Moser Baer India Ltd v. The Additional Commissioner Of Income Tax & Anr

+* THE HIGH COURT OF DELHI AT NEW DELHI Judgment reserved on : 11.12.2008 % Judgment delivered on : 19.12.2008 + 1. WP(C) 6974/2008 MOSER BAER INDIA LTD ..... APPELLANT versus THE ADDITIONAL COMMISSIONER OF INCOME TAX & ANR. …….RESPONDENTS 2. WP(C) 7958/2008 HCL TECHNOLOGIES BPO SERVICES LTD ….. APPELLANT versus THE ADDITIONAL COMMISSIONER OF INCOME TAX & ANR. …….RESPONDENTS 3. WP(C) 7969/2008 HCL TECHNOLOGIES LTD ..... APPELLANT versus THE ADDITIONAL COMMISSIONER OF INCOME TAX & ANR. …….RESPONDENTS 4. WP(C) 8054/2008 HAIER APPLIANCES (I) PVT LTD ..... APPELLANT versus THE ADDITIONAL COMMISSIONER OF INCOME TAX & ANR. …….RESPONDENTS 5. WP(C) 8055/2008 GLOBAL LOGIC (I) PVT LTD versus THE ADDITIONAL COMMISSIONER OF INCOME TAX & ANR. …….RESPONDENTS 6. WP(C) 8597/2008 KAMLA DIALS AND DEVICES LTD ..... APPELLANT versus THE ADDITIONAL COMMISSIONER OF …….RESPONDENTS INCOME TAX & ANR. Advocates who appeared in this case:: For the Appellant Mr S. Ganesh, Sr. Advocate with Mr Ajay Vohra, Ms Kavita Jha & Mr Sriram Krishna in WP(C) No 6974/2008 Mr Ajay Vohra in WP(C) Nos 7958/2008, 7969/2008, 8054/2008, 8055/2008, 8597/2008. : For the Respondent Mr. Parag P. Tripathi, ASG with Mr Sanjeev Sabharwal. CORAM :- HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE RAJIV SHAKDHER 1. Whether the Reporters of local papers may be allowed to see the judgment ? be allowed to see the judgment ? 2. To be referred to Reporters or not ? 3. Whether the judgment should be reported in the Digest ? in the Digest ? RAJIV SHAKDHER, J 1. In the captioned writ petitions, a challenge has been laid to the orders passed by the Transfer Pricing Officer (hereinafter referred to as the „TPO‟) whereby he has determined the Arm‟s Length Price (hereinafter referred to as „ALP‟) in relation to „International transactions‟ entered into by each of the petitioners with their Associated Enterprises. The orders of the TPO which have been challenged in each of the writ petitions are as follows:- (i) WP(C) No 6974/2008: Impugned order dated 22.08.2008 (ii) WP(C) No 7958/2008: Impugned order dated 23.09.2008 (iii) WP(C) No 7969/2008: Impugned order dated 30.09.2008 (iv) WP(C) No 8054/2008: Impugned order dated 24.10.2008 (v) WP(C) No 8055/2008: Impugned order dated 30.09.2008 (vi) WP(C) No 8597/2008: Impugned order dated 17.10.2008 2. The counsel for the petitioners, as well as, the Ld. ASG appearing for the respondent have addressed their submissions before us, which are, common to each of the afore-mentioned writ petitions. 2.1 The petitioners were represented by Mr S Ganesh, Sr Advocate and Mr Ajay Vohra, while the respondents were represented by Mr Parag Tripathi, Additional Solicitor General. 3. The challenge to the orders of the TPO which is mounted by the petitioners is common and it goes as follows:- a.that the TPO has not granted an oral hearing before determining that the TPO has not granted an oral hearing before determining the ALP in respect of international transactions entered into by the petitioner‟s with their Associated Enterprises and;the petitioner‟s with their Associated Enterprises and; b.there has been a failure on the part of the TPO to consider documents and information filed by the petitioners, as also, non-disclosure of information and documents obtained by the TPO which were used by him in the determination of the ALP. SUBMISSIONS OF COUNSEL APPEARING FOR PARTIES: 4. In the background of the aforesaid broad ground of challenge, the contention of the counsel for parties is as under:- a.that the TPO has not granted an oral hearing before determining that the TPO has not granted an oral hearing before determining the ALP in respect of international transactions entered into by the petitioner‟s with their Associated Enterprises and;the petitioner‟s with their Associated Enterprises and; b.there has been a failure on the part of the TPO to consider documents and information filed by the petitioners, as also, non-disclosure of information and documents obtained by the TPO which were used by him in the determination of the ALP. SUBMISSIONS OF COUNSEL APPEARING FOR PARTIES: 4. In the background of the aforesaid broad ground of challenge, the contention of the counsel for parties is as under:- 4.1 The learned counsel for the petitioners submitted that the TPO in the conduct of the proceedings had been remiss, in as much as, he had failed to follow a fair procedure, while determining the ALP, in relation to, „international transactions‟ undertaken by each one of the petitioners. It was their contention that the determination of the ALP was a complex process, which, not only required the TPO to take into account the information provided by the petitioner assessee by way of an audit report in the prescribed statutory Form (i.e. Form 3CEB), as also, the evidence based on which the said audit report is generated. In the event the TPO disagreed with the ALP determined by the assessee, it could proceed to determine, the same in accordance with the provisions of Chapter X of the Act. It is the contention of the learned counsel for the petitioners, that in the event the TPO proceeds to disregard the ALP determined by the assessee and makes adjustments to the ALP determined by the assessee, it would be necessary under the scheme of Chapter X and, in accordance with the principles of natural justice, that he confronts the assessee and/or his representatives with the material or information which could form the basis of the determination of ALP