Commissioner Of Income Tax v. Amadeus India Pvt Ltd

THE HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on: 28.11.2011 +ITA 938/2011 COMMISSIONER OF INCOME TAX .... Appellant versus AMADEUS INDIA PVT LTD .... Respondent -Advocates who appeared in this case:For the Appellant: Ms Suruchi AggarwalFor the Respondent: Mr M.S. Syali, Sr. Advocate with Mr Mayank Nagi &Ms Husnal Syali CORAM:-HON'BLE MR JUSTICE BADAR DURREZ AHMEDHON'BLE MS JUSTICE VEENA BIRBAL BADAR DURREZ AHMED, J 1.The present appeal under Section 260A of the Income Tax Act, 1961(hereinafter referred to as the said Act) has been preferred by the Revenueagainst the judgment dated 18.02.2011 of the Income Tax Appellate Tribunal,Delhi Bench-A, New Delhi, delivered in ITA No. 5203/DEL/2010 pertaining tothe assessment year 2006-07. The substantial question of law which arises forour consideration is as under:- “Whether, on the facts and circumstance of the case, the IncomeTax Appellate Tribunal erred in deciding that the Transfer PricingOfficer (TPO) could not take cognizance suo moto of anyinternational transaction for adjustment in the Arms Length Price(ALP) under Section 92CA of the Income-tax Act, 1961?” 2.The facts of the case are that the assessee, which was incorporated on26.07.1999 as a joint venture company between M/s Radha Bhatia and familyand German Travel Services (GTS), Germany, in which the former holds 95%of its equity capital and the remaining share capital of 5% is held by theGerman company. The assessee is engaged in the business of providing dataprocessing and related services to its associated enterprises. The assessee isresponsible for providing software access to the subscribers of the Amadeusproducts and computer database within the Indian sub-continent which includesthe territory of India, Bangladesh and Nepal. The prime activity of the assesseeis to provide connectivity to the host system by their computer programmesonline. During the previous year under consideration, the assessee entered intointernational transactions with associated enterprises, within the meaning ofSection 92B of the said Act. The details of the said transactions werementioned in Form 3CEB filed by the assessee in terms of Rule 10E of theIncome Tax Rules, 1962 (hereinafter referred to as the said Rules) read withSection 92E of the said Act. The Assessing Officer had referred the case of theassessee to the Transfer Pricing Officer (TPO), under the provisions of Section92CA(1) of the said Act, after taking the statutory approval from theCommissioner of Income Tax, Delhi-I, New Delhi on 23.10.2009.TheTransfer Pricing Officer, by virtue of his order dated 23.10.2009, adjusted anamount of ` 32,92,83,589/- attributable to the difference in arm’s length priceof the international transactions entered into between the assessee and itsassociated enterprise. The said adjustment was made by the Assessing Officerby virtue of the assessment order dated 19.10.2010. Being aggrieved by thesaid order, the assessee preferred an appeal before the Income Tax AppellateTribunal, after obtaining directions under Section 144C of the said Act. 3.The Transfer Pricing Officer had observed that the assessee had incurredmore than the normal sales and marketing expenses to build the “Amadeus”brand in India which was owned by Amadeus Spain. According to the Transfer 3.The Transfer Pricing Officer had observed that the assessee had incurredmore than the normal sales and marketing expenses to build the “Amadeus”brand in India which was owned by Amadeus Spain. According to the Transfer Pricing Officer, the assessee should have been reimbursed with an appropriatemark-up on such additional marketing expenses. Consequently, the TransferPricing Officer computed the arm’s length price in respect of advertisement,marketing and promotion (AMP) expenses after comparing the same with threecompanies, namely,Galileo India PrivateLtd, Aztecsoft Limited andGeometric Limited.The Transfer Pricing Officer computed the average AMPpercentage of these three companies at 12.16% and concluded that anyexpenditure over and above 12.16% would be considered as more than routineAMP expenses. The Transfer Pricing Officer computed the AMP percentageof the assessee at 40.87%, which was much above the AMP percentagecomputed for the said three companies at 12.16%. As such, an adjustment wasmade to the AMP expenses to the extent of ` 29,93,48,718/-. 4.The main point of discussion before the Income Tax Appellate Tribunalwas whether the Transfer Pricing Officer could have determined the arm’slength price in respect of an international transaction which had not beenspecifically referred to him by the Assessing Officer. In this context, it wasargued on behalf the assessee that the issue of determining the arm’s lengthprice in respect of AMP expenses had not been referred by the AssessingOfficer to the Transfer Pricing Officer as an international transaction. In fact,what had been referred was only that which found mention in Form 3CEBwhich pertained to services provided and services received, as mentioned inparagraph 3 of the Transfer Pricing Officer’s order. It was contended on behalfof the assessee that the Transfer Pricing Officer had exceeded his jurisdictionwhen he sought to consider the question whether AMP expenditure was in thenature of an international transaction and that the Transfer Pricing Officer fellin error in doing so. The fact that the Transfer Pricing Officer had embarkedupon a consideration of the question as to whether AMP expenditure was in thenature of an international transaction, is apparent from paragraph 7.2 of theTransfer Pricing Officer’s order dated 23.10.2009. In fact, the submission on behalf of the assessee was that the Transfer Pricing Officer had gone to theextent of even recommending penalty proceedings being initiated against theassessee, in view of the fact that the Transfer Pricing Officer had determinedthat AMP expenditure was in the nature of an international transaction whichought to have been mentioned in Form 3CEB.This is apparent from thediscussion and conclusion arrived at in paragraph 12.4 of the Transfer PricingOfficer’s order. 