Case Note & Summary
The case involves an appeal by the Pr. Commissioner of Income Tax – 6 against the order of the Income Tax Appellate Tribunal (ITAT) which had quashed the reassessment proceedings initiated against Kimberly Clark Lever Private Limited (the respondent) for Assessment Year 2007-08. The respondent, engaged in manufacturing diapers and sanitary napkins, filed its return of income on 31st October 2007 declaring total income of Rs.30,01,43,006/-. The return was processed under Section 143(1) of the Income Tax Act, 1961. Subsequently, the Assessing Officer made a reference under Section 92CA to the Transfer Pricing Officer (TPO) on 26th October 2009. The TPO passed an order under Section 92CA(3) on 29th October 2010, making an adjustment of Rs.12,17,43,370/- on account of arms length price. Based on this, the Assessing Officer recorded reasons for reopening the assessment and issued a notice under Section 148 on 14th January 2011. The respondent objected to the notice, contending that the reasons to believe income had escaped assessment were based on an invalid transfer pricing reference. The ITAT held that the reference to the TPO was invalid because no assessment proceedings were pending before the Assessing Officer at the time of reference, and therefore the TPO's order was null and void ab initio. Consequently, the ITAT quashed the reassessment proceedings. The Revenue appealed to the High Court, raising four substantial questions of law. The High Court, after hearing both sides, dismissed the appeal, holding that the ITAT's findings were correct and that no substantial question of law arose. The court emphasized that the reference to the TPO cannot precede the initiation of assessment proceedings by issuance of notice under Section 143(2) of the Act, and therefore the TPO's order was invalid, rendering the subsequent reopening of assessment unsustainable.
Headnote
A) Income Tax - Reopening of Assessment - Section 147, 148 Income Tax Act, 1961 - Validity of Reasons - The court considered whether the reasons recorded by the Assessing Officer for reopening the assessment met the requirement of Section 147. The Tribunal had held that the reasons did not meet the requirement. The High Court upheld the Tribunal's decision, finding that the reasons were based on an invalid transfer pricing reference. (Paras 1-4) B) Income Tax - Transfer Pricing - Section 92CA Income Tax Act, 1961 - Reference to Transfer Pricing Officer - The court examined whether the reference to the Transfer Pricing Officer to determine Arms Length Price could be initiated in the absence of any proceeding pending before the Assessing Officer. The court held that the reference cannot precede the initiation of assessment proceedings by issuance of notice under Section 143(2) of the Act. Consequently, the order of the Transfer Pricing Officer passed on 22/10/2010 was null and void ab initio. (Paras 3-4) C) Income Tax - Assessment Proceedings - Section 143(2) Income Tax Act, 1961 - Initiation of Assessment - The court held that the reference for determination of Arms Length Price cannot precede the initiation of assessment proceedings by the Assessing Officer by issuance of notice under Section 143(2) of the Act. (Para 4)
Issue of Consideration
Whether the Income Tax Appellate Tribunal was correct in holding that the reasons recorded by the Assessing Officer did not meet the requirement of Section 147 of the Income Tax Act, 1961, and that the Assessing Officer had no jurisdiction to issue notice under Section 148 of the Act, and whether the Tribunal was justified in quashing the order passed under Section 143(3) read with Section 147 and Section 144C of the Act, and whether the Tribunal was correct in holding that the order of the Transfer Pricing Officer passed on 22/10/2010 is null and void ab initio as reference to the Transfer Pricing Officer to determine Arms Length Price cannot be initiated in the absence of any proceeding pending before Assessing Officer and reference for determination of Arms Length Price cannot precede the initiation of assessment proceedings by the Assessing Officer by issuance of notice under Section 143(2) of the Act.
Final Decision
The High Court dismissed the appeal, holding that no substantial question of law arises. The court upheld the ITAT's order quashing the reassessment proceedings and the TPO's order.
Law Points
- Reopening of assessment under Section 147 requires valid reasons recorded by Assessing Officer
- Reference to Transfer Pricing Officer under Section 92CA cannot precede initiation of assessment proceedings under Section 143(2)
- Order of Transfer Pricing Officer passed without pending assessment is null and void ab initio
