In this context, the question arises
whether the TPO could have on his own, suo motu examined
the transaction and made transfer pricing adjustment in his
order.
6. Chapter X of the Act pertains to special provisions
relating to avoidance of tax. Section 92 contained in the said
chapter pertains to computation of income from international
transaction having regard to arm’s length price. As is well
known, when these transfer pricing provisions were initially
introduced in the Act, only international transactions were
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brought within fold of transfer pricing mechanism.
Subsequently, several amendments were made in the
provisions contained in Chapter X by Finance Act, 2012
bringing within the fold of transfer pricing mechanism
certain domestic transactions. Sub-section (2A) inserted in
Section 92 of the Act by Finance Act 2012 w.e.f. 1.4.2013
provides that any allowance for an expenditure or interest or
allocation of any cost or expense or any income in relation to
the specified domestic transaction shall be computed having
regard to the arm’s length price. Clause (ii) of Section 92F
defines the term ‘arm’s length price’. The meaning of term
‘associated enterprise’ is provided in Section 92A. Section
92BA pertains to meaning of specified domestic transaction.
Clause (i) thereof provided that for the purpose of the said
Section and Sections 92, 92C, 92D and 92E specified
domestic transaction in case of an assessee would mean any
expenditure in respect of which payment has been made or
is to be made to a person, referred to in clause (b) of subsection (2) of Section 40A.
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7. Section 92CA of the Act pertains to reference to
Transfer Pricing Officer. Relevant portion of this Section
reads as under:-
(1) Where any person, being the assessee, has entered into an
international transaction [or specified domestic transaction] in any
previous year, and the Assessing Officer considers it necessary or
expedient so to do, he may, with the previous approval of the
[Principal Commissioner or] Commissioner, refer the computation of
the arm’s length price in relation to the said international transaction
or specified domestic transaction under section 92C to the Transfer
Pricing Officer.
(2) Where a reference is made under sub-section (1), the Transfer
Pricing Officer 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 arm’s length price in relation to the
international transaction [or specified domestic transaction] referred
to in sub-section (1).
[(2A) Where any other international transaction [other than an
international transaction referred under sub-section (1)], comes to the
notice of the Transfer Pricing Officer 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-section (1).]
[(2B) Where in respect of an international transaction, the assessee
has not furnished the report under section 92E and such transaction
comes to the notice of the Transfer Pricing Officer during the course
of the proceeding before him, the provisions of this Chapter shall
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apply as if such transaction is an international transaction referred to
him under sub-section (1).]
[(2C) Nothing contained in sub-section (2B) shall empower the
Assessing Officer either to assess or reassess under section 147 or
pass an order enhancing the assessment or reducing a refund
already made or otherwise increasing the liability of the assessee
under section 154, for any assessment year, proceedings for which
have been completed before the 1st day of July, 2012.]
(3) On the date specified in the notice under sub-section (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-section (3) of section 92D and after considering
such evidence as the Transfer Pricing Officer may require on any
specified points and after taking into account all relevant materials
which he has gathered, the Transfer Pricing Officer shall, by order in
writing, determine the arm’s length price in relation to the
international transaction [or specified domestic transaction] in
accordance with sub-section (3) of section 92C and send a copy of his
order to the Assessing Officer and to the assessee.
[(3A) Where a reference was made under sub-section (1) before the
1st day of June, 2007 but the order under sub-section (3) has not
been made by the Transfer Pricing Officer before the said date, or a
reference under sub-section (1) is made on or after the 1st day of
June, 2007, an order under sub-section (3) may be made at any time
before sixty days prior to the date on which the period of limitation
referred to in section 153, or as the case may be, in section 153Bfor
making the order of assessment or reassessment or recomputation
or fresh assessment, as the case may be, expires:]
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[Provided that in the circumstances referred to in clause (ii) or
clause (x) of Explanation 1 to section 153, if the period of limitation
available to the Transfer Pricing Officer for making an order is less
than sixty days, such remaining period shall be extended to sixty
days and the aforesaid period of limitation shall be deemed to have
been extended accordingly.]
[(4) On receipt of the order under sub-section (3), the Assessing
Officer shall proceed to compute the total income of the assessee
under sub-section (4) of section 92C in conformity with the arm’s
length price as so determined by the Transfer Pricing Officer.]
