IN THE HIGH COURT OF JUDICATURE AT BOMBAY
\nO.O.C.J.
\nWRIT PETITION NO. 3386 OF 2018
\nTimes Global Broadcasting Company Ltd .. Petitioner
\nVersus
\nUnion of India & Ors. .. Respondents
\n……………….
\n\u2022 Mr. Jehangir Mistri, Sr. Counsel a\/w Mr. Harsh Kapadia for the
\nPetitioner
\n\u2022 Mr. P. C. Chhotaray a\/w Mr. P.A. Narayanan for Respondent Nos. 2
\nto 4
\n……………….
\nCORAM : AKIL KURESHI &
\nSARANG V. KOTWAL, JJ.
\nDATE : MARCH 15, 2019.
\nORAL JUDGMENT (Per Akil Kureshi, J.)
\n1. The petitioner has challenged an order dated
\n15.10.2018 as at Annexure “M” to the petition passed by the
\nTransfer Pricing Officer (“TPO” for short) under Section
\n92CA(3) of the Income Tax Act, 1961 (“the Act” for short).
\n2. Brief facts are as under:-
\n2.1 Petitioner – Times Global Broadcasting Company
\nLtd is a company registered under the Companies Act, 1956
\nand his a wholly owned subsidiary of Benett, Coleman and
\n1 of 30<\/p>\n
Company Ltd (hereinafter referred to as “BCCL”). The
\npetitioner is engaged in the business of distribution of
\ntelevision channels for the Times Group entities. It also
\nprovides support services to Times Group entities in the area
\nof finance, legal, human resources, commercial,
\nadministration and technical and broadcasting. With effect
\nfrom 1.4.2014, the petitioner demerged one of its business
\nundertakings into BCCL. The scheme of demerger was
\napproved by the High Court at Bombay by an order dated
\n16.1.2015. Consequently, the business pertaining to “Times
\nNow” television channel of the petitioner got vested in BCCL.
\nAll assets and liabilities pertaining to demerged undertaking
\nwere also transferred to BCCL at the book value as on
\n31.3.2014. The difference between assets and liabilities was
\nthen adjusted against the brought forward profit and loss
\naccount balance as on 31.3.2014. However, no expenditure
\nor income was charged to the profit and loss account for the
\nfinancial year as per the scheme of demerger approved by
\nthe High Court.
\n2 of 30<\/p>\n
2.2 For the assessment year 2015-16, the petitioner
\nfiled return of income on 28.11.2015 declaring total income
\nof Rs. 5.90 crores (rounded off). In the said return, the
\npetitioner had reported following two specified domestic
\ntransactions:-
\nSr.
\nNo.
\nNature of
\ntransaction
\nRelated
\nparty
\nAmount
\n(Rs. in Crs)
\nMethod
\nadopted for
\nbenchmarking
\n1 Payment of subscription
\nfees earned from distribution
\nservices
\nBCCL
\nZENL
\n39.45
\n9.73
\nTransaction Net Margin
\nMethod (‘TNMM’)
\n2 Payment to Key Management
\nPersonnel
\nKey Managerial
\nPersonnel
\n3.00 Other Method (Rule 10AB)
\nTotal 52.19
\nThe petitioner would point out that under the
\ndistribution services, the petitioner distributes television
\nchannels owned by BCCL and Zoom Entertainment Network
\nLtd (‘ZENL’ for short), either directly or through its
\ndistribution network. Upon distribution, it receives
\nsubscription fees, retains 8% of the fees as its service
\nincome and remits the balance to BCCL and ZENL based on
\ntheir respective revenue share. Likewise, under support
\nservices, the petitioner manages back office operations of its
\ngroup companies, including BCCL and ZENL. For this work,
\nthe petitioner is compensated at a cost plus 10% mark-up
\nbasis.
\n3 of 30<\/p>\n
2.3 According to the petitioner, the distribution services
\ninvolved a payment to related parties and accordingly, in
\nterms of Section 92E of the Act, such transaction was
\nreported in the prescribed form ‘3CEB’. According to the
\npetitioner, the support services resulted into an income in
\nthe hands of the petitioner and therefore, the same could not
\nbe considered a specified domestic transaction and was
\naccordingly, not reported.
\n2.4 In order to determine the arm’s length of the
\nspecified domestic transaction, the petitioner had adopted
\nTNMM as the ‘Most Appropriate Method’. The petitioner
\npresented data to contend that the payment of subscription
\nfee to the related party was at arm’s length.
