Summary
The Assessing Officer made a transfer-pricing adjustment without referring the transaction to the Transfer Pricing Officer as required by CBDT Instruction No.3/2003. The Supreme Court agreed that the mandatory instruction had been breached but held that the matter should have been restored for the appropriate reference, rather than leaving the adjustment issue without further examination.
Issues
- Whether breach of the mandatory TPO-reference instruction justified ending the transfer-pricing issue without restoring it to the Assessing Officer.
Provisions considered
- Section 92CA(1), Income-tax Act, 1961The authorities and Commissioner were to consider the reference in accordance with this provision and the applicable mandatory CBDT instruction. (¶¶ 5, 6, 7, 8, 9)
- TPO-reference directions, CBDT Instruction No.3/2003 dated 20 May 2003The then-applicable directions mandated reference in the covered circumstances. Their breach warranted restoration for appropriate action, not final abandonment of the transfer-pricing inquiry. (¶¶ 4, 6, 7, 8, 9)
Held
- The Tribunal correctly held that the Assessing Officer breached the mandatory CBDT instruction by not referring the matter to the TPO. The statutory wording relied on by the Revenue did not displace the instruction’s requirements in this case. (¶¶ 4, 5, 6, 7)
- The Tribunal should nevertheless have accepted the request to restore the matter to the Assessing Officer for an appropriate TPO reference. The authorities and Commissioner concerned were to act under Section 92CA(1), and the Assessing Officer was to take appropriate steps under Instruction No.3/2003. (¶¶ 8, 9)
Result
Revenue’s appeal allowed to the limited extent of directing appropriate further steps by the Assessing Officer under Instruction No.3/2003 and Section 92CA(1). No costs.