by the TPO. 4.2 It was contended by Mr S. Ganesh, Sr Advocate appearing in writ petition no. 6974/2008, that the provisions of section 92CA, sub-section (3) mandate grant of an oral hearing, before the TPO makes a determination of ALP in relation to „international transaction(s)‟ entered into by assessee‟s with their Associated Enterprise. This, according to the learned counsel, is particularly so, in view of the fact that the determination of ALP involves scrutiny and analysis of data of enterprises, which is, involved and hence, tends to be invariably complex. It was his submission that prior to the amendment brought about by virtue of Finance Act, 2007, w.e.f. 1.6.2000, the assessee was afforded an opportunity of presenting its case, both before the TPO, as well as, before the Assessing Officer. However, with the amendment brought about in section 92CA(4) by virtue of the Finance Act, 2007, the Assessing Officer is required to compute the total income of the assessee in „conformity‟ with the ALP determined by the TPO. 4.3 It is his submission that post the 2007 amendment in Section 92CA (4), the proceedings before the TPO have the colour and texture of a regular assessment under Section 143(3) of the Act. As a matter of fact, he contends that the language of the provisions of Section 143(3)(i) & (ii) are pari materia with the provisions of sub-section (2) and (3) of Section 92CA. 4.3 It is his submission that post the 2007 amendment in Section 92CA (4), the proceedings before the TPO have the colour and texture of a regular assessment under Section 143(3) of the Act. As a matter of fact, he contends that the language of the provisions of Section 143(3)(i) & (ii) are pari materia with the provisions of sub-section (2) and (3) of Section 92CA. 4.4 Mr S. Ganesh further contended that the lack of fairness in the procedure adopted by the TPO was evident from the fact that between May, 2007 when the TPO first issued notice to the petitioner/assessee seeking information with respect to „international transactions‟ entered into by it and March,2008, eight (8) hearings were held only to obtain information from the petitioner. The first show cause notice was issued on 20.3.2008, when the TPO required the petitioner to show cause as to why an adjustment of Rs 48.11 crore ought not to be made in the ALP, in respect of international transaction(s) entered into by the petitioner with an Associated Enterprise i.e., GDM. The petitioner submitted two replies on 8.4.2008 and 15.4.2008 justifying as to why it had taken the Associated Enterprise as a tested party for determining the ALP. These replies were followed by a second show cause notice issued on 14.5.2008, whereby the TPO again sought certain information and details from the petitioners. The said information and details were supplied by the petitioner vide reply dated 22.5.2008. 4.5 It transpires that thereafter the TPO had abandoned the second show cause notice as he proceeded to issue a third notice by virtue of which, he called upon the petitioner to show cause as to why an adjustment of Rs 239.28 crore ought not be made, in respect of, international transactions entered into by the petitioner with the associated enterprise. The learned counsel submitted that not only was the basis in the third show cause notice different, in as much as, the TPO had taken into account irrelevant data, but also that despite, the petitioner demanding an oral hearing, which is evident upon perusal of its reply dated 5.6.2008 to the third show cause notice, the TPO paid no heed to it and proceeded to determine the ALP. It was contended thus, the procedure adopted was unfair and in complete violation of the principles of natural justice and hence, the impugned decision of TPO was a nullity in the eye of law. 4.6 It was thus submitted that it is to obviate such a situation, that an oral hearing is a must both under the scheme of Chapter X, as well as, on account of the myriad complexities which arise in determination of ALP. In this regard, the learned Senior counsel placed reliance on the judgment of the Supreme Court in Travancore Rayons vs UOI: AIR 1971 SC 862 at page 864 (paragraph 7), and the judgment of Kerala High Court in Indian Transformers Ltd Vs Assstt. Collector and Anr(1983) E.L.T. 2293 at page 2300 (paragraph 7). 4.7 Similarly, Mr Ajay Vohra who appears for the petitioner in writ petition no. WP(C) No. 7958/2008, WP(C) No. 7969/2008, WP(C) No. 8054/2008, WP(C) No. 8055/2008 & WP(C) No. 8597/2008, contended that apart from the fact that the impugned orders of the TPO were liable 4.6 It was thus submitted that it is to obviate such a situation, that an oral hearing is a must both under the scheme of Chapter X, as well as, on account of the myriad complexities which arise in determination of ALP. In this regard, the learned Senior counsel placed reliance on the judgment of the Supreme Court in Travancore Rayons vs UOI: AIR 1971 SC 862 at page 864 (paragraph 7), and the judgment of Kerala High Court in Indian Transformers Ltd Vs Assstt. Collector and Anr(1983) E.L.T. 2293 at page 2300 (paragraph 7). 