M/S Coca Cola India Inc v. Assistant Commissioner Of Income Tax, Gurgaon & Others

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. C.W.P. No.16681 of 2005Date of decision: 17.12.2008 M/s Coca Cola India Inc. -----Petitioner Vs. Assistant Commissioner of Income Tax, Gurgaon & others. -----Respondents CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOELHON'BLE MR JUSTICE L.N. MITTALHON'BLE MR JUSTICE L.N. MITTAL Present:-Mr. Anuj Berry, Advocate &Mr. Vikas Suri, AdvocateMr. Vikas Suri, Advocate for the petitioner. Mr. Yogesh Putney, Sr. Standing Counselfor respondents. ----- Adarsh Kumar Goel,J.: 1. This petition questions application of Transfer PricingProvisions in Chapter X of the Income Tax Act, 1961 (for short, “the Act”) to the petitioner and quashing of notices under Sections 148and 92 CA(3) of the Act. 2. Case set out in the petition is that the petitioner is acompany incorporated under the laws of United States of America and is, thus, a foreign company under Section 2(23A) of the Act. Ithas a Branch office in India. It is a part of International Coca Colacorporate group. The said group has other companies operating inIndia incorporated under the Companies Act, 1956. 3. The petitioner obtained permission under Section 29(1)(a)of the Foreign Exchange Regulation Act, 1973 (FERA) to operate aBranch office in India to render services to Coca Cola Groupcompanies, as per conditions mentioned in the application for thesaid permission. There is a service agreement between the petitioneron the one hand and Britco Foods Company Private Limited (Britco)on the other. As per the said agreement, the petitioner providesadvisory services to Britco to advise, monitor and coordinate theactivities of bottlers, in consideration of which the petitioner receivesfee calculated on the basis of actual cost plus 5%. The petitioner wasassessed under the Act for the assessment year 1998-99 on31.3.2004. The Assessing Officer, however, formed an opinion thatincome of the petitioner, chargeable to tax for the said year, hadescaped assessment within the meaning of Section 147 of the Act. Anotice dated 30.3.2005 was issued under Section 148 of the Act,requiring the petitioner to file a return and thereafter, some furtherinformation was sought from the petitioner for the purpose ofassessment. The petitioner filed reply to the said notice, seeking reasons for proposed reassessment. The reasons indicated that theAssessing Officer referred to Section 92 of the Act, which enablesthe Assessing Officer to determine profits which may reasonablydeemed to have been derived, when less than ordinary profits areshown to have been derived by a resident. It was further stated inthe said reasons that as per order dated 7.2.2005 under Section 92 CA(3) for the assessment year 2002-03, passed by the Transfer PricingOfficer-I, the profit declared by the petitioner was abnormally low,on account of which arm’s length price had been fixed. On thataccount, the income of the assessee had escaped assessment. Similarnotices were issued for the assessment years 1999-2000, 2000-01 and2001-02. 4. On July 14, 2005, notice under Section 92CA(3) of theAct was issued by the Additional Commissioner of Income Taxacting as Transfer Pricing Officer, on a reference made by theAssessing Officer under Section 92CA(1) of the Act for theassessment year 2003-04, to determine arm’s length price. Identicalnotices were issued for the assessment years 2004-05, 2005-06 and2006-07. The Assessing Officer made assessment in respect ofincome of the petitioner for the assessment year 2002-03 vide orderdated 24.3.2005 after getting determined arm’s length price ofservices rendered by the petitioner to its associated company, thereby enhancing the income of the assessee. Against the said order, thepetitioner has preferred an appeal which is still pending before theappropriate authority. 4. On July 14, 2005, notice under Section 92CA(3) of theAct was issued by the Additional Commissioner of Income Taxacting as Transfer Pricing Officer, on a reference made by theAssessing Officer under Section 92CA(1) of the Act for theassessment year 2003-04, to determine arm’s length price. Identicalnotices were issued for the assessment years 2004-05, 2005-06 and2006-07. The Assessing Officer made assessment in respect ofincome of the petitioner for the assessment year 2002-03 vide orderdated 24.3.2005 after getting determined arm’s length price ofservices rendered by the petitioner to its associated company, thereby enhancing the income of the assessee. Against the said order, thepetitioner has preferred an appeal which is still pending before theappropriate authority. 