TPO To Mandatorily Pass Order Determining Arm's Length Pricing Within 60 Days: Madras High Court

In the writ petition, the appellant/department has disputed the judge's order. The judge ruled that the TPO's decision or inability to issue an order within 60 days will have an influence on the order issued by the Assessing Officer, for which an outer time limit has been specified under Sections 144C and 153 of the Income Tax Act.

The respondent/assessee, a private limited company, is in the business of manufacturing generic drugs, exporting the same to group entities and contract research and development services for pharmaceutical products.

For the assessment year 2016-2017, the assessee filed the return of income. On receipt of the ITR, a notice was issued to the assessee under Section 143 (2) of the Income Tax Act. Subsequently, a reference was made to the Deputy Commissioner of Income Tax to determine the arm's length price of the international transactions reported on Form No.3 CEB.

A notice under Section 92CA(2) of the Income Tax Act was issued by the Deputy Commissioner of Income Tax, calling upon the assessee to furnish particulars.

The Deputy Commissioner of Income Tax passed the order under Section 92CA (3) of the Income Tax Act, which, according to the assessee, was passed, after the time limit prescribed for passing orders until 31.10.2019.

Therefore, the order passed by the Deputy Commissioner of Income Tax was beyond the period of limitation as stipulated under Section 92CA (3A) of the Income Tax Act.

The department contended that where there was no reference made to a transfer pricing officer, the time limit for completion of the assessment is 21 months from the end of the assessment year, as contemplated under Section 153 (1) of the Income Tax Act, and in that event, the last date for passing an order of assessment in this case will be 31.12.2018. On the other hand, in the event reference is made to the Transfer Pricing Officer for completion of assessment, as per Section 153 (1) read with Section 153 (4), the time limit is 33 months from the end of the assessment year and, in such an event, the time limit available for passing an assessment order is till 31.12.2019.

The department contended that the time limit for passing a transfer pricing order is governed by sub-section 3A of Section 92CA. As per Section 92CA (3A), a Transfer Pricing Order has to be passed 60 days prior to the date on which the time limit provided under Section 153 of the Act expires. The word "prior to" mentioned in the section indicates that it is referable to the date preceding, i.e., 30.12.2019.

The respondents contended that, as against the order passed under Section 92CA (3) of the Income Tax Act, there was an alternative remedy available to the assessee. It was further stated that the order, which was impugned in the writ petition, was only a proposal for transfer pricing adjustment and, based on the same, the Assessing Officer had to pass a further order under Section 144C (1). Thus, there will not be any demand on account of the draft assessment order.

Pointing out Section 92CA(3A) of the Act, the respondents submitted that the words used in Section 92CA(3A) are "60 days" prior to the date on which the period of limitation expires. The date on which the period of limitation expires in this case was 60 days prior to 01.01.2020, which is 02.11.2019. Therefore, the date before 60 days would be the date before 02.11.2019. Thus, the order, which was impugned in the writ petition, passed on 01.11.2019 is well within the time stipulated under Section 92CA (3A) of the Act and not barred by limitation. Further, the word "may" is used in Section 92CA (3) of the Act, and therefore, even if the order was passed after the period of 60 days, as contemplated under Section 153, it would still be treated as having been passed within the time limit.

The court held that, as per the proviso to Section 92CA (3A), if the time limit for the TPO to pass an order is less than 60 days, then the remaining period shall be extended to 60 days. This implies that not only is the time frame mandatory, but also that the TPO has to pass an order within 60 days.

"For the reference to the TPO, the time limit for completing the assessment would only be 21 months from the end of the assessment year. It is only if a reference is pending that the department gets another 12 months. Once reference is made and after availing the benefit of the extended period to pass orders, the department cannot claim that the time limits are not mandatory," the court said.

The court observed that when an order is passed on time, the procedures under 144C and 92CA(4) are to be followed. When the determination is not made in time, it cannot be relied upon by the assessing officer while concluding the assessment proceedings.

Case Title: The Deputy Commissioner of Income Tax Versus Saint Gobain India Private Limited

Citation: Writ Appeal Nos. 1120, 1115, 1139, 1148, 1149, 2035, 2036, 2039, 2043 and 2066 of 2021 and CMP.Nos.7069, 7014, 7170, 7199, 7212, 12990, 12999, 13006, 13017 and 13070 of 2021

Dated: 31.03.2022

Counsel For Appellant: Advocate Hema Muralikrishnan, Advocate A.P. Srinivas

Counsel For Respondent: Advocates S.P. Chidambaram, R. Sandeep Bagmar, Ajay Vohra, R. Sivaraman, N.V. Balaji, Sumit Mangal

Citation: 2022 LiveLaw (Mad) 162

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