\n2.5 Return of income filed by the petitioner was
\nselected for scrutiny. The Assessing Officer made a
\nreference to the TPO for determining the arm’s length price
\nof the specified domestic transactions reported in from
\n“3CEB”. The petitioner appeared before the TPO in response
\n4 of 30<\/p>\n
to the notice issued and besides others, took a contention
\nthat in view of the express omission of clause (i) to Section
\n92BA of the Act without any saving clause, reference itself
\nwas not competent. Further correspondence ensued
\nbetween TPO and the petitioner company during which the
\nTPO also desired to take within the sweep of transfer pricing
\nstudy, the petitioner’s transactions of the adjustment of
\nassets on demerger of its unit. It may be recorded that the
\npetitioner opposed such proposal for making transfer pricing
\nadjustment on merits without specifically raising the
\nobjection of jurisdiction of the TPO to examine the said
\ntransaction in absence of a specific reference by the
\nAssessing Officer. Be that as it may, the TPO passed the
\nimpugned order on 15.10.2018 in which he provided for a
\ntotal adjustment of Rs. 84.09 crores. This comprised of the
\narm’s length price adjustment of Rs. 26.55 crores made on
\nthe specified domestic transaction as reported in from 3CEB
\ntowards payment of subscription fees and arm’s length price
\nadjustment of Rs. 57.54 crores made on the specified
\ndomestic transaction not reported in form 3CEB towards
\nwhat revenue contends was payment of creditors in
\n5 of 30<\/p>\n
demerger process. We may, however, record that the
\npetitioner does not even accept that there was any such
\npayment in the process of demerger.
\n2.6 With respect to the adjustment towards payment
\nof subscription fees, the TPO carried out detailed analysis
\nand examination, considered the petitioner’s submissions
\nand arrived at said figure of Rs. 26.55 crore in following
\nmanner:-
\nDescription Amount in Rs.
\nTotal Operating Revenue of the Distribution Segment 53,91,00,265
\nTotal Operating Expenses of the Distribution Segment 80,49,04,800
\nOperating Profit (26,58,04,535)
\nOperating Margins (49.30%)
\nOperating Margins of Comparables (0.05%)
\nALP adjustment with reference to variance in margins @ (49.25%) of
\nOperating Revenue
\n26,55,06,880
\nWith respect to suo motu adjustment towards payment
\nof creditors in demerger process, in order to arrive at the
\nfigure of Rs. 57.54 crores, he made following observations:-
\n” In this instant case of assessee, the Creditors of assessee which
\nare transferred to Holding Company and also admittedly an
\nAssociates Enterprise in a non-cash transaction of demerger
\nrepresents both revenue as well as capital items as per the breakup
\nprovided by assessee in its submissions. Therefore, the same are
\n6 of 30<\/p>\n
within the ambit of “Any Expenditure” as provided under Section
\n92BA of the Act and arms length price of the transactions is required
\nto be computed in accordance with provisions of the Act.
\nThe amount of outstanding creditors pertaining to the demerged unit
\nof assessee is Nil and its books as on 31.5.2015 and hence,this
\namounts to a payment as envisaged under the provisions of Section
\n92BA of the Act.
\n7.7 As per the provisions of Section 92C of the Act, the arm’s
\nlength price in relation to a specified domestic transaction shall be
\ndetermined by any of the methods, being the most appropriate
\nmethod, having regard to the nature of transaction or class of
\ntransaction or class of associated persons or functions performed by
\nsuch persons or such other relevant factors as the Board may
\nprescribe. The assessee has however not done the transfer pricing
\nstudy of the above stated transactions nor applied any method to
\ndetermine Arm’s Length Price of the transactions.
\n7.8 As per provisions of section 92E of the Act, every person who
\nhas entered into an international transaction or specified domestic
\ntransaction during a previous year shall obtain a report from an
\naccountant and furnish such report on or before the specified date in
\nthe prescribed form duly signed and verified in the prescribed
\nmanner by such accountant and setting forth such particulars as may
\nbe prescribed. The assessee is required to report the Specified
\nDomestic Transaction in column No. 22 of Form 3CEB filed.
\nHowever, no such reporting was made in the form No. 3CEB filed in
\nrespect of other SDT’s already discussed above.
\n7.9 In view of the above discussed legal position and facts of the
\ncase and gross amount of creditors paid amounting to Rs.