5.Before the Income Tax Appellate Tribunal, it was contended on behalfof the assessee that no reference had been made by the Assessing Officer underSection 92CA(1) with regard to AMP expenses.This contention was basedupon the following submissions which are extracted from the impugnedjudgment:- “1.1Following facts substantiate that no reference was madeby the AO u/s 92CA(1) as regards the AMP expenses:by the AO u/s 92CA(1) as regards the AMP expenses: A common reference was made to the TPO in case of12 companies by the AO vide letter dated 15[th]July 2008(copy filed during the course of hearing on 05[th]January2011). The reference was made only vis a vis transactionsreported in Form No. 3CEB (Report attached with returnof income).(copy filed during the course of hearing on 05[th]January2011). The reference was made only vis a vis transactionsreported in Form No. 3CEB (Report attached with returnof income). *International transactions reported by the assessee inForm No. 3CEB (relevant at pg 125 of PB) wereacknowledged by the TPO in his order at page 4, para 3(i.e. page 61 of PB) which did not include AMP expenses. A common reference was made to the TPO in case of12 companies by the AO vide letter dated 15[th]July 2008(copy filed during the course of hearing on 05[th]January2011). The reference was made only vis a vis transactionsreported in Form No. 3CEB (Report attached with returnof income).(copy filed during the course of hearing on 05[th]January2011). The reference was made only vis a vis transactionsreported in Form No. 3CEB (Report attached with returnof income). *International transactions reported by the assessee inForm No. 3CEB (relevant at pg 125 of PB) wereacknowledged by the TPO in his order at page 4, para 3(i.e. page 61 of PB) which did not include AMP expenses. *TPO at Pg 14, Para 7.2 of the order (i.e. pg 71 of PB)had to conclude that AMP expenditure incurred byassesseeisan‘internationaltransaction’beforeadjudicating thereon. *TPO at pg 30, para 12.4 of the order (i.e. pg 87 of PB)recommended imposition of penalty as AMP expenditure“Being an international transaction it was required to bereported in Form 3CEB under section 92E of the Act”. *TPO in his order did not propose any adjustment to theincome of assessee in respect of international transactionsdisclosed in its TP report. 1.2The above facts have not been disputed by thedepartment (kindly refer submissions filed by the Ld. CIT(DR) relevant at page 2, last para). However in the sameparagraph it is noted by the Ld. CIT (DR) that “theTransfer Pricing Officer noticedthat expenditure inrespect of AMP expenses incurred by the assessee werealso within the realm of international transaction and heaccordingly determined the arm’s length price of theseexpenses in his order.” 6.The impugned judgment also records, in paragraph 8 thereof, that as faras the primary facts are concerned, there is no dispute between the parties andthe only dispute before the Tribunal was whether the Transfer Pricing Officercould suggest adjustments to the Assessing Officer in respect of aninternational transaction which had not been referred to him by the AssessingOfficer under Section 92 CA(1) of the said Act. 7.The Income Tax Appellate Tribunal thereupon considered the rivalcontentions of the parties and embarked upon the interpretation of the relevantprovisions and came to the conclusion that the role of the Transfer PricingOfficer has been restricted to only that transaction which has been referred tohim by the Assessing Officer for computation of the arm’s length price and thatthe Transfer Pricing Officer cannot take suo moto notice of any othertransaction which has not been referred to him for the purposes of computingthe arm’s length price. The exact words used by the Tribunal are as under:- “10.On bare perusal of sub-section (1) of section 92CA itreveals certain conditions i.e. the assessee should have enteredinto an international transaction in any previous year.TheAssessing Officer may consider it necessary and expedient to “10.On bare perusal of sub-section (1) of section 92CA itreveals certain conditions i.e. the assessee should have enteredinto an international transaction in any previous year.TheAssessing Officer may consider it necessary and expedient to verify the arm’s length price of the international transactions.The Assessing Officer would take previous approval from theCommissioner for referring the computation of the arm’s lengthprice in relation to the said international transaction.Theexpression “said international transaction” employed at the endof the sub-section would indicate that operative force of thisexpression related to that international transaction which hasbeen considered by the Assessing Officer for computation of thearm’s length price and for which he took approval from theCommissioner. The role of the Transfer Pricing Officer has beenrestricted to that transaction which has been referred to him bythe Assessing Officer for computation of the arm’s length price.The plain reading of this section nowhere reveals that Ld.Transfer Pricing Officer can take