High Court of Delhi

Giesecke and Devrient India Pvt. Ltd. Vs. Deputy Commissioner of Income Tax and Ors. (Neutral Citation: 2024:DHC:2561-DB)

MANU/DE/2428/2024

01.04.2024

Direct Taxation

Assessing Officer has to calculate total income of assessee in conformity with Arm's Length Price determined by Transfer Pricing Officer

The present writ petition, at the instance of the assessee, seeks to assail the impugned order passed under Section 144C read with Sections 143(3) and 144B of the Income Tax Act, 1961 [IT Act], whereby, the Assessing Officer ["AO"] made an adjustment of INR 25,58,68,79,196, to the total income of the assessee. The short question is whether the AO can proceed to make transfer pricing adjustment beyond the Arm's Length Price (ALP) determination by the TPO in light of the mandate of Section 92CA of the Act.

As per Section 92CA of the IT Act, in order to compute the ALP of the international transactions, the AO "may" refer the matter to the office of the TPO, with prior permission of the Principal Commissioner of Income Tax ["PCIT"] or Commissioner of Income Tax ["CIT"]. Furthermore, the mandate of Section 92CA(4) of the Act would reflect that, the AO shall calculate the total income of the assessee in conformity with the ALP determined by the Transfer Pricing Officer (TPO). In cases, where certain international transactions may have a bearing on the computation of total income, the AO ought to refer the matter to the TPO in order to determine the ALP of the international transactions and the AO, while computing the total income of the assessee, shall proceed in conformity with the ALP determined by the TPO.

A bare perusal of the TPO order dated 31 January 2021 would suggest that the TPO never determined the ALP of the international transaction relating to the demerger of business and rather only determined an adjustment to the tune of INR 16,84,51,531. Though the TPO order reflects some discussion regarding the value of the demerger of the business, it nowhere held that the amount of INR 25,41,84,27,665 depicted the ALP of such an international transaction.

As per the legislative mandate behind Section 92CA of the Act, the ALP determination of any international transactions falls in the domain of the TPO. Moreover, the dictum laid down in CIT v. S.G. Asia Holdings noticeably elucidates that, the AO is not clothed with the powers to ascertain the ALP of any international transaction that is selected on the transfer pricing risk parameters. Furthermore, Section 92CA(4) of the Act evidently mandates that, the AO cannot deviate itself from the TPO order while computing the total income of the assessee.

In the present case, the TPO order solely reflects the transfer pricing adjustment to the tune of INR 16,84,51,531. However, the AO, without affording an opportunity of hearing to the assessee, proceeded to add an amount of INR 25,41,84,27,665 to the total income of the assessee, which addition was neither determined nor directed by the TPO, as the ALP of the international transaction related to the demerger of the business. The said course of action was not available to the AO and it is a clear case of excess.

Therefore, impugned order breaches the legislative mandate of Section 92CA of the IT Act.Thus, impugned order is set aside the impugned order and in the interest of justice, matter remanded back to the file of AO with a direction to proceed in accordance with law and extant regulations.Petition allowed.

Tags : Assessment Legislative mandate Breach

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