\n57,54,00,000\/- as reconciled by assessee in the course of
\nproceedings failed to report these transactions in the report filed in
\n7 of 30<\/p>\n
Form No. 3CEB and also failed to maintain and furnish proper details
\nfor determination of ALP for the transactions. The gross
\nconsideration paid being the value of asset transferred against these
\ncreditors is Rs. 62,31,00,000\/- as reconciled by assessee in the
\ncourse of proceedings. The assessee has however did not submit
\nthe fair market valuation and its cost of acquisition of the assets
\nadjusted against the creditors despite repeated opportunities availed.
\nTherefore, any excess payment over the book value of the creditors
\ncould not be taken into account in determination of the ALP of the
\ncreditors so paid or adjusted.
\n7.10 The assessee having squared off the creditors in its books
\nthrough book entires, the provisions of Section 40A(3A) are triggered
\nand thus, allowable expenditure representing these creditors paid will
\nbe Nil as it becomes deemed income of the assessee as per the said
\nprovisions of the Act. Accordingly, the Arms Length price of the
\ntransactions is determined at Nil by using this method considering the
\nsame to be “other method” recognized under the Act. An adjustment
\nof Rs. 57,54,00,000\/- is accordingly made to the total income of
\nassessee representing ALP adjustment of the creators tranferred
\nthrough demerger.
\nThe AO may also alternatively and without prejudice to the above
\nadjustment bring the above amount to tax u\/s. 40A(3A) of the Act.
\n(Adjustment – Rs. 57,54,00,000\/-)
\n7.11 The penalty proceedings u\/s. 271AA, u\/s. 271BA and 271G of
\nthe Act for non-compliance to the provisions of Section 92C, 92D and
\n92E of the Act in respect of above stated International Transaction
\nwith AE’s are being separately initiated or intimated to the AO as the
\ncase may be.
\n7.12 AO is also requested to initiate penalty proceedings u\/s. 271(1)
\n(c) of the Act in respect of other adjustments made to total income on
\n8 of 30<\/p>\n
account of furnishing inaccurate particulars of taxable income.
\n8. TPO’s conclusions:
\nIn view of the above following adjustment is made in ALP.
\nAdjustment to taxable income:
\nSR.
\nNO.
\nAdjustments on account of Amount in Rs.
\n1 ALP adjustment made on SDT’s reported in the form
\n3CEB towards payment of subscription fees.
\n26,55,06,880
\n2 ALP adjustment made on SDT’s not reported in the form
\n3CEB towards payment of creditors in the Demerger
\nProcess
\n57,54,00,000
\nTotal Adjustments made 84,09,06,880
\n2.7 The petitioner has challenged both these
\nadjustments on various grounds. With respect to adjustment
\nof Rs. 57.54 crores towards payment of creditors in demerger
\nprocess, the case of the petitioner is that in absence of any
\nspecific reference by the Assessing Officer of this transaction,
\nit was not competent for the TPO to make any such sue motu
\nadjustment. It was contended that even on merits, the
\nadjustment is wholly impermissible, since in the process, no
\nexpenditure was made by the assessee, the transaction
\nwould not be covered under Section 92BA(i) of the Act. With
\nrespect to the adjustment towards payment of subscription
\nfees, the case of the petitioner is that the same was made
\n9 of 30<\/p>\n
without proper notice. It is even otherwise ex facie bad and
\nis against the judgments of the High Court.
\n2.8 The case of the Revenue in brief is that the TPO
\ncan examine any specified domestic transaction even if not
\nspecifically referred by the Assessing Officer. The petitioner
\nhad not reported the transaction in question though it was a
\nspecified domestic transaction. TPO, therefore, correctly
\nexamined the same after putting the petitioner to notice.
\nWith respect to adjustment towards payment of subscription
\nfees, the case of the department is that the TPO has
\nundertaken a detail analysis, the same is subject to
\nopposition by the petitioner before the Revenue Authorities.
\nThis Court should not entertain a challenge on this ground
\nand the petitioner be relegated to appeal route.
\n3. Before deciding the rival contentions, we may record
\nthat learned counsel Mr. Chhotaray for the department had
\nraised an objection to the very maintainability of this petition
\ncontending that the petition is filed at a premature stage.
\nHis argument was that whatever be the nature of the order
\n10 of 30<\/p>\n
passed by the TPO, the petitioner must be reletgated to the
\ndepartmental proceedings and thereafter, appeal. At this
\nstage, the Court should not examine the legality or otherwise
\nof the report of the TPO.
