Ranbaxy Laboratories Ltd. v. CIT

SUBSCRIBE FOR FULL CONTENT


The Tax Publishers2012 TaxPub(DT) 0814 (Del-HC) : (2012) 044 (I) ITCL 0218 : (2012) 204 TAXMAN 0294 INCOME TAX ACT, 1961 --Revision under section 263--Erroneous and prejudicial orderReference to TPO--The assessee was a company incorporated under the Companies Act, 1956 engaged in the business of manufacture and sale of pharmaceutical products, such as, patented and/or generic drugs and medicines. For the relevant previous year, the return of income of the assessee was filed on 29-10-2004 declaring an income of Rs. 3,30,64,05,014. The assessee entered into certain international transactions with its Associated Enterprises (AEs) in the various overseas foreign jurisdictions, viz., (a) Sale of Active Pharmaceutical Ingredients (API) and spare parts; (b) Sale of dosage formulations: (c) Provision of technical assistance and know-how, etc. The transfer pricing in respect of the said international transactions was carried out by M/s RSM (P) Ltd., Chartered Accountants, who issued the certificate in Form 3CEB on the basis of Transfer Pricing study of documentation maintained as per section 92D read with rule 10D of the IT Rules, 1962. The international transactions were certified to be at arm's length, based on the study carried out. A certificate from a Chartered Accountant in Form 3CEB was appended along with the return of income. It is the case of the assessee that the assessing officer in the course of scrutiny assessment required the appellant to, inter alia, explain as to whether, in terms of provisions of section 92, transfer price of the various 'international transactions', entered into by the appellant during the relevant previous year, were at arm's length. In response thereto, the appellant, vide letter dated 24-3-2005, submitted before the assessing officer complete transfer pricing documentation along with the details and an elaborate note justifying that the 'international transactions' were at arm's length having regard to the Transfer Pricing provisions. The assessing officer accepted the transfer price of the 'international transactions' entered into by the appellant as being at arm's length. The assessment was completed on 30-3-2005 under section 143(3) at book profit of Rs. 3,98,48,42,660 under section 115JB and at an income of Rs. 3,63,45,44,931 under regular provisions of the Act as against income of Rs. 3,30,64,05,614 returned by the appellant, i.e., after making additions/disallowances amounting to Rs. 32.81 crores. Thereafter, notice dated 9-3-2007 was issued by the CIT, Delhi-V, New Delhi (CIT) under section 263 asking to show cause as to why the assessment completed under section 143(3) be not revised on the grounds that the same was erroneous and prejudicial to the interests of revenue with regard to determination of arm's length price of international transactions with AEs. In response to the said notice, the appellant, vide letter dated 23-3-2007, made elaborate submissions before the CIT explaining the various issues raised in the show cause notice. The CIT, however, did not countenance the submissions of the appellant and passed orders dated 29-3-2007 holding that assessment completed under section 143(3) was erroneous and prejudicial to the interests of the revenue on account of (i) non-reference of the case to TPO, (ii) taking overseas AEs of assessee as tested party, and (iii) non consideration of findings of audit of Central Excise Department. The assessment was set aside on the three grounds as aforesaid. The assessing officer was directed to refer the case to the TPO for determination of arm's length price. Being aggrieved by the aforesaid order, the assessee filed an appeal before the Tribunal. The Tribunal vide order dated 22-1-2008 upheld assumption of jurisdiction under section 263 by the CIT. Held: The Tribunal was right in holding that even the instant case itself provides a good example for need to refer the matter to TPO in such cases. When circular is issued under section 119 of the Act and its validity is upheld, it is binding on the assessing officer. Not taking recourse thereto and passing the order amounted to making assessment without conducting proper inquiry and investigation as enjoyed by law which was also warranted in the facts of this case and, therefore, the CIT was right in holding that such assessment was erroneous and prejudicial to the interest of the Revenue in the light of law laid down by the Apex Court in Malabar Industrial Co. Ltd. Revisional power was, therefore, rightly exercised by CIT. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 0814 (Del-HC) : (2012) 044 (I) ITCL 0218 : (2012) 204 TAXMAN 0294

