AO’s power to reassess by collecting evidences from TPO cant be crippled by wrongly interpreting Sec 92CA(2B) or (2C) of I-T Act: Madras HC

Read Judgement: M/s.Aban Offshore Limited v. The Additional Commissioner of Income Tax 

Pankaj Bajpai

Chennai, July 20, 2021: While dismissing the petition of a taxpayer, the Madras High Court recently ruled that the power of reassessment of AO for collecting evidences or information from TPO cannot be crippled down by wrongly interpreting Section 92CA(2B) or (2C) of the Income Tax Act. 

A Bench of Justice S M Subramaniam observed that the Assessing Officer (AO) is empowered to assess or re-assess by invoking Section 147 and pass an order, enhancing the assessment or reducing a refund already made with reference to Sec 92CA(2B). 

The High Court further observed that if an assessee has not furnished report u/s 92-E and any such transaction comes to the notice of the Transfer Pricing Officer (TPO) during the course of ALP proceedings, then he can initiate suo-motu proceedings.

Going by the background of the case, the assessee’s international transaction with its overseas associated enterprise, was referred by AO to the Transfer pricing officer (TPO), who passed an order proposing an upward adjustment to the Arm’s Length Price (ALP) of such international transaction. 

The order of TPO was duly forwarded to the AO for incorporation in the order of assessment in terms of Section 94CA(4), and the same was incorporated in the final assessment order. The same was subjected to statutory appeal, and was now pending at the instance of the Department in further appeal before the Tribunal. Meanwhile, the proceedings for reassessment stood initiated u/s 147. 

Before the High Court, the assessee pleaded that it had received a notice u/s 92CA(2) along with a questionnaire, calling upon to furnish certain documents and information in connection with its international transactions. The assessee responded to the said notice, pointing out that the reference u/s 92CA was wholly bad in law in so far as the process of determination of ALP had already been undertaken and completed. 

The Bench said that in respect of an international transaction, if the assessee has not furnished the report u/s 92-E and any such transaction comes to the notice of the TPO during the course of the proceedings, then he can initiate suo-motu proceedings. 

After listening to the contentions, the High Court found that the AO in the present case has not invoked either Sub-Section 2B or Sub-Section 2C of Section 92 CA. The Assessing Officer re-opened the proceedings by invoking Section 147 and a notice was issued u/s 148 and thereafter, the AO sought certain information from the TPO, who in turn, sent a letter to the assessee to clarify certain queries. 

Based on the information collected from the assessee, the TPO passed an order and sent the same to the AO. Therefore, the entire exercise done by TPO and the AO are not within the scope of Sub-Section 2B of Section 92 CA, said the High Court. 

“Sub-Section 2B is specifically applicable only in cases, where the assessee has not furnished the Audit report u/s 92-E and any transaction comes to the notice of the TPO. However, in the present case, admittedly, the assessee had filed the Audit Report u/s 92-E, which was considered by the TPO, who in turn, passed the final order and the final order was communicated to the AO, who in turn, also passed an assessment order. Therefore, the clarifications or further information sought for by the AO in re-opening proceedings to cull out certain truth or to understand transactions, if any escaped, the same cannot be construed as falling within the ambit of Sub-Section 2C of Section 92 CA, wherein a limitation is prescribed,” noted the Bench.

The High Court, therefore, clarified that the purpose of Section 147 for reopening of assessment cannot be restricted, and the power of reassessment of the AO for collecting the evidences or materials or information from the authorities concerned cannot be crippled down by wrongly interpreting the other provisions of the Income Tax Act. 

“In this view of the matter, this Court is of the considered opinion that there is no infirmity or perversity as such in respect of the order passed by the TPO with regard to the reference made by the AO regarding certain international transactions or otherwise,” the HC said.