8. Section 92E requires every person who has entered into
an international transaction or a specified domestic
tranasaction during a previous year to obtain a report from
an accountant and furnish the report on or before the
specified date in the prescribed form and verified in
specified manner containing particulars as may be
prescribed.
9. Analysis of above noted statutory provisions would
show that under sub-section (1) of Section 92CA, where any
person has entered into an international transaction or
specified domestic transaction in any previous year and the
Assessing Officer considers it necessary or expedient so to
do, he may, with the previous approval of the Principal
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Commissioner or Commissioner refer the computation of
arm’s length price in relation to such transaction under
Section 92C to the TPO. Two things may be noted at this
stage. The group of words “or specified domestic
transaction” were added to the said sub-section by Finance
Act 2012 w.e.f. 1.4.2013. Secondly, the reference that the
Assessing Officer may make to the TPO in this sub-section
would be with the previous approval of the Principal
Commissioner or Commissioner.
10. As per sub-section (2) of Section 92CA, where a
reference is made under sub-section (1), the TPO shall serve
a notice to the assessee calling for details in relation to
international transaction or specified domestic transaction.
Here also, the group of words “or specified domestic
transaction” were inserted by Finance Act 2012 w.e.f.
1.4.2013. Sub-section (2A) provides that where any other
international transaction other than an international
transaction referred to in sub-section (1) comes to the notice
of the TPO during the course of the proceedings before him,
the provisions of the said chapter would apply as if such
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other international transaction was an international
transaction referred to him under sub-section (1).
11. Sub-section (2A) was inserted by Finance Act 2011
w.e.f. 1.6.2011 and sub-section (2B) was inserted by Finance
Act, 2012 with retrospective effect from 1.6.2002. These two
sub-sections have been introduced by the legislature in order
to overcome the limitation of the TPO to examine an
international transaction which has either not been reported
by the Assessing Officer under sub-section (1) or which the
assessee has omitted to report as required under Section
92E. Sub-section (2B) of Section 92CA would cover a
situation where the assessee does not report such
transaction but it comes to the notice of the TPO during the
court of the proceedings before him. In such a situation, he
can examine as if the same has been referred to him under
sub-section (1). Sub-section (2A) would cover a situation
where an international transaction has not been referred to
TPO by the Assessing Officer which comes to his notice
during the course of the proceedings before him. In such a
situation, he would examine the transaction as if such
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international transaction is a transaction referred to him
under sub-section (1). The common feature of both these
sub-sections is that they take within the sweep only an
international transaction. Conspicuous by absence is the
reference to any specified domestic transaction.
12. One thing therefore, that can be safely concluded is
that the legislature while making amendments in various
provisions contained in Chapter X of the Act, covering the
cases of specified domestic transactions in transfer pricing
mechanism, did not make any such corresponding change in
sub-sections (2A) or (2B) of Section 92CA. We may recall,
sub-section (2A) was inserted by Finance Act of 2011.
Therefore, when under Finance Act of 2012, the specified
domestic transactions were being made subject to transfer
pricing mechanism, there was no reason for the legislature, if
so thought necessary, to include a reference to specified
domestic transaction under sub-section (2A). More
significant indication of the conscious legislative process is
the fact that sub-section (2B) was inserted under the same
Finance Act of 2012 by which the specified domestic
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transactions became subject matter of transfer pricing
mechanism. We must, therefore, presume that the
legislature consciously decided not to include a reference to
a specified domestic transaction under sub-section (2A) and
(2B) of Section 92CA.
13. It is indisputable that by virtue of sub-sections (2A) and
(2B) of Section 92CA, in case of an international transaction,
the TPO would have an authority to examine any
international transaction which comes to his notice during
the proceedings, whether a reference in this respect was
made by the Assessing Officer or not and whether the
assessee had reported such transaction under Section 92E of
the Act or not. However, in view of specific non-inclusion of
the specified domestic transaction under the said subsections, in so far as the domestic transactions are
concerned, the situation would be vastly different.
