· In this case, during the previous year 2009-10, the assessee entered into transactions of import of raw material from Indorama Petrochem Limited (IPL). The assessee’s case was, thereafter, picked up for scrutiny, which was required to be completed by the AO by 31st March 2013.
· In February 2013, the AO required the assessee to explain as to why the TP provisions should not be made applicable to the assessee company in respect of the transactions of import. However, the assessee, vide its reply, pointed out that IPL was not an AE of the assessee, and thus, the provisions of TP will not be attracted in assessee’s case.
· Thereafter, no further query was raised by the AO, and the assessee, vide notice dated 31st March 2013 was informed that the case has been referred to the TPO for determination of ALP.
· In this regard, the Hon’ble Court has held that what is referred to the TPO is the determination of the ALP. Therefore, the satisfaction to be arrived at by the AO regarding the existence of international transaction, even prima facie, is a sin qua non for making the reference to the TPO.
· The Court further made reference to the CBDT’s Instruction No. 2 of 2003, which categorically states that in order to make a reference to the TPO, the AO has to satisfy itself that the assessee has entered into an international transaction with its AE. Similar Instructions have been notified by the CBDT again vide its Instruction No. 3 of 2016 dated 10.03.2016.
· The Hon’ble Court further clarified that the CBDT’s Instruction No. 3 of 2016 clarifies the correct legal position, is a procedural aspect and is intended to the benefit of the assessee, and thus, it requires to be applied even in the case of the assessee, where a reference was made by the AO to the TPO on 31.03.2013 and thereafter.
For further reading, refer the attachment.