4.7 Similarly, Mr Ajay Vohra who appears for the petitioner in writ petition no. WP(C) No. 7958/2008, WP(C) No. 7969/2008, WP(C) No. 8054/2008, WP(C) No. 8055/2008 & WP(C) No. 8597/2008, contended that apart from the fact that the impugned orders of the TPO were liable to be set aside on the ground that no oral hearing had been granted before the final determination of the ALP by the TPO: the impugned orders of the TPO were a nullity in the eye of law as the petitioner/assessee had not been confronted by the TPO with material or information which formed the basis for the determination of ALP by the TPO. It was the submission of Mr Vohra that it was incumbent on the TPO to confront the assessee with the material collected, and give an opportunity to the petitioners/assessee to rebut the same. In the event the TPO failed to do so, he could not have relied upon the said material which was collected behind the assessee‟s back and used without the petitioners/assessee having any notice of it. In that sense, it was contended by Mr Vohra, that it would not help the cause of the Revenue in projecting before this Court that opportunities were given by the TPO to the petitioners/assessee, if the said opportunities by way of interaction were during a period which preceded the date on which the last show cause notice, prior to determination of ALP, was issued by the TPO, especially so, if the basis adopted in the final show cause notice was different from that contained in the earlier show cause notices issued by the TPO. In support of his contention that the TPO was required to disclose the material as also confront the petitioners/assessee documents and information which formed the basis for determination of ALP by the TPO, reliance was placed on the following judgments:- Dhakeswari Cotton Mills Ltd v. CIT:(1954) 26 ITR 775 (SC); Suraj Mall Mohta and Co vs A.V. Visvanatha Sastri and Anr.: (1954) 26 ITR 1 (SC); CIT vs East Coast Commercial Co Ltd: (1976) 63 ITR 499 (SC); Sales Tax Officer vs Uttareswari Rice Mills: (1967) 89 ITR 6 (SC); Kishinchand Chellaram vs CIT:(1980) 125 ITR 713 (SC) 5. In reply, Mr Parag Tripathi the learned ASG assisted by Mr Sanjeev Sabharwal, Advocate made the following submissions:- 5.1 At the outset, he fairly conceded that in so far as writ petition no. 6974/2008 is concerned, since an oral hearing was specifically demanded, which was not granted, by the TPO, he had instructions to say that the Department would have no objections if the matter was remanded to the TPO, provided the re-determination of ALP was permitted to be arrived at by the TPO based on material already on record. We had put this to Mr S. Ganesh, learned Sr Counsel appearing for the petitioner in the said writ petition. Mr S. Ganesh, Sr Advocate conveyed to us that he had instructions to say that this course of action was not acceptable to the petitioner if the hearing were to proceed on remand to TPO based on material already on record as such a hearing would not only be illusory, but would result, in a futile exercise as it would only impede true and correct determination of ALP. In these circumstances we were left with no choice but to proceed to decide the matter. 5.2 On the substantial issue of the scope and width of provisions of Section 92CA(3) of the Act, the Learned ASG submitted that the principles of natural justice have been complied with in each and every case. It was his submission that oral hearing was not a necessary facet of natural justice. A right to effective representation would suffice. The learned ASG in this regard relied upon the following judgments:- UOI vs Jesus Sales Corporation (1996) 4 SCC 69, pr 5, pg 74, 75; Carborundum Universal Ltd vs CBDT(989) Supp (2) SCC 462, pr 6, pg 464; Hira Nath Mishra and others vs The Principal, Rajendra Medical College(1973) 1 SCC 805, pr 12, pg 809, 810; SBI vs Allied Chemicals Lab.(2006) 9 SCC 252, pr 6, pg 253 5.3 He further submitted that the application of the principle of natural justice is always contextual, which is more so, in taxation matters. To buttress his submission reliance was placed on the following judgments of the Supreme Court:- N.K. Pasanda vs Government of India (2004) 6 SCC 299, pr 24, pg 308; Chairman, Board of Mining Examination vs Ramjee (1997) 2 SCC 256, pr 13, pg 261, 262; Ajit Kumar Nag vs General Manager, Indian Oil Corp. Ltd (2005) 7 SCC 764, pr 44, pg 785 5.4 In the alternate, the learned ASG submitted that even where oral hearings are mandatory, the failure to afford such an opportunity would not render the decision invalid solely on that ground, as a defect, if any, could be cured in the appellate proceedings. It was his contention that, against the decision of the assessing officer, a remedy by way of an appeal to the Commissioner of Appeals was available. In support of his alternate submission, reliance was placed on the following decisions:- Lloyd vs McMahon (1987) 1 All ER 1118, Pg 1135 (h) to 1136(h) & Pg. 1171(e) to 1172(b); State Bank of Patiala vs S.K. Sharma (1996) 3 SCC 364 5.5 The learned ASG concluded by submitting that in view of the fact that there was a failure to demand an oral hearing (except in one case i.e. writ petition 6974/2008) the petitioners‟ could not complain of breach of principles of natural justice. It was his submission that this would be fatal to the case of the petitioners‟, as in the absence of demand for hearing, the orders passed by the TPO cannot be impugned on the ground of violation of principles of natural justice. In support of this submission reliance was placed on the following judgments:- State of Assam vs Gauhati Municipal Board: AIR 1967 SC 1398, Pr. 7, Pg 1399-1400; Dehri Rohtas Light Rly. Co ltd vs UOI and anr:AIR 1970 Patna 109, Pr 26, Pg 119-120 6. At this juncture, we may only note two important aspects. First, except in writ petition 6974/2008, in none of the other writ petitions has the Department filed a counter affidavit. They have proceeded to argue the matter on the basis of the impugned order(s) of the TPO. The second, that in the written submissions, filed by the respondent, an objection has been taken to the maintainability of the writ petition, even though the same was not pressed in the hearings held before the Court. 