Section 92CA provides that the AO may refer a case to the TPO if the taxpayer has entered into international transactions or SDT and the AO considers it necessary or expedient so to do. While making a reference, the AO has to take prior approval of the Commissioner. The reference to TPO shall be for computation of ALP of the international transactions or SDT referred by the AO.
Section 92CA(4) further provides that on receipt of Order of the TPO, the AO shall compute the total income in conformity with the ALP determined by the TPO.
Post that the AO shall pass draft assessment order if conditions of section 144C are satisfied. Else, the AO shall pass the final assessment order. In an interesting decision, the Kolkata Tribunal analysed whether TP proceedings can be continued post order under section 143(3) in a case where reference was made before passing of order. The ITAT also evaluated the validity of 147 proceedings initiated based on such TP Order.
Nomura Research Institute Financial Technologies India (P.) Ltd. v DCIT [2020] 121 taxmann.com 217 (Kolkata – Trib.)
Facts of the case
Certain important dates germane to the issue are as follows:
| 8-9-2015 | Reference made to the TPO |
| 31-8-2016 | Final Assessment Order passed by AO with an adjustment of INR 10,626, without waiting for Order of TPO |
| 23-10-2017 | Show-cause notice issued by the TPO proposing TP adjustments |
| 24-10-2017, 26-10-2017 | Response to show-cause notice filed by the Assessee without prejudice to the fact that TP proceeding was invalid |
| 27-10-2017 | TP order passed with an upward adjustment of INR 5,08,27,823 |
| 26-2-2018 | Reassessment proceedings initiated by the AO by issuing notice u/s. 148 |
| 2-8-2018 | Draft assessment order passed by the AO against which objections raised by the Assessee |
DRP Directions
The DRP held that the final assessment order could not be done without making a valid reference to the TPO. The DRP also held that TPO could not have initiated any proceedings against the assessee, after the AO passed the order on 31-8-2016, as the reference made on 8-9-2015 by the AO to the TPO becomes infructuous after passing of the final assessment order on 31-8-2016. Thus, the TPO order dated 27-10-2017 is non-est in law. The DRP also held that after re-opening the assessment u/s. 147 of the Act on 26-2-2018, a fresh reference has not been made to the TPO. Hence the adjustment made without a valid reference to the TPO for determination of ALP of the international transaction cannot be sustained.
Decision of ITAT
The ITAT agreed with the findings of the DRP. The ITAT held that the TPO has acted without jurisdiction as there was no valid and continuing reference. The reference made on 8-9-2015 gets terminated or infructuous after passing of the final assessment order u/s. 143(3) of the Act on 31-8-2016. The TP Order has no legal validity and an adjustment made based on such order is bad in law. The ITAT further held that directions of the DRP are binding of the AO u/s. 144(13) of the Act. The DRP had held that the re-opening of the assessment is bad in law. The ITAT held that the final assessment order dated 16-5-2019 should have incorporated the finding of the DRP. The ITAT observed that the AO has no other alternative but to drop the assessment proceedings on the ground that re-opening of assessment has been held as bad in law. Therefore, the ITAT quashed the final assessment order dated 16-5-2019 as bad in law.