any transaction suo moto forverification and then suggested necessary adjustment. On a plainreading of sub-section (1) according to its language this meaningalone is discernable. Apart from that, we find support from theCBDT instructions vide Instruction No.3/2003 wherein role ofTPO has been explained. These instructions have been placed onrecord by the Ld. Counsel of the assessee at page no.331 of thePB. The relevant part of the instructions read as under:- Role of the Transfer Pricing Officer: The role of the TPO begins after a reference is receivedfrom the Assessing Officer. In terms of section 92CA this role islimited to the determination of arm’s length price in relation tothe international transaction(s) referred to him by the AssessingOfficer.If during the course of proceedings before him it isfound that there are certain other transactions which have notbeen referred to him by the Assessing Officer, he will have totake up the matter with the Assessing Officer so that a freshreference is received with regard to such transactions. It may benoticed that the reference to the TPO is transaction and enterprisespecific.” 8.It is in this backdrop that the question framed has to be considered byus. 9.Ms Suruchi Aggarwal, the learned counsel for the Revenue contendedthat when a reference is made by an Assessing Officer to the Transfer Pricing Officer, the reference includes the entire gamut of transactions between theassessee and its associated enterprise. The provisions of Section 92CA cannotbe read in a restrictive manner so as to confine it only to specific internationaltransactions or elements of said transactions for the purposes of determinationof the arm’s length price. According to the learned counsel for the Revenue, itis Section 92 of the said Act which provides the basis for determination of anarm’s length price of any international transaction, however, when theAssessing Officer feels that it would be necessary for a specialist such as aTransfer Pricing Officer to determine the arm’s length price, he can refer thematter to the Transfer Pricing Officer by invoking the provisions of Section92CA of the said Act, after following the due procedure, which includes theprior approval of the CIT. She submitted that once this is done, the TransferPricing Officer can look into the entire gamut of dealings between the assesseeand the associated enterprise and thereafter determine the arm’s length price. 10.Mr Syali, the learned senior counsel appearing on behalf of the assessee,on the other hand, submitted that the provisions of Section 92CA have beencorrectly interpreted by the Income Tax Appellate Tribunal. He submitted thatthe Transfer Pricing Officer has a very limited and restricted role to play and hecannot take upon himself the functions and duties of an Assessing Officer. It isfor the Assessing Officer to determine as to whether a transaction is aninternational transaction or not. The Transfer Pricing Officer is not required todetermine nor does he have the jurisdiction to determine the issue as to whetherany transaction falls within the meaning of an “international transaction” asdefined in Section 92B of the said Act.According toMr Syali, the TransferPricing Officer can only determine the arm’s length price of an internationaltransaction which has been specifically referred to him by the AssessingOfficer after, of course, obtaining the necessary approval of the Commissionerof Income Tax in respect thereof. He also contended that the AMP expenditurewas not the result of a transaction between the assessee and its associated enterprise but was in the nature of a domestic transaction and, hence, was noteven an ‘international transaction’ as defined in section 92B of the said Act.He, then, referred to the language employed in Section 92CA to submit that thearm’s length price is to be determined in relation to an international transactionand, therefore, it must be that international transaction which has been referredto by the Assessing Officer and not every international transaction.Hesubmitted that if the Transfer Pricing Officer felt that there was some otherinternational transaction which had escaped the notice of the Assessing Officer,then the Transfer Pricing Officer could have requested the Assessing Officer tomake a reference in respect thereof, after obtaining the requisite approval of theCommissioner of Income Tax, but, he of his own, could not have entered intothe consideration of this aspect of the matter and could not have computed thearm’s length price. 11.Mr Syali also referred to instruction no.3 of 2003, issued by the CentralBoard of Direct Taxes on 20.05.2003 which is to the following effect:- “(ii) Role of Transfer Pricing Officer: The role of the Transfer Pricing Officer begins after areference is received from the Assessing Office. In terms of section92CA this role is limited to the determination of arm’s length pricein relation to the international transaction(s) referred to him by theAssessing Officer. If during the course of proceedings before himit is found that there are certain other transactions which have notbeen referred to him by the Assessing Officer, he will have to takeup the matter with the Assessing Officer so that a fresh reference isreceived with regard to such transactions. It may be noted that thereference to the Transfer Pricing Officer is transaction andenterprise specific.” 