6.1 As regard the objection taken by the respondent, with respect, to the maintainability of the writ petition, it is our view that, in the event, we were to hold that the impugned order(s) of the TPO were passed in breach of the principles of natural justice and hence, a nullity in the eye of law, the writ petition would be a proper remedy. See observations of the Supreme Court in the case of State of U.P. vs Mohd. Nooh:AIR 1958 SC 86at pages 93 & 94(para 10 & 11) and Whirlpool Corporation vs Registrar of Trade Marks, Mumbai and Ors:(1988) 8 SCC 1 at pages 9 to 11 (para 13 to 20). objection has been taken to the maintainability of the writ petition, even though the same was not pressed in the hearings held before the Court. 6.1 As regard the objection taken by the respondent, with respect, to the maintainability of the writ petition, it is our view that, in the event, we were to hold that the impugned order(s) of the TPO were passed in breach of the principles of natural justice and hence, a nullity in the eye of law, the writ petition would be a proper remedy. See observations of the Supreme Court in the case of State of U.P. vs Mohd. Nooh:AIR 1958 SC 86at pages 93 & 94(para 10 & 11) and Whirlpool Corporation vs Registrar of Trade Marks, Mumbai and Ors:(1988) 8 SCC 1 at pages 9 to 11 (para 13 to 20). 6.2 We are also of the view that availability of an alternate remedy does not debar an aggrieved party from moving the court by way of a writ petition under Article 226 of the Constitution of India. The practice adopted by Court‟s, is to normally dissuade an aggrieved party to come directly to the High Court, by exercising his right to avail of extraordinary remedy, where an effective and efficacious alternate remedy is available. This, however, is a rule of convenience and not a rule of law. The court is empowered to entertain a writ petition under Article 226 of the Constitution of India, even though there is an alternate remedy available to an aggrieved party. The discretion in this regard vests entirely with the Court which is to be exercised by the Court keeping in mind the facts and circumstances of each case. We, accordingly, reject the objection raised by the respondents as regards the maintainability of the writ petitions on the ground of alternate remedy. 6.3 Now coming to the substantive part of the matter. The case of the petitioner is pivoted on the provisions of sub-section (3) of Section 92CA of the Act. In order to appreciate the true scope, width and amplitude of the provisions of Section 92CA(3) it would be important to set out the contextual background, purpose and object with which Chapter X of the Act, which is titled, “special provisions relating to avoidance of tax” was inserted in the Act, as also, the scheme of the chapter along with extant rules framed therewith. This exercise is necessary to appreciate the nature of enquiry to be carried out by the TPO, the provision under which the TPO is required to act and the diverse aspects of the matter which the TPO is required to deal with, are not in the least limited to the provisions of the Act. 6.4 The purpose and object of introduction of the provisions contained in Chapter X is to prevent an assessee from avoiding payment of tax by transferring income yielding assets to non-residents even while retaining the power to enjoy the fruits of such transactions i.e. the income so generated. Under the Income Tax Act, 1922, a somewhat similar provision appeared in the statute book being, Section 42(2) which, broadly provided that where a non-resident carried out business with the person resident in the taxable territory and it appeared to the Assessing Officer that on account of a „close connection‟ between such persons the business was so arranged that the business conducted by the resident with the non-resident either yielded no profit or, less than ordinary profit, which may be expected to arise in that business then, the Assessing Officer was empowered to tax profits which were derived or which may reasonably be deemed to be derived from the business in the hands of a person resident in the taxable territory. person resident in the taxable territory and it appeared to the Assessing Officer that on account of a „close connection‟ between such persons the business was so arranged that the business conducted by the resident with the non-resident either yielded no profit or, less than ordinary profit, which may be expected to arise in that business then, the Assessing Officer was empowered to tax profits which were derived or which may reasonably be deemed to be derived from the business in the hands of a person resident in the taxable territory. 