Applicability of transfer pricing provisions for reopening of assessment (Sec 147)

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The provision of section 147 is not, in any manner, controlled by section 92 nor there is any limit to consideration of any material having nexus with the opinion on the issue of escapement of assessment of income; requirement of section 147 is fulfilled if the AO can legitimately form an opinion that income chargeable to tax has escaped assessment; for forming such opinion, any relevant material can be considered and the order of TPO can certainly have nexus for reaching the conclusion that income has been incorrectly assessed or has escaped assessment; in such a situation, it cannot be held that the notice proposing reassessment is vitiated merely because one of the reasons referred to order of TPO.


HIGH COURT OF PUNJAB AND HARYANA

Coca Cola India Inc. v ACI , (CWP No. 16681 of 2005) Date: December 17, 2008


RELEVANT EXTRACTS:

47 We have already reproduced section 147 of the Act above and its applicability requires formation of opinion that income escaped assessment. The said provision is not in any manner controlled by section 92 of the Act nor there is any limit to consideration of any material having nexus with the opinion on the issue of escapement of assessment of income. Interference with the notice for reassessment is called for only where extraneous or absurd reasons are made the basis for opinion proposing to reassess. Apart from the fact that the Assessing Officer has given other reasons, it cannot be held that the material relied upon by the Assessing Officer for proposing reassessment is irrelevant. Whether or not the said material should be finally taken into account for reassessment is a matter which has to be left open to be decided by the Assessing Officer after considering the explanation of the assessee. We can only mention that having regard to relationship of the petitioner to its associate company, it cannot be claimed that the price mentioned by it must be accepted as final and may not be looked at by the Assessing Officer.


51. As regards the question whether order of the Transfer Pricing Officer could be taken into account, we do not find any objection to the same being done. As already observed, requirement of section 147 of the Act is fulfilled if the Assessing Officer can legitimately form an opinion that income chargeable to tax has escaped assessment. For forming such opinion, any relevant materials can be considered. Order of Transfer Pricing Officer can certainly have nexus for reaching the conclusion that income has been incorrectly assessed or has escaped assessment. In the present case, the said material came to the notice of the Assessing officer
subsequent to the assessment. There is no grievance that provisions of sections 148 to 153 of the Act have not been followed. In such a situation, it cannot be held that the notice proposing reassessment is vitiated merely because one of the reasons referred to order of Transfer Pricing Officer.



52. We have already reproduced the amended provisions of Chapter X. According to the petitioner, the same should be held to be inapplicable, as making the same applicable will render them unconstitutional. The petitioner has not challenged their validity.



We do not find any substance in the submission that if the said provisions are made applicable to the petitioner, the same would be unconstitutional. There is no lack of Legislative competence for enacting the said provisions and making them applicable to the petitioner or to a class of persons falling in the category of the petitioner. Potential of multinational companies to allocate profits in inter groups transactions to outside jurisdiction or resulting in tax evasion is an acknowledged fact and is duly recognized in Legislation, nor only in India but elsewhere also. Keeping in view this mischief to be remedied and to advance the object of taxing the real income, provisions have been enacted. The amended provisions certainly advance the declared object by laying down the requirement of and mechanism for determination of arm’s length price. `International transaction’ and `associated enterprises’ have been well defined under sections 92B and 92A of the Act.

International transaction is a transaction between two or more associated enterprises, either or both of whom are non-residents. Associated enterprises, either or both of whom are non-residents. Associated enterprises is an enterprises which participates in management or control of capital or other gains. The provision for computing arm’s length price has been applied to income arising from international transactions. The Statute is, thus, applicable to well defined class which meets the test of intelligible differentia. It also meets the test of rational relationship to the object i.e. to determine the real income. The income arising from international transaction is to be computed having regard to arm’s length price as per guidelines laid down in section 92C of the Act by adopting one of the laid down methods, at the discretion of the competent authority. Mere fact that the assessee has chosen one of the said methods, does not take away the discretion to select any other method which may be considered to be more appropriate for the purpose of determining the true income. Proviso to section 92C(3) of the Act provides for an opportunity to the assessee as to why arm’s length price should not be determined as proposed. Under section 92CA of the Act, the Assessing Officer can make a reference on the issue of computation of arm’s length price to a Transfer Pricing Officer. The Transfer Pricing Officer is required to issue notice to the assessee to lead evidence for determining what was the arm’s length price

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