\n4. We would first deal with this preliminary objection of
\nthe department. It is well settled through series of
\njudgments of the High Courts and Supreme Court that writ
\njurisdiction of the High Courts in exercise of powers under
\nArticle 226 of Constitution of India is extremely wide. If a
\njurisdictional error is pointed out or it is shown that an
\nauthority has acted wholly without jurisdiction, the Court can,
\nwithout relegating the petitioner to the departmental or even
\nstatutory remedies, strike down exercise of such powers. In
\ncase of Calcutta Discount Co Ltd Vs. ITO & Anr.1, the
\nConstitution Bench of the Supreme Court in the context of a
\nnotice of reopening of assessment issued by the Assessing
\nOfficer had held and observed that, though the writ of
\nprohibition or certiorary will not issue against an executive
\nauthority, the High Courts have power to issue in a fit case
\nan order prohibiting an executive authority from acting
\n1 41 ITR 191
\n11 of 30<\/p>\n
without jurisdiction. Where such action of an executive
\nauthority acting without jurisdiction subjects or is likely to
\nsubject a person to lengthy proceedings and unnecessary
\nharassment, the High Courts, it is well settled, will issue
\nappropriate orders or directions to prevent such
\nconsequences. The existence of such alternative remedy is
\nnot however always a sufficient reason for refusing a party
\nquick relief by a writ or order prohibiting an authority acting
\nwithout jurisdiction from continuing such action. It was
\nfurther observed that, when the Constitution confers on the
\nHigh Courts the power to give relief it becomes the duty of
\nthe courts to give such relief in fit cases and the courts
\nwould be failing to perform their duty if relief is refused
\nwithout adequate reasons. It is not necessary to refer to
\nlarge number of authorities on the point in this context.
\nTherefore, if we find that the action of the TPO or a part of it
\nwhich can be severed from the rest was wholly without
\njurisdiction, we would not hesitate in striking down such
\norder or part thereof merely because the statute provides
\ncertain appeal remedies to the aggrieved assessee.
\n12 of 30<\/p>\n
5. In this background, we may first advert to the transfer
\npricing adjustment in relation to the payment of creditors in
\ndemerger process. We may recall, admitted position is that
\nthe petitioner, holding a belief that this transaction was not a
\nspecified domestic transaction, had not reported the same in
\nthe form 3CEB. The reference made by the Assessing Officer
\nto the TPO was confined to those specified domestic
\ntransactions reported by the petitioner. Consequently,
\nundisputed fact that emerges from the record is that this
\ntransaction was not part of the reference made by the
\nAssessing Officer. In this context, the question arises
\nwhether the TPO could have on his own, suo motu examined
\nthe transaction and made transfer pricing adjustment in his
\norder.
\n6. Chapter X of the Act pertains to special provisions
\nrelating to avoidance of tax. Section 92 contained in the said
\nchapter pertains to computation of income from international
\ntransaction having regard to arm’s length price. As is well
\nknown, when these transfer pricing provisions were initially
\nintroduced in the Act, only international transactions were
\n13 of 30<\/p>\n
brought within fold of transfer pricing mechanism.
\nSubsequently, several amendments were made in the
\nprovisions contained in Chapter X by Finance Act, 2012
\nbringing within the fold of transfer pricing mechanism
\ncertain domestic transactions. Sub-section (2A) inserted in
\nSection 92 of the Act by Finance Act 2012 w.e.f. 1.4.2013
\nprovides that any allowance for an expenditure or interest or
\nallocation of any cost or expense or any income in relation to
\nthe specified domestic transaction shall be computed having
\nregard to the arm’s length price. Clause (ii) of Section 92F
\ndefines the term ‘arm’s length price’. The meaning of term
\n‘associated enterprise’ is provided in Section 92A. Section
\n92BA pertains to meaning of specified domestic transaction.
\nClause (i) thereof provided that for the purpose of the said
\nSection and Sections 92, 92C, 92D and 92E specified
\ndomestic transaction in case of an assessee would mean any
\nexpenditure in respect of which payment has been made or
\nis to be made to a person, referred to in clause (b) of subsection (2) of Section 40A.
\n14 of 30<\/p>\n
7. Section 92CA of the Act pertains to reference to
\nTransfer Pricing Officer. Relevant portion of this Section
\nreads as under:-
\n(1) Where any person, being the assessee, has entered into an
\ninternational transaction [or specified domestic transaction] in any
\nprevious year, and the Assessing Officer considers it necessary or
\nexpedient so to do, he may, with the previous approval of the
\n[Principal Commissioner or] Commissioner, refer the computation of
\nthe arm’s length price in relation to the said international transaction
\nor specified domestic transaction under section 92C to the Transfer
\nPricing Officer.