6.5 With the enactment of Income Tax Act, 1961 a somewhat similar provision was inserted by way of Section 92. By Finance Act, 2001 w.e.f. 1.4.2002 Section 92 was substituted by Sections 92 to 92F; provisions which are contained in Chapter X of the Act. The scope and effect of the new set of provisions that find mention in Chapter X [i.e. section 92 to 92F] was explained by the Central Board of Direct Taxes (in short „the Board‟) by its circular no. 14/2001 dated 12.12.2001 [2001 252 ITR (st.) 65]. Broadly, the Board explained that the reasons for insertion of the said Chapter was that with the increasing participation of multi-national groups in the economic activities in the country, it gave rise to „new‟ and „‟complex issues whereby two or more enterprises of the same multi-national group would manipulate their prices in a manner which led to erosion of tax revenues. The raison d‟etre for substituting the existing section 92 of the Income Tax Act was best explained in the following paragraphs of the said Circular no. 14/2001 “55.2Under the existing section 92 of the Income Tax Act, which was the only section dealing specifically with cross border transactions, an adjustment could be made to the profits of a resident arising from a business carried on between the resident and a non-resident, if it appeared to the Assessing Officer that owing to the close connection between them, the course of business was so arranged so s to produce less than expected profits to the resident. Rule 11 prescribed under the section provided a method of estimation of reasonable profits in such cases. However, this provision was of a general nature and limited in scope. It did not allow adjustment of income in the case of non-residents. It referred to a “close connection” which was undefined and vague. It provided for adjustment of profits rather than adjustment of prices, and the rule prescribed for estimating profits was not scientific. It also did not apply to individual transactions such as payment of royalty, etc., which are not part of a regular business carried on between a resident and a non-resident. There were also no detailed rules prescribing the documentation required to be maintained. 55.3 With a view to provide a detailed statutory framework which can lead to computation of reasonable, fair and equitable profits and tax in India, in the case of such multi-national enterprises, the Act has substituted section 92 with a new section, and has introduced new Sections 92A to 92F in the Income Tax Act, relating to computation of income from an international transaction having regard to the arm’s length price, meaning of associated enterprise, meaning of international transaction, computation of arm’s length price, maintenance of information and documents by persons entering into international transactions, furnishing of a report from an accountant by persons entering into international transactions and definitions of certain expressions occurring in the said sections.” The scheme of chapter X with reference to provisions which are relevant to the present case are as follows. 6.6 Chapter X opens with Section 92 which provides that the income arising from „international transactions” shall be calculated having regard to the ALP. The explanation to Section 92 clarifies that allowance for any expense or interest arising from an international transaction shall also be determined having regard to the ALP. The scheme of chapter X with reference to provisions which are relevant to the present case are as follows. 6.6 Chapter X opens with Section 92 which provides that the income arising from „international transactions” shall be calculated having regard to the ALP. The explanation to Section 92 clarifies that allowance for any expense or interest arising from an international transaction shall also be determined having regard to the ALP. 6.6.1 Section 92A defines as to which the enterprises would, for the purposes of the provisions of Chapter X, come within the purview of an Associate Enterprise. Sub-section (1) of section 92A proceeds generally to define an Associated Enterprise as one, which is, directly or indirectly, managed and controlled by another. The specifics with respect to the various modes by which control may be exerted by one enterprise on the other is provided in sub-section (2) of Section 92A. In the eventuality of an enterprise fulfilling any of the attributes provided in sub-clause (a) to clause (m), the two enterprises under sub-section (2) of section 92A would be deemed to be Associated Enterprises. 6.6.2 Section 92B defines as to what would be construed as an „international transaction‟. In order to appreciate the full width, amplitude of an „international transaction‟ the meaning of which is provided in section 92B one would have to in addition read the definition of „transaction‟ as given in section 92F(v). 6.6.3 This bring us to the provision crucial for determination of ALP, which is, Section 92C. Sub-section (1) of section 92C provides that ALP in relation to an „international transaction; could be determined by any of the methods provided in the said sub-section which is „most appropriate‟having regard to the nature of transactions or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors which may be prescribed by the Board. The methods provided being (a) comparable uncontrolled price method; (b) resale price method; (c) cost plus method; (d) profit split method; (e) transactional net margin method and; (f) such other method as may be prescribed by the Board. In determining the most appropriate method, regard is to be had to rules 10A and 10B of the Income Tax Rules, 1962 (in short the „Rules‟). Sub-section (3) of section 92C makes it amply clear that the primary burden in computing the ALP is that of the assessee. The Assessing Officer would proceed to determine the ALP in relation to an „international transaction‟ in accordance with sub-section (1) and (2) of section 92C only if he is of the opinion that any of the circumstances as indicated in sub-clause (a) to sub-clause (d) of sub-Section (3) of Section 92C prevail. The circumstances, broadly being, that the price charged