12.He also relied upon the decision of this court inSony India P. Ltd v.Central Board of Direct Taxes and Another: (2007) 288 ITR 52 (Delhi) asalso on the decision of the Gujarat High Court inM/s Veer Gems v. ACITinSpecial Civil Application No.12648 of 2011 dated 19.10.2011. Mr Syali also 12.He also relied upon the decision of this court inSony India P. Ltd v.Central Board of Direct Taxes and Another: (2007) 288 ITR 52 (Delhi) asalso on the decision of the Gujarat High Court inM/s Veer Gems v. ACITinSpecial Civil Application No.12648 of 2011 dated 19.10.2011. Mr Syali also referred to the amendment introduced by the Finance Act, 2011. By virtue ofwhich sub-section (2A) was inserted in Section 92CA with effect from01.06.2011. He submitted that upon a plain construction of the newly insertedsub-section (2A), it is apparent that Parliament intended to widen thejurisdiction of the Transfer Pricing Officer and any provision whereby thejurisdiction is affected, has to be prospective in nature. For this proposition, heplaced reliance on the Supreme Court decisions inSTO v. Oriental CoalCorporation: (1988) SCC Suppl. 308 andBharat Singh v. Management ofNew Delhi Tuberculosis Centre and Others: (1986) 2 SCC 614.He alsosubmitted that the insertion of sub-section (2A) is clear indication that there canbe more than one international transaction between an assessee and anassociated enterprise.Therefore, in the period prior to the insertion of sub-section (2A), it is only that international transaction which had beenspecifically referred to the Transfer Pricing Officer by the Assessing Officer,which could be the subject matter for determination of the arm’s length priceand no other. 13.The factual position is clear. The issue of AMP expenses had not beenreferred to the Transfer Pricing Officer by the Assessing Officer. What hadbeen referred was the international transactions mentioned in Form 3CEB. It isonly in the course of determining the arm’s length price in respect of theinternational transactions mentioned in Form 3CEB and referred to by theAssessing Officer that the Transfer Pricing Officer took upon himself theconsideration of the question as to whether the said AMP expenditure was inthe nature of an international transaction. The Transfer Pricing Officer, afterhaving concluded that it was an international transaction, went ahead andcomputed the arm’s length price for the same. As we have noticed above, theTribunal took the view that the Transfer Pricing Officer could not havedetermined the arm’s length price of an international transaction which had notbeen referred to him by the Assessing Officer. So, on facts, it is clear that the issue of AMP expenditure had not been referred to the Transfer Pricing Officerby the Assessing Officer in this case. 14.Let us examine the relevant provisions of the said Act. Section 92 (1) ofthe said Act stipulates that any income arising from an international transactionshall be computed having regard to the arm’s length price. Section 92 B givesthe meaning of an international transaction for the purposes of Section 92, 92C,92D and 92E. The said provision reads as under:- “92B. Meaning of international transaction. – (1) For thepurposes of this section and sections 92, 92C, 92D and 92E,“international transaction” means a transaction between two ormore associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible orintangible property, or provision of services, or lending orborrowing money, or any other transaction having a bearing on theprofits, income, losses or assets of such enterprises, and shallinclude a mutual agreement or arrangement between two or moreassociated enterprises for the allocation or apportionment of, orany contribution to, any cost or expense incurred or to be incurredin connection with a benefit, service or facility provided or to beprovided to any one or more of such enterprises. “92B. Meaning of international transaction. – (1) For thepurposes of this section and sections 92, 92C, 92D and 92E,“international transaction” means a transaction between two ormore associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible orintangible property, or provision of services, or lending orborrowing money, or any other transaction having a bearing on theprofits, income, losses or assets of such enterprises, and shallinclude a mutual agreement or arrangement between two or moreassociated enterprises for the allocation or apportionment of, orany contribution to, any cost or expense incurred or to be incurredin connection with a benefit, service or facility provided or to beprovided to any one or more of such enterprises. (2)A transaction entered into by an enterprise with a personother than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between twoassociated enterprises, if there exists a prior agreement in relationto the relevant transaction between such other person and theassociated enterprise, or the terms of the relevant transaction aredetermined in substance between such other person and theassociated enterprise.” 