INCOME TAX ACT, 1961

--Revision under section 263--Erroneous and prejudicial orderReference to TPO--The assessee was a company incorporated under the Companies Act, 1956 engaged in the business of manufacture and sale of pharmaceutical products, such as, patented and/or generic drugs and medicines. For the relevant previous year, the return of income of the assessee was filed on 29-10-2004 declaring an income of Rs. 3,30,64,05,014. The assessee entered into certain international transactions with its Associated Enterprises (AEs) in the various overseas foreign jurisdictions, viz., (a) Sale of Active Pharmaceutical Ingredients (API) and spare parts; (b) Sale of dosage formulations: (c) Provision of technical assistance and know-how, etc. The transfer pricing in respect of the said international transactions was carried out by M/s RSM (P) Ltd., Chartered Accountants, who issued the certificate in Form 3CEB on the basis of Transfer Pricing study of documentation maintained as per section 92D read with rule 10D of the IT Rules, 1962. The international transactions were certified to be at arm's length, based on the study carried out. A certificate from a Chartered Accountant in Form 3CEB was appended along with the return of income. It is the case of the assessee that the assessing officer in the course of scrutiny assessment required the appellant to, inter alia, explain as to whether, in terms of provisions of section 92, transfer price of the various 'international transactions', entered into by the appellant during the relevant previous year, were at arm's length. In response thereto, the appellant, vide letter dated 24-3-2005, submitted before the assessing officer complete transfer pricing documentation along with the details and an elaborate note justifying that the 'international transactions' were at arm's length having regard to the Transfer Pricing provisions. The assessing officer accepted the transfer price of the 'international transactions' entered into by the appellant as being at arm's length. The assessment was completed on 30-3-2005 under section 143(3) at book profit of Rs. 3,98,48,42,660 under section 115JB and at an income of Rs. 3,63,45,44,931 under regular provisions of the Act as against income of Rs. 3,30,64,05,614 returned by the appellant, i.e., after making additions/disallowances amounting to Rs. 32.81 crores. Thereafter, notice dated 9-3-2007 was issued by the CIT, Delhi-V, New Delhi (CIT) under section 263 asking to show cause as to why the assessment completed under section 143(3) be not revised on the grounds that the same was erroneous and prejudicial to the interests of revenue with regard to determination of arm's length price of international transactions with AEs. In response to the said notice, the appellant, vide letter dated 23-3-2007, made elaborate submissions before the CIT explaining the various issues raised in the show cause notice. The CIT, however, did not countenance the submissions of the appellant and passed orders dated 29-3-2007 holding that assessment completed under section 143(3) was erroneous and prejudicial to the interests of the revenue on account of (i) non-reference of the case to TPO, (ii) taking overseas AEs of assessee as tested party, and (iii) non consideration of findings of audit of Central Excise Department. The assessment was set aside on the three grounds as aforesaid. The assessing officer was directed to refer the case to the TPO for determination of arm's length price. Being aggrieved by the aforesaid order, the assessee filed an appeal before the Tribunal. The Tribunal vide order dated 22-1-2008 upheld assumption of jurisdiction under section 263 by the CIT. Held: The Tribunal was right in holding that even the instant case itself provides a good example for need to refer the matter to TPO in such cases. When circular is issued under section 119 of the Act and its validity is upheld, it is binding on the assessing officer. Not taking recourse thereto and passing the order amounted to making assessment without conducting proper inquiry and investigation as enjoyed by law which was also warranted in the facts of this case and, therefore, the CIT was right in holding that such assessment was erroneous and prejudicial to the interest of the Revenue in the light of law laid down by the Apex Court in Malabar Industrial Co. Ltd. Revisional power was, therefore, rightly exercised by CIT.