Debangsu Basak, J. :-
The petitioners assail a notice issued by the Transfer Pricing Officer (TPO) dt. 16th April, 2015 and the consequential steps taken by the Department pursuant thereto.
2. Learned senior advocate for the petitioners submits that, the first petitioner has branch units located at two countries apart from India. They are at Saudi Arabia and United Arab Emirate. He submits that, there was no business transaction far less an international business transaction between the unit in India and the two branch units at the two different countries. Therefore, the provisions for ALP in respect of the so-called international transaction does not get attracted to the facts of the present case. The AO did not decide such jurisdictional fact before transferring the matter to the TPO. In fact, he submits that, the AO had issued a show-cause notice dt. 11th March, 2015 requiring the first petitioner to submit written submission with sufficient evidence. The first petitioner had done so by its reply dt. 24th March, 2015. The first petitioner as the assessee did not hear from the AO as to its decision on the subject. The first petitioner was surprised to receive the impugned notice dt. 16th April, 2015 from the TPO. The petitioners had also received an order of the TPO and a draft assessment order pursuant thereto. He submits that, the AO not having decided the jurisdictional fact, there is an error in the exercise of jurisdiction by the AO in transferring the assessment to the TPO. He further submits that the AO has acted in breach of the principles of natural justice in not granting a reasonable opportunity of hearing to the assessee concerned before taking a decision on such jurisdictional fact. Consequently, the transfer of the assessment proceedings from the AO to the TPO and ultimately the passing of the draft order of assessment stands vitiated. In support of the contention that the petitioner is entitled to a right of hearing before the AO, at that stage, learned senior advocate for the petitioners relies upon a circular dt. 10th March, 2016 [(2016) 132 DTR (St) 369 : (2016) 284 CTR (St) 41] which recognises such right to an assessee. He also refers to the provisions of s. 92CA of the IT Act, 1961 also.
3. The Department is represented.
4. It appears from the records that the petitioner had suffered a show-cause notice dt. 11th March, 2015 from the AO, calling upon the first petitioner to respond in writing with supporting evidence, as to the claim of the Department that, there has been international transaction within the meaning of s. 92B between the branch units and the permanent establishment located in India. The first petitioner did reply thereto by its writing dt. 24th March, 2015. The AO did not afford
any opportunity of hearing to the petitioners thereafter. It did not decide the jurisdictional fact as whether there are transactions requiring the attention of the TPO. The TPO had issued a notice dt. 16th April, 2015 calling upon the first petitioner to participate in the proceedings for the assessment of transfer pricing. The first petitioner had apparently participated therein. The petitioners had approached the Writ Court by way of present writ petition. An interim order dt. 29th March, 2016 was passed. By such order the petitioners were allowed to file their objection before the DRP. The DRP was restrained from completing the assessment for the relevant year without the previous leave of Court.
5. The circular dt. 10th March, 2016 has come into being subsequent to the decision of the AO to refer the matter to the TPO.
6. As noted above, the AO had invoked the provisions of s. 92CA of the IT Act, 1961 in issuing the show-cause notice. Sec. 92CA(1) of the Act of 1961 is as follows :
"92CA. Reference to Transfer Pricing Officer.—(1) Where any person, being the assessee, has entered into an international transaction or specified domestic transaction in any previous year, and the AO considers it necessary or expedient so to do, he may, with the previous approval of the CIT, refer the computation of the arm's length price in relation to the said international transaction or specified domestic transaction under
s. 92C to the TPO."
7. By the circular dt. 10th March, 2016, the Department is of the view that, the transactions noted in cl. 3.3 thereof if involved, would give rise to a jurisdictional requirement. The AO is required to record his satisfaction that, there is an income or a potential of an income arising and/or being affected on determination of the ALP of an international transaction or specified domestic transaction. The circular in cl. 3.4 goes on to say that the AO must provide an opportunity of hearing to the assessee before recording his satisfaction or otherwise. He should also pass an speaking order so as to comply with the principles of natural justice.
8. In the facts of the present case, although the circular was not in vogue at the material point of time, the applicability of the principles of natural justice and the requirement of the AO deciding on a jurisdictional fact cannot be denied. The section as it stands requires the AO to take a decision on a jurisdictional fact. That by itself implies that, the AO while taking a decision on such jurisdictional fact, ought to afford a reasonable opportunity of hearing to the assessee concerned and thereafter pass a speaking order. The AO not having afforded any opportunity of hearing to the first petitioner on the jurisdictional issue raised, it ought not to have transferred the matter to the TPO. The AO has acted in breach of the principles of natural justice in doing so. The assumption of jurisdiction by the TPO and subsequently the ultimate reference to the dispute resolution panel are therefore at fault, in the facts of the present case.
9. In the facts of the present case, interest of justice would be sub-served by setting aside the writing dt. 16th April, 2015 of the TPO and the DRP subsequent thereto. The assumption of jurisdiction by the TPO is set aside. The AO is requested to proceed on the basis of the show cause issued by him dt. 11th March, 2015 and the reply given thereto by the assessing concerned contained in the writing dt. 24th March, 2015, in accordance with law, and in consonance with the circular of the Department dt. 10th March, 2016.
10. Writ Petn. No. 214 of 2016 is disposed of. No order as to costs.