15.The computation of the arm’s length price is provided for in Section92C of the said Act. The relevant portions of the same read as under:- “92C. Computation of arm’s length price. – (1) The arm’slength price in relation to an international transaction shall bedetermined by any of the following methods, being the mostappropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functionsperformed by such persons or such other relevant factors as theBoard may prescribe, namely:— (a) comparable uncontrolled price method; (b) resale price method; (c) cost plus method; (d) profit split method; (e) transactional net margin method; (f)such other method as may be prescribed by the Board. (2)The most appropriate method referred to in sub-section (1)shall be applied, for determination of arm’s length price, in themanner as may be prescribed: [Provided that ………..: Provided further that ……...] (3)Where during the course of any proceeding for theassessment of income, the Assessing Officer is, on the basis ofmaterial or information or document in his possession, of theopinion that— (a)the price charged or paid in an international transactionhas not been determined in accordance with sub-sections (1) and (2); orhas not been determined in accordance with sub-sections (1) and (2); or (b)anyinformationanddocumentrelatingtoaninternational transaction have not been kept andmaintained by the assessee in accordance with theprovisions contained in sub-section (1) of section 92Dand the rules made in this behalf; orinternational transaction have not been kept andmaintained by the assessee in accordance with theprovisions contained in sub-section (1) of section 92Dand the rules made in this behalf; or (c)the information or data used in computation of thearm’s length price is not reliable or correct; orarm’s length price is not reliable or correct; or (d)the assessee has failed to furnish, within the specifiedtime, any information or document which he wasrequired to furnish by a notice issued under sub-section (3) of section 92D,time, any information or document which he wasrequired to furnish by a notice issued under sub-section (3) of section 92D, the Assessing Officer may proceed to determine the arm’s lengthprice in relation to the said international transaction in accordancewith sub-sections (1) and (2), on the basis of such material orinformation or document available with him: Provided that an opportunity shall be given by theAssessing Officer by serving a notice calling upon the assessee toshow cause, on a date and time to be specified in the notice, whythe arm’s length price should not be so determined on the basis of (d)the assessee has failed to furnish, within the specifiedtime, any information or document which he wasrequired to furnish by a notice issued under sub-section (3) of section 92D,time, any information or document which he wasrequired to furnish by a notice issued under sub-section (3) of section 92D, the Assessing Officer may proceed to determine the arm’s lengthprice in relation to the said international transaction in accordancewith sub-sections (1) and (2), on the basis of such material orinformation or document available with him: Provided that an opportunity shall be given by theAssessing Officer by serving a notice calling upon the assessee toshow cause, on a date and time to be specified in the notice, whythe arm’s length price should not be so determined on the basis of material or information or document in the possession of theAssessing Officer. (4)Where an arm’s length price is determined by the AssessingOfficer under sub-section (3), the Assessing Officer may computethe total income of the assessee having regard to the arm’s lengthprice so determined: Provided that ……..: Provided further that ….....” 16.From the above provisions, it is apparent that it is primarily the duty ofthe Assessing Officer to compute the arm’s length price in relation to aninternational transaction in accordance with the most appropriate methodspecified in Section 92C (1). However, where the Assessing Officer requiresthe arm’s length price to be computed by a specialist, a reference may be madeto the Transfer Pricing Officer. This is provided in Section 92CA of the saidAct which reads as under:- “92CA.Reference to Transfer Pricing Officer. – (1) Whereany person, being the assessee, has entered into an internationaltransaction in any previous year, and the Assessing Officerconsiders it necessary or expedient so to do, he may, with theprevious approval of the Commissioner, refer the computation ofthe arm’s length price in relation to the said internationaltransaction under section 92C to the Transfer Pricing Officer. (2)Where a reference is made under sub-section (1), theTransfer Pricing Officer shall serve a notice on the assesseerequiring him to produce or cause to be produced on a date to bespecified therein, any evidence on which the assessee may rely insupport of the computation made by him of the arm’s length pricein relation to the international transaction referred to in sub-section (1). [(2A) Where any other international transaction [other than aninternational transaction referred under sub-section (1)], comes tointernational transaction referred under sub-section (1)], comes to Inserted by the Finance Act, 2011, w.e.f. 1-6-2011. the notice of the Transfer Pricing Officer during the course of theproceedings before him, the provisions of this Chapter shall applyas if such other international transaction is an internationaltransaction referred to him under sub-section (1).] (3)On the date specified in the notice under sub-section (2), oras soon thereafter as may be, after hearing such evidence as theassessee may produce, including any information or documentsreferred to in sub-section (3) of section 92D and after consideringsuch evidence as the Transfer Pricing Officer may require on anyspecified points and after taking into account all relevant materialswhich he has gathered, the Transfer Pricing Officer shall, by orderin writing, determine the arm’s length price in relation to theinternational transaction in accordance with sub-section (3) ofsection 92C and send a copy of his order to the Assessing Officerand to the assessee. (3)On the date specified in the notice under sub-section (2), oras soon thereafter as may be, after hearing such evidence as theassessee may produce, including any information or documentsreferred to in sub-section (3) of section 92D