\n(2) Where a reference is made under sub-section (1), the Transfer
\nPricing Officer shall serve a notice on the assessee requiring him to
\nproduce or cause to be produced on a date to be specified therein,
\nany evidence on which the assessee may rely in support of the
\ncomputation made by him of the arm’s length price in relation to the
\ninternational transaction [or specified domestic transaction] referred
\nto in sub-section (1).
\n[(2A) Where any other international transaction [other than an
\ninternational transaction referred under sub-section (1)], comes to the
\nnotice of the Transfer Pricing Officer during the course of the
\nproceedings before him, the provisions of this Chapter shall apply as
\nif such other international transaction is an international transaction
\nreferred to him under sub-section (1).]
\n[(2B) Where in respect of an international transaction, the assessee
\nhas not furnished the report under section 92E and such transaction
\ncomes to the notice of the Transfer Pricing Officer during the course
\nof the proceeding before him, the provisions of this Chapter shall
\n15 of 30<\/p>\n
apply as if such transaction is an international transaction referred to
\nhim under sub-section (1).]
\n[(2C) Nothing contained in sub-section (2B) shall empower the
\nAssessing Officer either to assess or reassess under section 147 or
\npass an order enhancing the assessment or reducing a refund
\nalready made or otherwise increasing the liability of the assessee
\nunder section 154, for any assessment year, proceedings for which
\nhave been completed before the 1st day of July, 2012.]
\n(3) On the date specified in the notice under sub-section (2), or as
\nsoon thereafter as may be, after hearing such evidence as the
\nassessee may produce, including any information or documents
\nreferred to in sub-section (3) of section 92D and after considering
\nsuch evidence as the Transfer Pricing Officer may require on any
\nspecified points and after taking into account all relevant materials
\nwhich he has gathered, the Transfer Pricing Officer shall, by order in
\nwriting, determine the arm’s length price in relation to the
\ninternational transaction [or specified domestic transaction] in
\naccordance with sub-section (3) of section 92C and send a copy of his
\norder to the Assessing Officer and to the assessee.
\n[(3A) Where a reference was made under sub-section (1) before the
\n1st day of June, 2007 but the order under sub-section (3) has not
\nbeen made by the Transfer Pricing Officer before the said date, or a
\nreference under sub-section (1) is made on or after the 1st day of
\nJune, 2007, an order under sub-section (3) may be made at any time
\nbefore sixty days prior to the date on which the period of limitation
\nreferred to in section 153, or as the case may be, in section 153Bfor
\nmaking the order of assessment or reassessment or recomputation
\nor fresh assessment, as the case may be, expires:]
\n16 of 30<\/p>\n
[Provided that in the circumstances referred to in clause (ii) or
\nclause (x) of Explanation 1 to section 153, if the period of limitation
\navailable to the Transfer Pricing Officer for making an order is less
\nthan sixty days, such remaining period shall be extended to sixty
\ndays and the aforesaid period of limitation shall be deemed to have
\nbeen extended accordingly.]
\n[(4) On receipt of the order under sub-section (3), the Assessing
\nOfficer shall proceed to compute the total income of the assessee
\nunder sub-section (4) of section 92C in conformity with the arm’s
\nlength price as so determined by the Transfer Pricing Officer.]
\n8. Section 92E requires every person who has entered into
\nan international transaction or a specified domestic
\ntranasaction during a previous year to obtain a report from
\nan accountant and furnish the report on or before the
\nspecified date in the prescribed form and verified in
\nspecified manner containing particulars as may be
\nprescribed.
\n9. Analysis of above noted statutory provisions would
\nshow that under sub-section (1) of Section 92CA, where any
\nperson has entered into an international transaction or
\nspecified domestic transaction in any previous year and the
\nAssessing Officer considers it necessary or expedient so to
\ndo, he may, with the previous approval of the Principal
\n17 of 30<\/p>\n
Commissioner or Commissioner refer the computation of
\narm’s length price in relation to such transaction under
\nSection 92C to the TPO. Two things may be noted at this
\nstage. The group of words “or specified domestic
\ntransaction” were added to the said sub-section by Finance
\nAct 2012 w.e.f. 1.4.2013. Secondly, the reference that the
\nAssessing Officer may make to the TPO in this sub-section
\nwould be with the previous approval of the Principal
\nCommissioner or Commissioner.
\n10. As per sub-section (2) of Section 92CA, where a
\nreference is made under sub-section (1), the TPO shall serve
\na notice to the assessee calling for details in relation to
\ninternational transaction or specified domestic transaction.
\nHere also, the group of words “or specified domestic
\ntransaction” were inserted by Finance Act 2012 w.e.f.
