Saturday, October 8, 2016

Reference to TPO not invalid even if AO doesn't supply satisfaction note before making reference


a) Assessee filed the instant petition before the High Court challenging the validity of reference made by AO to TPO to determine ALP of international transaction.

b) The petition was filed on following grounds:

- In terms of the Instructions No. 3/2016 dated 10-3-2016, the requirement of passing reasoned order on the objections of assessee (regarding whether a transaction is an international transaction or not) and the service of the order upon the assessee is a condition precedent to the Assessing Officer making a reference to the TPO.

- Non-compliance with either or both the above mandatory conditions render the reference to the TPO void.

The High Court held as under:

1) The satisfaction recorded by the AO in the instant case contained sufficient reasons. He had indicated the relationship between the assessee and the other parties. He had made a comparative chart and alleged that the sales were under invoiced. That would be sufficient to refer the matter to the TPO. Whether the allegations are true or not must be tested before the authorities under the Act and not in a writ petition under Article 226. The challenge on this ground was, therefore, unsustainable.

2) Another submission made by the assessee was that the the order recording satisfaction must be served upon the assessee. The purpose of this exercise of granting the assessee an opportunity of raising objections and the requirement of the AO to furnish reasons for the satisfaction is inter-alia to enable the assessee firstly to meet the case and represent against it to the TPO before the Assessing Officer on the ground that there is no international transaction and secondly in the event of his objections being overruled, an opportunity of challenging the same before the Disputes Resolution Panel or the Commissioner (Appeals) as the case may be, and thereafter before the Appellate Tribunal.

3) An assessee is not entitled as a matter of right to invoke the writ jurisdiction at the stage ofreference by the Assessing Officer to the TPO. His grievances can be raised in a challenge to the draft assessment order before the Disputes Resolution Panel or the final assessment order before to the Commissioner (Appeals).

4) The contention of the assessee that the reference was void ab initio on account of the satisfaction note not having been furnished to the assessee before the reference of the transaction by the Assessing Officer to the TPO was, therefore, rejected. The failure to supply the satisfaction note before the reference to the TPO is at the highest a mere irregularity and does not prejudice the assessee in any manner whatsoever. In view of the above findings the writ petition was to be dismissed. - [2016] 74 89 (Punjab & Haryana)

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