and after consideringsuch evidence as the Transfer Pricing Officer may require on anyspecified points and after taking into account all relevant materialswhich he has gathered, the Transfer Pricing Officer shall, by orderin writing, determine the arm’s length price in relation to theinternational transaction in accordance with sub-section (3) ofsection 92C and send a copy of his order to the Assessing Officerand to the assessee. [(3A) Where a reference was made under sub-section (1) beforethe 1st day of June, 2007 but the order under sub-section (3) hasnot been made by the Transfer Pricing Officer before the said date,or a reference under sub-section (1) is made on or after the 1st dayof June, 2007, an order under sub-section (3) may be made at anytime before sixty days prior to the date on which the period oflimitation referred to in section 153, or as the case may be, insection 153B for making the order of assessment or reassessmentor recomputation or fresh assessment, as the case may be, expires.] [(4) On receipt of the order under sub-section (3), the AssessingOfficer shall proceed to compute the total income of the assesseeunder sub-section (4) of section 92C in conformity with the arm’slength price as so determined by the Transfer Pricing Officer.]xxxxxxxxxxxxxxxxxxxx” 17.A plain reading of Section 92CA makes it clear that the AssessingOfficer, if he considers it necessary or expedient so to do, may, with theprevious approval of the Commissioner, refer the computation of the arm’slength price in relation to an international transaction under Section 92C to theTransfer Pricing Officer. At this juncture, we may reiterate that it is primarily [(4) On receipt of the order under sub-section (3), the AssessingOfficer shall proceed to compute the total income of the assesseeunder sub-section (4) of section 92C in conformity with the arm’slength price as so determined by the Transfer Pricing Officer.]xxxxxxxxxxxxxxxxxxxx” 17.A plain reading of Section 92CA makes it clear that the AssessingOfficer, if he considers it necessary or expedient so to do, may, with theprevious approval of the Commissioner, refer the computation of the arm’slength price in relation to an international transaction under Section 92C to theTransfer Pricing Officer. At this juncture, we may reiterate that it is primarily the duty of the Assesing Officer to compute any income arising from aninternational transaction having regard to the arm’s length price.He maydetermine the arm’s length price of an international transaction himself or, if hefeels that it is necessary or expedient so to do, he may seek the approval of theCommissioner and, thereafter, refer the computation of the arm’s length pricein respect of an international transaction to the Transfer Pricing Officer. Thismakes it clear that it is the Assessing Officer who has to determine, first of all,whether a transaction is an international transaction under Section 92B of thesaid Act. Secondly, if it is an international transaction in his view, he has toproceed to determine the arm’s length price in terms of Section 92C of the saidAct. However, if, for any reason, he feels that it is necessary or expedient so todo, he may seek the approval of the Commissioner and then refer thecomputation of the arm’s length price in relation to the said internationaltransaction to the Transfer Pricing Officer. The role of the Transfer PricingOfficer, as indicated in Section 92CA, is restricted to determining the arm’slength price in relation to the international transaction which has been referredto him by the Assessing Officer and such computation of the arm’s length pricein relation to the said international transaction has to be done in terms ofSection 92C of the said Act. On a plain reading, we are of the view that it isnot within the domain of the Transfer Pricing Officer to determine whether aparticular transaction, which has come to his notice, but which has not beenreferred to him, is or is not an international transaction and then to go on anddetermine the arm’s length price thereof.That, we feel, is in the exclusivejurisdiction of the Assessing Officer.It ought to be pointed out that theseviews are on the basis of the provisions of Section 92 CA, as applicable to theassessment year 2006-07, that is, prior to the introduction of sub-section (2A)of Section 92CA by virtue of the Finance Act, 2011 with effect from01.06.2011. Insofar as the present appeal is concerned, Section 92CA wouldhave to be read without sub-section 2A.We agree with Mr Syali that sub- section (2A) cannot have retrospective effect inasmuch as it deals with thejurisdiction of the Transfer Pricing Officer and, therefore, sub-section (2A)cannot be regarded as being a mere procedural provision. 18.In STO v. Oriental Coal Corporation (supra), a similar contention hadbeen raised that an amendment was purely procedural and, therefore, ought tobe construed to be retrospective. The Supreme Court took the view that theamendment in question was not purely procedural inasmuch as the amendmentchanged the position and imposed a substantive liability on a dealer and that itwas also one which conferred jurisdiction on an officer in a particular state tolevy a tax which he otherwise did not have. Consequently, the Supreme Courtheld that the amendment in question was a substantive provision and could notbe treated as procedural and, therefore, did not have retrospective effect. Theactual words used by the Supreme Court are as under:- 18.In STO v. Oriental Coal Corporation (supra), a similar contention hadbeen raised that an amendment was purely procedural and, therefore, ought