or paid for international transaction has not been determined as prescribed under sub-section (1) and (2) of section 92C or, the assessee has not kept information and documents of its international transactions in the form prescribed under sub-section (1) of section 92D and the Rules made in that behalf or, the information or data used by the assessee in computing the ALP is not reliable or correct or, that the assessee, has failed to furnish, within the specified time the information sought pursuant to a notice issued under sub-section (3) of section 92D. Importantly, the first proviso to sub-section (3) of section 92 clearly mandates that before the Assessing Officer proceeds to determine the ALP on the basis of the material or information or document available with him he shall give an opportunity by serving upon the assessee a show cause notice fixing thereby a date and time for the said purpose. Under sub-section (4) of section 92C the Assessing Officer can proceed to compute the total income of the assessee only after the ALP has been determined by the Assessing Officer as per the provision of sub-section (3) of Section 92C. assessee, has failed to furnish, within the specified time the information sought pursuant to a notice issued under sub-section (3) of section 92D. Importantly, the first proviso to sub-section (3) of section 92 clearly mandates that before the Assessing Officer proceeds to determine the ALP on the basis of the material or information or document available with him he shall give an opportunity by serving upon the assessee a show cause notice fixing thereby a date and time for the said purpose. Under sub-section (4) of section 92C the Assessing Officer can proceed to compute the total income of the assessee only after the ALP has been determined by the Assessing Officer as per the provision of sub-section (3) of Section 92C. 6.6.4 Section 92CA was inserted w.e.f. 1.6.2002. Under Section 92CA, the Assessing Officer is empowered to refer the computation of ALP, in relation to, an „international transaction‟ under Section 92C to the TPO, if he considers it „‟ or „‟necessaryexpedient to do so with the prior approval of the Commissioner. It is only after a reference is made under sub-section (1) of section 92CA that the TPO enters the picture and gets a mandate to approach upon the assessee by issuing him a notice calling upon him to produce or cause to be produced on a date to be specified therein, any evidence on which the assessee may rely in support of the computation made by him of the ALP. This brings us to the provision which is presently, in issue, before this Court i.e., sub-section (3) of Section 92CA. The said sub-section provides that the TPO, by an order in writing, will determine the ALP in relation to an „international transaction‟ in accordance with sub-section (3) of section 92C after hearing such evidence as the assessee may produce including any information or documents referred to in sub-section (3) of Section 92D and after considering such evidence as the TPO may require on any specified points, and after taking into account all relevant material which the TPO has gathered. The TPO is required to send a copy of the order, whereby a determination of ALP is made both to the Assessing Officer and the assessee. Sub-section (3A) of Section 92CA provides a time frame within which the TPO is required to pass an order under sub-section (3) of section 92CA. Sub-section (3) of Section 92CA reads as follows:- “On the date specified in the notice under sub-section (2), or as soon thereafter as may be, after hearing such evidence as the assessee may produce, including any information or documents referred to in sub-section (3) of Section 92D and after considering such evidence as the Transfer Pricing Officer may require on any specified points and after taking into account all relevant materials which he has gathered, the Transfer Pricing Officer shall, by order in writing, determine the arm’s length price in relation to the international transaction in accordance with sub-section (3) of Section 92C and send a copy of his order to the Assessing Officer and to the assessee.” 6.6.4.1 This brings us to the other important aspect of the matter, which is, the change in sub-section (4) of section 92CA brought about with the amendment carried out by virtue of Finance Act, 2007 w.e.f. 1.6.2007. Prior to the Finance Act, 2007, sub-section (4) of Section 92CA read as follows:- “On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C having regardto the arm‟s length price determined under sub-section (3) by the Transfer Pricing Officer” Sub-section 4A post amendment w.e.f. 1.6.2007 “On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity withthe arm‟s length price as so determined by the Transfer Pricing Officer” Prior to the Finance Act, 2007, sub-section (4) of Section 92CA read as follows:- “On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C having regardto the arm‟s length price determined under sub-section (3) by the Transfer Pricing Officer” Sub-section 4A post amendment w.e.f. 1.6.2007 “On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity withthe arm‟s length price as so determined by the Transfer Pricing Officer” 6.6.4.2 The essential difference is that prior to the amendment, the Assessing Officer on receipt of an order passed by the TPO under sub-section (3) of section 92CA, would proceed to compute the total income of the assessee under the provisions of sub-section (4) of 92C „having regard‟ to the ALP determined by the