14. In plain terms, in absence of sub-sections (2A) and (2B)
of Section 92CA, the TPO would get jurisdiction to examine a
transaction whether it is international or specified domestic
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transaction, only upon reference being made by the
Assessing Officer under sub-section (1) of Section 92CA of
the Act. Sub-section (2) of Section 92CA provides that where
a reference is made under sub-section (1), the TPO would
serve a notice to the assessee requiring him to furnish
details in relation to international transaction or specified
domestic transaction referred to in sub-section (1). Thus, the
jurisdiction of the TPO to issue a notice to the assessee
would be in relation to international transaction or specified
domestic transaction for which reference is made by the
Assessing Officer under sub-section (1). It is precisely for this
reason that sub-sections (2A) and (2B) provide a deeming
fiction where they provide that in case of an international
transaction not referred to the TPO or an international
transaction not reported by the assessee, which comes to his
notice during the proceedings, the provision of the Chapter
would apply as if such international transaction was one
referred to in sub-section (1). In absence of this deeming
fiction, it would not be open for the TPO to exercise the
powers under the said chapter in relation to the transaction
not referred to him. The reference to be made by the
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Assessing Officer is not an empty formality. Said reference
has to be made only on approval of the Principal
Commissioner or Commissioner. Legislature, requires the
Assessing Officer to obtain an approval from senior Revenue
Authority before a reference is made. Such requirement
cannot be jettisoned by the TPO exercising sue motu
jurisdiction over the transaction not reported to him.
15. This Court in case of Vodafone India Services Pvt
Ltd Vs. Union of India & Ors.2 considered a question
whether the TPO could have considered a transaction coming
to his notice during the course of the proceedings before
him, though not referred to him by the Assessing Officer in a
case which arose prior to 1.6.2011 when sub-section (2A)
was inserted in Section 92CA of the Act. In this context, the
Court held and observed as under:-
“28. Sub-section (2A) undoubtedly confers fresh jurisdiction upon
and extends the jurisdiction of the TPO. Prior thereto, the TPO was
not entitled to deal with or consider international transactions which
came to his notice without the same being referred to him by the AO.
Prior to sub-section (2A) being introduced with effect from 1st June,
2011, the TPO was entitled to determine the arm’s length price in
relation to an international transaction only upon the same being
2 [2013] 359 ITR 133 (Bom)
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referred to him for computation by the AO with the previous approval
of the Commissioner.”
16. Even the Central Board of Direct Taxes (“CBDT” for
short) has dealt with this situation similarly. In an instruction
3 of 2003 dated 20.5.2013, following clarification was made:-
(ii) Role of Transfer Pricing Officer : The role of the TPO begins
after a reference is received from the Assessing Officer. In terms of
Section 92CA, this role is limited to the determination of arm’s length
price in relation to the international transaction(s) referred to him by
the Assessing Officer. If during the course of proceedings before
him, it is found that there are certain other transactions; while have
not been referred to him by the Assessing Officer, he will have to take
up the matter with the Assessing Officer so that a fresh reference is
received with regard to such transactions. It may be noted that the
reference to the TPO is transaction and enterprise specific.”
In later Instruction No. 15/2015 dated 16.10.2015, it
was clarified as under:-
“4. Role of Transfer Pricing Officer
4.1 The role of the TPO begins after a reference is received from
the AO. In terms of Section 92CA of the Act, this role is limited to the
determination of the ALP in relation to international transaction(s)
referred to him by the AO. However, if any other international
transaction comes to the notice of the TPO during the course of the
proceedings before him, then he is empowered to determine the ALP
of such other international transactions also by virtue of sub-sections
(2A) and (2B) of Section 92CA of the Act. The transfer price has to
be determined by the TPO in terms of Section 92C of the Act.”
17. Inescapable conclusion that we have reached is that in
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relation to a specified domestic transaction, the TPO can
under take transfer pricing study only in relation to those
transactions which are referred to him under sub-section (1)
of Section 92C of the Act. Sub-section (2A) and (2B) of
Section 92C are confined to international transactions and
with the aid of any interpretive process, the said provision
cannot be applied to empower the TPO to examine any
specified domestic transaction not referred to him by the
Assessing Officer under sub-section (1). Any other view
would be doing violence to the plain language of the statute.
18. Learned counsel for the Revenue is correct in pointing
out that in the present case, the assessee did not report such
transaction at all and therefore, the Assessing Officer had no
occasion to notice such transaction as specified domestic
transaction. His reference, therefore, was necessarily
confined to the reported transactions. The TPO noticed this
anomaly, he proceeded to determine the arm’s length price
after full opportunity of hearing to the petitioner.