\n1.4.2013. Sub-section (2A) provides that where any other
\ninternational transaction other than an international
\ntransaction referred to in sub-section (1) comes to the notice
\nof the TPO during the course of the proceedings before him,
\nthe provisions of the said chapter would apply as if such
\n18 of 30<\/p>\n
other international transaction was an international
\ntransaction referred to him under sub-section (1).
\n11. Sub-section (2A) was inserted by Finance Act 2011
\nw.e.f. 1.6.2011 and sub-section (2B) was inserted by Finance
\nAct, 2012 with retrospective effect from 1.6.2002. These two
\nsub-sections have been introduced by the legislature in order
\nto overcome the limitation of the TPO to examine an
\ninternational transaction which has either not been reported
\nby the Assessing Officer under sub-section (1) or which the
\nassessee has omitted to report as required under Section
\n92E. Sub-section (2B) of Section 92CA would cover a
\nsituation where the assessee does not report such
\ntransaction but it comes to the notice of the TPO during the
\ncourt of the proceedings before him. In such a situation, he
\ncan examine as if the same has been referred to him under
\nsub-section (1). Sub-section (2A) would cover a situation
\nwhere an international transaction has not been referred to
\nTPO by the Assessing Officer which comes to his notice
\nduring the course of the proceedings before him. In such a
\nsituation, he would examine the transaction as if such
\n19 of 30<\/p>\n
international transaction is a transaction referred to him
\nunder sub-section (1). The common feature of both these
\nsub-sections is that they take within the sweep only an
\ninternational transaction. Conspicuous by absence is the
\nreference to any specified domestic transaction.
\n12. One thing therefore, that can be safely concluded is
\nthat the legislature while making amendments in various
\nprovisions contained in Chapter X of the Act, covering the
\ncases of specified domestic transactions in transfer pricing
\nmechanism, did not make any such corresponding change in
\nsub-sections (2A) or (2B) of Section 92CA. We may recall,
\nsub-section (2A) was inserted by Finance Act of 2011.
\nTherefore, when under Finance Act of 2012, the specified
\ndomestic transactions were being made subject to transfer
\npricing mechanism, there was no reason for the legislature, if
\nso thought necessary, to include a reference to specified
\ndomestic transaction under sub-section (2A). More
\nsignificant indication of the conscious legislative process is
\nthe fact that sub-section (2B) was inserted under the same
\nFinance Act of 2012 by which the specified domestic
\n20 of 30<\/p>\n
transactions became subject matter of transfer pricing
\nmechanism. We must, therefore, presume that the
\nlegislature consciously decided not to include a reference to
\na specified domestic transaction under sub-section (2A) and
\n(2B) of Section 92CA.
\n13. It is indisputable that by virtue of sub-sections (2A) and
\n(2B) of Section 92CA, in case of an international transaction,
\nthe TPO would have an authority to examine any
\ninternational transaction which comes to his notice during
\nthe proceedings, whether a reference in this respect was
\nmade by the Assessing Officer or not and whether the
\nassessee had reported such transaction under Section 92E of
\nthe Act or not. However, in view of specific non-inclusion of
\nthe specified domestic transaction under the said subsections, in so far as the domestic transactions are
\nconcerned, the situation would be vastly different.
\n14. In plain terms, in absence of sub-sections (2A) and (2B)
\nof Section 92CA, the TPO would get jurisdiction to examine a
\ntransaction whether it is international or specified domestic
\n21 of 30<\/p>\n
transaction, only upon reference being made by the
\nAssessing Officer under sub-section (1) of Section 92CA of
\nthe Act. Sub-section (2) of Section 92CA provides that where
\na reference is made under sub-section (1), the TPO would
\nserve a notice to the assessee requiring him to furnish
\ndetails in relation to international transaction or specified
\ndomestic transaction referred to in sub-section (1). Thus, the
\njurisdiction of the TPO to issue a notice to the assessee
\nwould be in relation to international transaction or specified
\ndomestic transaction for which reference is made by the
\nAssessing Officer under sub-section (1). It is precisely for this
\nreason that sub-sections (2A) and (2B) provide a deeming
\nfiction where they provide that in case of an international
\ntransaction not referred to the TPO or an international
\ntransaction not reported by the assessee, which comes to his
\nnotice during the proceedings, the provision of the Chapter
\nwould apply as if such international transaction was one
\nreferred to in sub-section (1). In absence of this deeming
\nfiction, it would not be open for the TPO to exercise the
\npowers under the said chapter in relation to the transaction
\nnot referred to him. The reference to be made by the
\n22 of 30<\/p>\n
Assessing Officer is not an empty formality. Said reference
\nhas to be made only on approval of the Principal
\nCommissioner or Commissioner. Legislature, requires the
\nAssessing Officer to obtain an approval from senior Revenue
\nAuthority before a reference is made. Such requirement
\ncannot be jettisoned by the TPO exercising sue motu
\njurisdiction over the transaction not reported to him.