tobe construed to be retrospective. The Supreme Court took the view that theamendment in question was not purely procedural inasmuch as the amendmentchanged the position and imposed a substantive liability on a dealer and that itwas also one which conferred jurisdiction on an officer in a particular state tolevy a tax which he otherwise did not have. Consequently, the Supreme Courtheld that the amendment in question was a substantive provision and could notbe treated as procedural and, therefore, did not have retrospective effect. Theactual words used by the Supreme Court are as under:- “9.The contention that the amendment is purely proceduralis also misconceived.Assuming the correctness of thecontention that a purely procedural amendment shouldordinarily be construed to be retrospective, we are unable toagree that the present amendment is of such nature. Thedecision of this Court in Kasturi Lal's case [1987 (3) JT 234]had held that an unregistered dealer is not taxable under t heproviso. The amendment changes this position and imposes asubstantive liability on such a dealer. It is also one whichconfers jurisdiction on an officer in a particular State to levy atax which he otherwise cannot. It is thus a substantiveprovision. That apart, even the question whether a charge totax can be imposed in one State or another is not a merequestion of venue. It may have an impact on the rate of tax incertain cases and it also regulates the rights inter se of Statesto levy taxes on such inter-state sales. It is, therefore, difficultto accept the contention that the amendment should be treatedas purely procedural and hence necessarily retrospective.” 19.In Bharat Singh (supra), a similar view was expressed. One of theissues before the Supreme Court was whether Section 11A of theIndustrial Disputes Act, 1947, by virtue of which the tribunals were conferredwith a new jurisdiction, would operate retrospectively.The Supreme Courtcame to the conclusion that Section 11A conferred a jurisdiction on the LabourCourt, Tribunal or National Tribunal to act in a particular manner whichjurisdiction it did not have prior to the coming into force of Section 11A. TheSupreme Court observed:- “16.… The conferment of a new jurisdiction can take effect onlyprospectively except when a contrary intention appears on the faceof the statute.Section 11A plainly indicates its prospectiveoperation. …” 20.Similarly, in the case before us, we find that there is nothing in thestatute to indicate that sub-section (2A) was introduced in a manner so as tooperate with retrospective effect. Sub-section (2A) expands the jurisdiction ofthe Transfer Pricing Officer by empowering him to determine the arm’s lengthprice of any international transaction other than an international transactionreferred to him by the Assessing Officer under sub-section (1) of Section92CA. This is clearly an expansion of the jurisdiction of the Transfer PricingOfficer and, therefore, sub-section (2A) can only have prospective effect from01.06.2011 and would have no application to the present appeal which is inrespect of the assessment year 2006-07. 21.As observed by a Division Bench of this court in the case of Sony IndiaPvt. Ltd (supra), the CBDT Instruction dated 20.05.2003 [2003 (261) ITR (St.)51], is based on a correct interpretation of the relevant provisions of the saidAct and they can, indeed, guide the Assessing Officer while taking up theexercise of computing the arm’s length price in terms of Section 92C. Clause 21.As observed by a Division Bench of this court in the case of Sony IndiaPvt. Ltd (supra), the CBDT Instruction dated 20.05.2003 [2003 (261) ITR (St.)51], is based on a correct interpretation of the relevant provisions of the saidAct and they can, indeed, guide the Assessing Officer while taking up theexercise of computing the arm’s length price in terms of Section 92C. Clause (a) of the said Instruction, prescribes that in order to make a reference to theTransfer Pricing Officer, the Assessing Officer has to satisfy himself that thetax payer has entered into an international transaction with an associatedenterprise. One of the sources from which the factual information regardinginternational transactions can be gathered is Form No.3CEB filed with thereturn which is in the nature of an accountant's report containing the basicdetails of an international transaction entered into by the tax payer during theyear and the associated enterprise with which such transaction is entered into,the nature of documents maintained and the method followed.It furtherprescribes that the primary details regarding such international transactionswould normally be available in the accountant’s report. 22.Clause (d) of the said Instruction itself records that if there are morethan one transaction with an associated enterprise or there are transactions withmore than one associated enterprise, the aggregate value of which exceeds Rs 5crores, the transactions should be referred to the Transfer Pricing Officer. Thisclause of the said instruction clearly recognizes the fact that there can be morethan one international transaction with an associated enterprise. Reading theinstructions and the provisions together, it is apparent that it is the duty of theAssessing Officer to satisfy himself as to whether an international transactionhas been entered into by the assessee with an associated enterprise. Only whenthe Assessing Officer is satisfied about the existence of an internationaltransaction, can he, after obtaining approval of the Commissioner of Income-tax, refer the matter to the Transfer Pricing Officer for computing the arm’slength price. The question of determining whether a particular transaction is oris not an international transaction, has to be determined by the AssessingOfficer and not by the Transfer Pricing Officer. We make it clear, once again,that this view of ours is based on the fact that in respect of the assessment year2006-07, the provisions of sub-section (2A) would not be applicable inasmuchas the same was introduced much later, that is, with effect from 01.06.2011. 