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19. Even in such a situation, the statute does not permit
the TPO to assume the jurisdiction to determine the arm’s
length price of a specified domestic transaction not reported
to him. There may be number of cases where the assessee
may bonafide hold a belief that certain transaction is not a
specified domestic transaction and therefore, would not
report the same under Section 92E of the Act. Whether
bonafide or not, not making a report by the assessee of a
specified domestic transaction would not leave the revenue
without remedy. As clarified by CBDT in the instructions
dated 20.5.2013, it is always open for the TPO who notices
such transaction during the course of the proceedings before
him to call for a reference by the Assessing Officer. If the
Assessing Officer does make a report, only then TPO can
undertake further steps as envisaged under sub-section (2)
and other sub-sections of Section 92CA. As noted, the
statute is sufficiently clear. The legislature while expanding
the scope of the transfer pricing study by the TPO to a
transaction not referred him or not reported by the Assessing
Officer, under sub-section (2A) and (2B) of Section 92CA, has
confined the applicability thereof only to international
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transactions. The TPO exercising such powers suo motu in
relation to a specified domestic transaction would be
transgressing his jurisdiction and in the process would render
the requirement of sub-section (1) of Section 92CA
redundant. As noted, the reference that the Assessing
Officer can make to the TPO would have the approval of the
Principal Commissioner or the Commissioner.
20. Under these circumstances, in relation to the
transaction of payment to creditors in demerger process, the
TPO had no jurisdiction to make any adjustments. Under
these circumstances and even otherwise, we are not inclined
to examine the adjustment on merits though it was argued
before us by the learned counsel for the petitioner.
21. Coming to the adjustment made by the TPO towards
payment of subscription fees, even though the petitioner
may have certain arguable points, that by itself, would not
enable us to bypass the entire statutory scheme of
assessment, appeal and revision. Once the TPO makes his
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report, the provisions are made in the statute how such
report would be acted upon. The petitioner would have full
innings to oppose the contents of such report and take such
challenge in the appeal in case the petitioner fails at the first
stage. When a statute that too, fiscal statute makes detail
provisions for assessment, appeals and revisions, ordinarily
the Court would not examine the issues on merits bypassing
such statutory remedies. Reference in this respect can be
made to the decision of the Supreme Court in the case of CIT
Vs. Chhabil Dass Agarwal3. In the said judgment taking
note of the larger number of decisions of the Supreme Court
in context of exercising writ jurisdiction when statutory
appeal remedies are available, it was observed as under:-
“19. Thus, while it can be said that this Court has recognized some
exceptions to the rule of alternative remedy, i.e., where the statutory
authority has not acted in accordance with the provisions of the
enactment in question, or in defiance of the fundamental principles of
judicial procedure, or has resorted to invoke the provisions which are
repealed, or when an order has been passed in total violation of the
principles of natural justice, the proposition laid down in Thansingh
Nathmal’s case, Titagarh Paper Mills’ case and other similar
judgments that the High Court will not entertain a petition under
Article 226 of the Constitution if an effective alternative remedy is
available to the aggrieved person or the statute under which the
action complained of has been taken itself contains a mechanism for
3 [2013] 357 (SC)
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redressal of grievance still holds the field. Therefore, when a
statutory forum is created by law for redressal of grievances, a writ
petition should not be entertained ignoring the statutory dispensation.
All the contentions on merits raised by the learned
counsel for the petitioner in relation to this adjustment
require minute examination of documents and materials on
record and accounts. Even the contention of breach of
natural justice is not possible of summary consideration. The
TPO had issued several notices during the proceedings.
Whether precise query was raised in relation to the
adjustment ultimately suggested would require minute and
detailed examination of documents on record, an exercise we
are not inclined to undertake in this petition. When the Act
provides for statutory appeals and further appeal to the High
Court on substantial question of law, such exercise, we would
be well advised not to undertake in a writ petition.
22. In view of the above discussion, the impugned order of
the TPO is quashed in so far as it provides adjustment of the
arm’s length price towards payment of creditors in demerger
process of a sum of Rs. 57.54 crores. Rest of the impugned
order stands as it is.
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23. The petition is disposed of accordingly.
[ SARANG V. KOTWAL, J. ] [ AKIL KURESHI, J ]
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