\n15. This Court in case of Vodafone India Services Pvt
\nLtd Vs. Union of India & Ors.2 considered a question
\nwhether the TPO could have considered a transaction coming
\nto his notice during the course of the proceedings before
\nhim, though not referred to him by the Assessing Officer in a
\ncase which arose prior to 1.6.2011 when sub-section (2A)
\nwas inserted in Section 92CA of the Act. In this context, the
\nCourt held and observed as under:-
\n“28. Sub-section (2A) undoubtedly confers fresh jurisdiction upon
\nand extends the jurisdiction of the TPO. Prior thereto, the TPO was
\nnot entitled to deal with or consider international transactions which
\ncame to his notice without the same being referred to him by the AO.
\nPrior to sub-section (2A) being introduced with effect from 1st June,
\n2011, the TPO was entitled to determine the arm’s length price in
\nrelation to an international transaction only upon the same being
\n2 [2013] 359 ITR 133 (Bom)
\n23 of 30<\/p>\n
referred to him for computation by the AO with the previous approval
\nof the Commissioner.”
\n16. Even the Central Board of Direct Taxes (“CBDT” for
\nshort) has dealt with this situation similarly. In an instruction
\n3 of 2003 dated 20.5.2013, following clarification was made:-
\n(ii) Role of Transfer Pricing Officer : The role of the TPO begins
\nafter a reference is received from the Assessing Officer. In terms of
\nSection 92CA, this role is limited to the determination of arm’s length
\nprice in relation to the international transaction(s) referred to him by
\nthe Assessing Officer. If during the course of proceedings before
\nhim, it is found that there are certain other transactions; while have
\nnot been referred to him by the Assessing Officer, he will have to take
\nup the matter with the Assessing Officer so that a fresh reference is
\nreceived with regard to such transactions. It may be noted that the
\nreference to the TPO is transaction and enterprise specific.”
\nIn later Instruction No. 15\/2015 dated 16.10.2015, it
\nwas clarified as under:-
\n“4. Role of Transfer Pricing Officer
\n4.1 The role of the TPO begins after a reference is received from
\nthe AO. In terms of Section 92CA of the Act, this role is limited to the
\ndetermination of the ALP in relation to international transaction(s)
\nreferred to him by the AO. However, if any other international
\ntransaction comes to the notice of the TPO during the course of the
\nproceedings before him, then he is empowered to determine the ALP
\nof such other international transactions also by virtue of sub-sections
\n(2A) and (2B) of Section 92CA of the Act. The transfer price has to
\nbe determined by the TPO in terms of Section 92C of the Act.”
\n17. Inescapable conclusion that we have reached is that in
\n24 of 30<\/p>\n
relation to a specified domestic transaction, the TPO can
\nunder take transfer pricing study only in relation to those
\ntransactions which are referred to him under sub-section (1)
\nof Section 92C of the Act. Sub-section (2A) and (2B) of
\nSection 92C are confined to international transactions and
\nwith the aid of any interpretive process, the said provision
\ncannot be applied to empower the TPO to examine any
\nspecified domestic transaction not referred to him by the
\nAssessing Officer under sub-section (1). Any other view
\nwould be doing violence to the plain language of the statute.
\n18. Learned counsel for the Revenue is correct in pointing
\nout that in the present case, the assessee did not report such
\ntransaction at all and therefore, the Assessing Officer had no
\noccasion to notice such transaction as specified domestic
\ntransaction. His reference, therefore, was necessarily
\nconfined to the reported transactions. The TPO noticed this
\nanomaly, he proceeded to determine the arm’s length price
\nafter full opportunity of hearing to the petitioner.