23.The observations of the Gujarat High Court in the case of M/s VeerGems (supra) are also apposite. They are:- 23.The observations of the Gujarat High Court in the case of M/s VeerGems (supra) are also apposite. They are:- “10.It, thus, emerges that for the Assessing Officer to make areference of computation of the arm’s length price under sub-section (1) of Section 92CA of the Act to the TPO, it is necessarythat the assessee should have entered into an internationaltransaction and further that the Assessing Officer considers itnecessary or expedient to make such a reference to the TPO. Sincethe term “international transaction” means a transaction betweentwo or more associated enterprises, which transaction satisfies therequirement under sub-section (1) of Section 92B of the Act, it isnecessary that there has been a transaction between two associatedenterprises before a reference under Section 92 C can be made bythe Assessing Officer.So much is plain and clear from thestatutory provisions contained in the Act. The question is at whatstage it must be finally and conclusively held by the AssessingOfficer that in the previous year relevant to the assessment yearunder consideration there had been an international transactionbetween the petitioner and the associated enterprise.Surely theTPO would not be a competent authority to decide this issue.From the statutory provisions we have noticed, it clearly emergesthat upon a reference the TPO has to serve a notice on the assesseerequiring him to produce or cause to be produced evidence onwhich the assessee may rely in support to the computation of thearm’s length price in relation to an international transaction.Thereupon, the TPO after considering such evidence, as theassessee may produce, including the documents referred to inSection 92D of the Act, has to pass an order in writing determiningthe arm/s length price after permitting the assessee to producerelevant documents on record.At that stage, the statutoryprovisions do not require or even permit the TPO to deliberate onthe question whether there had been any international transactionduring the period under consideration. In addition to the statutoryprovisions we have noticed, we are further of the opinion that theTPO whose primary task is to determine the arm’s length price ofan international transaction upon a reference being made in thisregard by an Assessing Officer, would have no jurisdiction todecide the validity of any such reference. His jurisdiction to act inaccordance with provisions contained in Section 92CA of the Actand in particular, sub-section (2) and (3) thereof, would commenceonly upon a reference being made to him for computation of arm’s length price of an international transaction by the AssessingOfficer. He cannot judge the validity of such a reference.” length price of an international transaction by the AssessingOfficer. He cannot judge the validity of such a reference.” 24.We do not agree with the submission made by the learned counsel forthe revenue that when a reference is made by an Assessing Officer to theTransfer Pricing Officer, the reference includes the entire gamut of transactionsbetween the assessee and its associated enterprise. The Assessing Officer is theperson who has been entrusted with the duty to determine as to whether atransaction is an international transaction or not. Then, if it is an internationaltransaction of the nature specified in Section 92B of the said Act, the AssessingOfficer has to determine the income of the assessee having regard to the arm’slength price by following the method prescribed in Section 92C. If, for somereason, the Assessing Officer feels that it is necessary or expedient so to do, hemay refer the computation of the arm’s length price of specific internationaltransactions, after obtaining the prior approval of the Commissioner of Income-tax, to the Transfer Pricing Officer. It is quite possible that in the case of aparticular assessee, there may be several international transactions and theAssessing Officer may only wish to refer some of those internationaltransactions for the purposes of computing the arm’s length price while inrespect of others, he may compute the arm’s length price himself. Thus, thejurisdiction of the Transfer Pricing Officer is limited and restricted tocomputing the arm’s length price of only those international transactions whichhave been specifically referred to him by the Assessing Officer. We once againclarify that this is the position prior to the introduction of sub-section (2A) ofthe said Act which we have held to be prospective in operation. 25.In view of the foregoing discussion, the substantial question of lawformulated in paragraph 1 is answered in the negative as we are of the viewthat the Income-tax Appellate Tribunal committed no error in deciding that theTransfer Pricing Officer could not take cognizance suo moto of anyinternational transaction for adjustment in the arm’s length price under Section 92C of the Income-tax Act, 1961. As a consequence, the revenue’s appeal isdismissed. There shall be no order as to costs. BADAR DURREZ AHMED, J November 28, 2011Srb/dutt VEENA BIRBAL, J