{"id":4163,"date":"2012-01-10T09:31:39","date_gmt":"2012-01-10T09:31:39","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=4163"},"modified":"2012-01-10T09:31:39","modified_gmt":"2012-01-10T09:31:39","slug":"ms-veer-gems-vs-acit-gujarat-high-court-ao-decision-to-refer-to-tpo-must-be-based-on-material-not-be-arbitrary","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/ms-veer-gems-vs-acit-gujarat-high-court-ao-decision-to-refer-to-tpo-must-be-based-on-material-not-be-arbitrary\/","title":{"rendered":"M\/s Veer Gems vs. ACIT (Gujarat High Court)"},"content":{"rendered":"\n\n
Click here to download the judgement (veer_gems_transfer_pricing.pdf) <\/strong> <\/a><\/p><\/td>\n<\/tr>\n<\/table>\n


\nAO\u2019s decision to refer to TPO must be based on material & not be arbitrary
\n<\/strong><\/p>\n

The assessee entered into transactions with a party named Blue Gems BVBA. In the preceding year, the assessee treated the transactions as an \u201cinternational transaction\u201d for transfer pricing purposes. However, in the present year, the assessee claimed that though the said party was a \u201crelated party\u201d, it was not an \u201caffiliated entity\u201d as defined in s. 92CA. However, instead of deciding the issue, the AO made a reference to the TPO to determine the ALP and the TPO asked the assessee to show-cause why the transaction with the said party was not subject to transfer pricing proceedings. The assessee filed a Writ Petition to challenge the action of the AO\/TPO. HELD by the High Court:<\/p>\n

The AO has jurisdiction to make a reference to the TPO only if there is an \u201cinternational transaction\u201d. Though the question as to whether there is an \u201cinternational transaction\u201d may be disputed, the AO is not obliged to grant hearing to the assessee, invite and consider the objections with respect to the question whether there was an \u201cinternational transaction\u201d before making a reference to the TPO<\/strong>. The AO\u2019s opinion has to be based on available material and would have \u201cad-hoc\u201d finality. The power cannot be exercised arbitrarily or at whims or caprice<\/strong>. S. 92C (1) has inbuilt safeguards to ensure that the reference is made only in appropriate cases with approval of the higher authority. At the stage of framing the assessment in terms of the TPO\u2019s report the AO is entitled (despite the amendment to s. 92CA(4)<\/em>) to consider the objections of the assessee that in fact there had been no \u201cinternational transaction\u201d. If the assessee succeeds in establishing such fact, the AO would have to drop the entire transfer pricing proceedings. Even the DRP has the power to consider whether there was an international transaction or not and it can annul the computations proposed on the basis of the TPO\u2019s order. However, the TPO has no jurisdiction to decide the validity of any such reference and his task is only to determine the ALP<\/strong>. On facts, as the parties were closely related and the assessee had accepted in the preceding year that the transactions were subject to transfer pricing, the AO\u2019s reference could not be interfered in writ proceedings. <\/p>\n<\/blockquote>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

The AO has jurisdiction to make a reference to the TPO only if there is an \u201cinternational transaction\u201d. Though the question as to whether there is an \u201cinternational transaction\u201d may be disputed, the AO is not obliged to grant hearing to the assessee, invite and consider the objections with respect to the question whether there was an \u201cinternational transaction\u201d before making a reference to the TPO<\/strong>. The AO\u2019s opinion has to be based on available material and would have \u201cad-hoc\u201d finality. The power cannot be exercised arbitrarily or at whims or caprice<\/strong>. S. 92C (1) has inbuilt safeguards to ensure that the reference is made only in appropriate cases with approval of the higher authority. At the stage of framing the assessment in terms of the TPO\u2019s report the AO is entitled (despite the amendment to s. 92CA(4)<\/em>) to consider the objections of the assessee that in fact there had been no \u201cinternational transaction\u201d. If the assessee succeeds in establishing such fact, the AO would have to drop the entire transfer pricing proceedings. Even the DRP has the power to consider whether there was an international transaction or not and it can annul the computations proposed on the basis of the TPO\u2019s order. However, the TPO has no jurisdiction to decide the validity of any such reference and his task is only to determine the ALP<\/strong>. On facts, as the parties were closely related and the assessee had accepted in the preceding year that the transactions were subject to transfer pricing, the AO\u2019s reference could not be interfered in writ proceedings<\/p>\n

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