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  1. 92CA deals with provision for reference to TPO for computation of arms length price in relation to an international transactions. Sub-section (2A) inserted w.e.f. 1.6.2011 further empowers the TPO to take cognizance of transactions not referred to him but come to his notice during the course of proceedings before him. The Delhi High Court in Commissioner of Income-tax v. Amadeus India Pvt. Ltd. (2013) 351ITR92 held the TPO’s duty is to do what is referred to him. And Sub-section (2A) which increases the domain over unreported transactions being in the nature of an expansion of the jurisdiction of the Transfer Pricing Officer is a procedural change and thus can only have prospective effect from June 1, 2011 impliedly therefore from A Y 2012-13.

In this case the AO/TPO in their orders framed subsequent to June 1, 2011 made TP adjustment/addition of Rs. 85,90,25,49,547/- on account of the two unreported transactions at on account of sale of the call centre business to Hutchison Whampoa Properties (India) Pvt. Ltd. and transaction of assignment of call options by the assessee to Vodafone International Holdings B.V.  Later the assessee filed its objections before the DRP against the draft assessment order against such huge addition on unreported/unreferred transactions. At the same time the assessee went into a writ before the Bombay High Court challenging the jurisdiction of the AO, TPO and DRP. The DRP confirmed the adjustment of Rs. 8590 crores while the final assessment is kept pending as per the interim order of the Court pending decision on the jurisdictional issues.

The Bombay High Court distinguished Delhi High Court decision on facts being strongly relied by Sh. Harish Salve, counsel for Vodafone of which reference is thus not well founded by the Court. The Bombay High Court held that the power or right to make computation of arms length price cannot certainly be deemed to be merely a procedural provision. It is a substantive provision. The Court observed that the TPO’s  task is not merely a clerical one.Reading the plain language and phrase ‘ during the course of  the proceedings’ it held that TPO  has jurisdiction to consider unreported and unreferred international transactions in proceedings pending before him on June 1, 2011.  On the prospective application the Court held that sub-section (2A)  can only have prospective effect from June 1, 2011. It is, however, prospective qua the proceedings and not qua the assessment year. Thus, if the proceedings had concluded before the TPO prior to June 1, 2011, sub-section (2A) would not have been applicable.

The Court even went on to express the difference in meaning and implications of the two sub-sections (2A) and (2B) of section 92CA. The Court held that sub-section (2A) come into practice when the TP proceedings are pending before the TPO and it is only during that course that he may take into account even unreported transactions. In the Amadeus case no proceedings were pending before the TPO so that sub-section (2A) was to be rendered as inapplicable.

Importantly the Court in this case relegated the matter for pursuing alternative remedy of appeal to the ITAT it at the same time held that erroneous exercise of jurisdiction can be set right by the DRP or the Commissioner (A) or the ITAT. And it is in cases where the assumption of jurisdiction is patently absurd and unsustainable such as where there is no transaction at all and where therefore no amount can be brought to tax the High Court may assume writ jurisdiction depending on the facts of the case. In all said and done the TP exercise is fact based so remedies must be found in the Act stream, in my view.


CA Gopal Nathani

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