TPO. After the amendment, the Assessing Officer is required to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the ALP determined by the TPO. Thus, prior to the amendment, the Assessing Officer while computing the total income of the assessee, having regard to the ALP so determined by the TPO, was required to give a final . opportunity to the assessee before computing the assessee‟s total incomeThis is clear from the language used in sub-section (4) of section 92CA prior to its amendment by virtue of Finance Act, 2007, as the determination by the TPO was not binding on the assessing officer. The Assessing Officer was thus empowered even at the stage of computation of total income to look into issues pertaining to determination of ALP by the TPO. In this regard, also see observations of a Division Bench of this Court in the case of Sony India P. Ltd vs Central Board of Direct Taxes & Anr:(2007) 288 ITR 52 (Del) The other sub-sections not being relevant for the purpose of these petitions, are not being discussed herein. 6.6.5 As indicated above, Section 92D provides for information and documents which the assessee is required to keep as may be prescribed, in respect of its international transactions. The documentation which the assessee is required to maintain, is provided in rule 10D of the Rules. Sub-section (3) of Section 92D empowers the Assessing Officer or the Commissioner (Appeals) to request the assessee to furnish any information or document as may be sought within 30 days of being served with such a notice. This period of 30 days on an application being made is extendable by a further period not exceeding 30 days. 6.6.6 Section 92E provides that parties, who have entered into an „international transaction‟ during the previous year, shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner by an accountant setting forth, such particulars, as may be prescribed in Rule 10E. The report is required to be prepared and submitted in the prescribed Form 3CEB. 6.6.7 Section 92F defines various terms and expressions used in Sections 92 to 92E. The definition of ALP is provided in sub-clause (ii) of Section 92F. 6.6.6 Section 92E provides that parties, who have entered into an „international transaction‟ during the previous year, shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner by an accountant setting forth, such particulars, as may be prescribed in Rule 10E. The report is required to be prepared and submitted in the prescribed Form 3CEB. 6.6.7 Section 92F defines various terms and expressions used in Sections 92 to 92E. The definition of ALP is provided in sub-clause (ii) of Section 92F. 6.6.8 A necessary adjunct to chapter X of the Act, are certain provisions contained in Chapter XXI, which is, entitled “penalties imposable”. It is pertinent to note that with the insertion of chapter X in the Act, the legislature has also inserted the following provisions in Chapter XXI. Explanation 7 to Section 271 has been inserted which provides that any assessee who has entered into an international transaction as defined in section 92B, then, in the event of any amount being allowed or disallowed in the process of computation of total income of the assessee under sub-section (4) of section 92C, the amount, allowed or disallowed, will be deemed to represent the income, in respect of, which particulars have been concealed or inaccurate particulars have been furnished unless the assessee proves to the satisfaction of the Assessing Officer or the Commissioner(Appeals) or the Commissioner that the price charged or paid in such transaction was computed in accordance with the provisions contained in section 92C and the manner prescribed under that Section, in good faith and with due diligence. The sum and substance of the explanation is that it deems that any adjustment made in the ALP on account of transfer pricing provisions will be regarded as concealment of particulars of income or income or furnishing inaccurate particulars under Section 271(1)(c) unless the assessee is able to establish that the price charged or paid in respect of such an international transaction was not only in accordance with the provision of Section 92C and the manner prescribed in that Section, but also that, the assessee acted in good faith and with due diligence. 6.6.9 Apart from the above, penalties are also imposable under Section 271AA for failure to keep and maintain information and documents required under sub-section (1) or sub-section (2) of Section 92D. The penalty prescribed is a sum equal to 2% of the value of each such international transaction entered into by such person. Similarly, under Section 271BA, an Assessing Officer is entitled to impose a penalty equivalent to a sum of Rs. 1,00,000/- in the event of failure on the part of the assessee to furnish an audit report in terms of section 92E. Lastly, under Section 271G, the Assessing Officer or the Commissioner of Appeals is entitled to impose penalty if the assessee fails to furnish any information or document as required in sub-section (3) of section 92D. Under this provision, the penalty imposable is, a sum equal to 2% of the value of the international transaction for the each such failure. 