\n25 of 30<\/p>\n
19. Even in such a situation, the statute does not permit
\nthe TPO to assume the jurisdiction to determine the arm’s
\nlength price of a specified domestic transaction not reported
\nto him. There may be number of cases where the assessee
\nmay bonafide hold a belief that certain transaction is not a
\nspecified domestic transaction and therefore, would not
\nreport the same under Section 92E of the Act. Whether
\nbonafide or not, not making a report by the assessee of a
\nspecified domestic transaction would not leave the revenue
\nwithout remedy. As clarified by CBDT in the instructions
\ndated 20.5.2013, it is always open for the TPO who notices
\nsuch transaction during the course of the proceedings before
\nhim to call for a reference by the Assessing Officer. If the
\nAssessing Officer does make a report, only then TPO can
\nundertake further steps as envisaged under sub-section (2)
\nand other sub-sections of Section 92CA. As noted, the
\nstatute is sufficiently clear. The legislature while expanding
\nthe scope of the transfer pricing study by the TPO to a
\ntransaction not referred him or not reported by the Assessing
\nOfficer, under sub-section (2A) and (2B) of Section 92CA, has
\nconfined the applicability thereof only to international
\n26 of 30<\/p>\n
transactions. The TPO exercising such powers suo motu in
\nrelation to a specified domestic transaction would be
\ntransgressing his jurisdiction and in the process would render
\nthe requirement of sub-section (1) of Section 92CA
\nredundant. As noted, the reference that the Assessing
\nOfficer can make to the TPO would have the approval of the
\nPrincipal Commissioner or the Commissioner.
\n20. Under these circumstances, in relation to the
\ntransaction of payment to creditors in demerger process, the
\nTPO had no jurisdiction to make any adjustments. Under
\nthese circumstances and even otherwise, we are not inclined
\nto examine the adjustment on merits though it was argued
\nbefore us by the learned counsel for the petitioner.
\n21. Coming to the adjustment made by the TPO towards
\npayment of subscription fees, even though the petitioner
\nmay have certain arguable points, that by itself, would not
\nenable us to bypass the entire statutory scheme of
\nassessment, appeal and revision. Once the TPO makes his
\n27 of 30<\/p>\n
report, the provisions are made in the statute how such
\nreport would be acted upon. The petitioner would have full
\ninnings to oppose the contents of such report and take such
\nchallenge in the appeal in case the petitioner fails at the first
\nstage. When a statute that too, fiscal statute makes detail
\nprovisions for assessment, appeals and revisions, ordinarily
\nthe Court would not examine the issues on merits bypassing
\nsuch statutory remedies. Reference in this respect can be
\nmade to the decision of the Supreme Court in the case of CIT
\nVs. Chhabil Dass Agarwal3. In the said judgment taking
\nnote of the larger number of decisions of the Supreme Court
\nin context of exercising writ jurisdiction when statutory
\nappeal remedies are available, it was observed as under:-
\n“19. Thus, while it can be said that this Court has recognized some
\nexceptions to the rule of alternative remedy, i.e., where the statutory
\nauthority has not acted in accordance with the provisions of the
\nenactment in question, or in defiance of the fundamental principles of
\njudicial procedure, or has resorted to invoke the provisions which are
\nrepealed, or when an order has been passed in total violation of the
\nprinciples of natural justice, the proposition laid down in Thansingh
\nNathmal’s case, Titagarh Paper Mills’ case and other similar
\njudgments that the High Court will not entertain a petition under
\nArticle 226 of the Constitution if an effective alternative remedy is
\navailable to the aggrieved person or the statute under which the
\naction complained of has been taken itself contains a mechanism for
\n3 [2013] 357 (SC)
\n28 of 30<\/p>\n
redressal of grievance still holds the field. Therefore, when a
\nstatutory forum is created by law for redressal of grievances, a writ
\npetition should not be entertained ignoring the statutory dispensation.
\nAll the contentions on merits raised by the learned
\ncounsel for the petitioner in relation to this adjustment
\nrequire minute examination of documents and materials on
\nrecord and accounts. Even the contention of breach of
\nnatural justice is not possible of summary consideration. The
\nTPO had issued several notices during the proceedings.
\nWhether precise query was raised in relation to the
\nadjustment ultimately suggested would require minute and
\ndetailed examination of documents on record, an exercise we
\nare not inclined to undertake in this petition. When the Act
\nprovides for statutory appeals and further appeal to the High
\nCourt on substantial question of law, such exercise, we would
\nbe well advised not to undertake in a writ petition.
\n22. In view of the above discussion, the impugned order of
\nthe TPO is quashed in so far as it provides adjustment of the
\narm’s length price towards payment of creditors in demerger
\nprocess of a sum of Rs. 57.54 crores. Rest of the impugned
\norder stands as it is.
\n29 of 30<\/p>\n
23. The petition is disposed of accordingly.
\n[ SARANG V. KOTWAL, J. ] [ AKIL KURESHI, J ]
\n30 of 30<\/p>\n","protected":false},"excerpt":{"rendered":"
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. 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<\/p>\n