Facts of the Case

The petitioner, a company engaged in software and information technology enabled services, challenged a draft assessment order dated 24 April 2021 passed under Section 144C read with Sections 143(3) and 144B of the Income-tax Act, 1961. The Assessing Officer made a substantial adjustment of ₹25,58,68,79,196 to the total income of the assessee for Assessment Year 2017-18.

The case involved international transactions, prompting a reference to the Transfer Pricing Officer (TPO) under Section 92CA for determination of the Arm’s Length Price (ALP). The TPO ultimately determined a transfer pricing adjustment of ₹16,84,51,531. However, while framing the draft assessment order, the Assessing Officer added a much larger amount relating to the value of a demerged business, treating it as taxable income.

Issues Involved

  1. Whether the Assessing Officer could determine or enhance ALP beyond the determination made by the TPO.
  2. Whether the AO could independently treat the value of a demerged business as income without TPO’s determination.
  3. Whether the impugned assessment order violated Section 92CA of the Income-tax Act.
  4. Whether such action constituted a jurisdictional error.

Petitioner’s Arguments

  • The Assessing Officer acted beyond jurisdiction by computing ALP independently.
  • Section 92CA mandates that ALP determination falls exclusively within the domain of the TPO.
  • The TPO never determined the value of the demerged business as ALP.
  • The AO’s addition of ₹25,41,84,27,665 relating to the demerged business was therefore unlawful and contrary to statutory provisions. 

Respondent’s Arguments

  • The AO acted in conformity with the TPO’s findings and analysis.
  • The TPO had examined the international transactions related to the demerger.
  • Alternatively, the matter could be remanded for fresh consideration if required.

Court Order / FINDINGS

  • Determination of ALP for international transactions lies exclusively within the jurisdiction of the TPO under Section 92CA.
  • The Assessing Officer is bound to compute total income strictly in conformity with the ALP determined by the TPO.
  • The TPO had determined an adjustment only to the extent of ₹16,84,51,531.
  • The AO’s addition relating to the demerged business, which was not determined as ALP by the TPO, amounted to exceeding jurisdiction.
  • The AO effectively assumed the role of the TPO, which is impermissible under the statutory scheme.

Important Clarification

  • ALP determination is the exclusive domain of the Transfer Pricing Officer.
  • The Assessing Officer cannot deviate from or expand upon the TPO’s determination while computing income.
  • Statutory procedures under the transfer pricing regime must be strictly followed.
  • Any assessment order contrary to Section 92CA is liable to be set aside as jurisdictionally defective.

Link to download the order –  https://www.mytaxexpert.co.in/uploads/1772427204_MS.GIESECKEANDDEVRIENTINDIAPVT.LTD.VsDEPUTYCOMMISSIONEROFINCOMETAX2.1ORS.pdf  

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