7. An overall review of the provisions, if summarised, broadly is as follows:- 7. An overall review of the provisions, if summarised, broadly is as follows:- 7.1 Under Section 92, an Assessing Officer is empowered to compute income from international transactions which involve transfer pricing provision having regard to ALP. The meaning of what would constitute an associated enterprise or an international transaction is provided in section 92A and 92B respectively. The manner of computation of ALP is set out in section 92C. The primary burden in regard to computation of ALP is that of the assessee, which the assessee is required to compute by resorting to the most appropriate method amongst those mentioned in sub-clause (a) to sub-clause(f) of sub-section (1) of section 92C, having regard to the nature of transactions or the class of transaction or even class of associated persons or functions performed by such persons or such other relevant factor as may be prescribed by the Board. In this respect, regard is required to be had to the factors prescribed in Rule 10B. In the event the Assessing Officer has doubts with regard to the ALP determined by the assessee, having regard to the circumstances mentioned in sub-clause (a) to (d) of sub-section (3) of section 92C, the Assessing Officer can proceed to determine the ALP. However, while doing so, the Assessing Officer is statutorily required under the first (1[st]) proviso to section 92C, to give an opportunity to the assessee by issuing him a show cause notice with respect to the same. „‟7.2 In the event, the Assessing Officer considers it necessary or „expedient‟, he is empowered under Section 92CA to make a reference to the TPO. The TPO under sub-section (2) is required to serve notice on the assessee to produce or cause to be produced on a date specified, evidence which the assessee relies upon in support of computation made by him of the ALP in relation to the international transaction. Under sub-section (3) of Section 92CA, the TPO is required to pass an order in writing, determining the ALP in relation to the international transaction in accordance with the provisions of sub-section (3) of section 92C. An important caveat in this regard is that, while determining the ALP, he is statutorily required to hear such evidence as the assessee may produce including information or documents referred to under sub-section (3) of section 92D and such evidence as the TPO may require the assessee to furnish on specified points. The provisions of sub-section (3) of section 92CA make it clear that it is only upon consideration of all such material by way of information, documents or evidence that the TPO can proceed to determine the ALP. 7.2.1 It is quite plain, upon reading of the provisions of sub-section (3) of section 92CA, that the legislature has clearly cast an obligation on the TPO to accord an oral hearing to the assessee. The submission of the Learned ASG to the contrary is not acceptable to us. It has been reiterated time and again by Courts in India and other jurisdictions all over the world that authorities which have a power to decide and whose decisions would prejudice a party, entailing civil consequences, would be required to accord oral hearing even where the statute is silent. See State of Orissa vs Kr (Miss) Binapani Dei:AIR 1967 SC 1269. The courts have gone to the extent of holding that the right to oral hearing may not necessarily flow from a statute but flows from rule of law as enunciated by courts. That brings us to the issue as to what could be regarded as „civil consequences‟ in a given case. The expression of „civil consequences‟ has been best explained by our Supreme Court in the case of Mohinder Singh Gill vs The Chief Election Commission:(1978) 1 SCC 405 at 440. The Supreme Court has observed that civil consequences involve infraction of not only property and personal rights, but also, actions which impinge on civil liberty of an individual or result in material deprivation or even result in non-pecuniary damages. courts have gone to the extent of holding that the right to oral hearing may not necessarily flow from a statute but flows from rule of law as enunciated by courts. That brings us to the issue as to what could be regarded as „civil consequences‟ in a given case. The expression of „civil consequences‟ has been best explained by our Supreme Court in the case of Mohinder Singh Gill vs The Chief Election Commission:(1978) 1 SCC 405 at 440. The Supreme Court has observed that civil consequences involve infraction of not only property and personal rights, but also, actions which impinge on civil liberty of an individual or result in material deprivation or even result in non-pecuniary damages. 7.3 Keeping in mind the test as enunciated by the Supreme Court in the case of Mohinder Singh Gill(supra) and State of Orissa vs Dr (Miss) Bina Pani Dei (supra), we have no doubt in our minds that the provisions of sub-section (3) of section 92CA cast a duty in no uncertain terms on the TPO to afford an opportunity of an oral hearing. This is clearly so in view of the fact that as courts have carved out this important safeguard in favour of the aggrieved parties even where the statute is silent, unless there is exclusion of such a right by way of an explicit provision or by necessary implication. In the present case, however, given the words of the statute, we have no doubt that the grant of oral hearing by the TPO is mandatory. The reason for coming to such conclusion, apart from the clear wordings of sub-section (3) of section 92CA, is that, apart from the civil consequences, that, the determination of ALP would have on the assessee, any adjustment by the Assessing Officer to the ALP determined, by the assessee based on the determination by the TPO under sub-section (3) of section 92CA, would result in imposition of penalty under Section 271(1)(c) read