5. The petitioner filed the present writ petition in this Courton 19.10.2005. On 21.10.2005, notice was issued to the respondentsand vide order dated 18.11.2005, stay of passing of final order for theassessment years 2003-04, 2004-05, 1998-99 to 2001-02 wasgranted. Similarly, on 15.12.2006, stay of passing of final order forthe assessment year 2005-06 was granted and permission to amendthe petition was also granted to challenge notice in respect of the saidyear. Similarly, on 26.5.2008, stay of passing of final order for theassessment year 2006-07 was granted. The petitioner has furtheramended the petition to challenge the notice in respect of assessmentyear 2006-07, which amendment has been allowed by a separateorder. 6. Main contention raised in the writ petition is thatprovisions of Chapter X i.e. Sections 92 to 92F of the Act have beenenacted with a view to prevent diversion of profits in intra-grouptransactions leading to erosion of tax revenue. The said provisionshave been incorporated vide Finance Act, 2001 and further amendedvide Finance Act, 2002. Having regard to the object for whichprovisions have been enacted, applicability of the said provisions has to be limited to situations where there is diversion of profits out ofIndia or where there may be erosion of tax revenue in intra grouptransaction. In the present case, there is neither any material to showdiversion of profits outside India nor of erosion of tax revenue. If theprice charged was less and profit of the petitioner was less, there wascorresponding lesser claim for deduction by Britco. Question ofdiversion of profits out of India would arise only if price charged ishigher and that too if the higher profit is not subject to tax in India,which is not the situation in the present case. Further contention isthat there was no occasion for determining arm’s length price as theprice determined by the petitioner itself is as per Section 92 (1) and(2) of the Act i.e. cost plus 5%. In such a situation, there was nooccasion to make reference to the Transfer Pricing Officer. Even ifthe reference was sought to be made, the petitioner was entitled to beheard before such a decision is taken, so that it could show thatreference to Transfer Pricing Officer was not called for. In objectingto notices for reassessment, contention raised is that provisions ofChapter X having been introduced only from 1.4.2002, there could beno reassessment for the period from 1.4.1997 to 31.3.2001. It ispointed out that prior to amendment w.e.f. 1.4.2002 under Section 92of the Act, there was a provision for determination of reasonableprofits deemed to have been derived by a resident and not a ‘non resident’. Amended provision could not be applied to the petitionerfor the period prior to 31.3.2001. 7. In the reply filed on behalf of the respondents, theimpugned notices and orders have been defended. resident’. Amended provision could not be applied to the petitionerfor the period prior to 31.3.2001. 7. In the reply filed on behalf of the respondents, theimpugned notices and orders have been defended. 8. As regards the period prior to assessment year 2002-03,when amended provisions of Chapter X were not operative, stand ofthe respondents is that the petitioner suppressed its profit in itstransactions with its associated companies, which was clear from theproportion of amount of working capital employed to the declaredprofit and this resulted in escapement of income within the meaningof Section 147 of the Act. 9. As regards the period for and after the assessment year2002-03, it was submitted that the said Chapter was applicable to thepetitioner as the petitioner had entered into “internationaltransaction” within the meaning of the said provisions with its“associated enterprises”. There was no condition that the saidChapter could apply only if the parties were not subject to the taxjurisdiction in India. Only requirement is that atleast one of theparties should be non-resident, apart from other requirements in thesaid chapter. 10. Following questions arise for consideration:- (i) Whether inapplicability of unamended provisions of Section 92 of the Act (as it stood prior to 1.4.2002) to the petitioner created a bar to reassessment of escapedincome of the petitioner income of the petitioner (ii) Whether order passed by Transfer Pricing Officer under Chapter X after 1.4.2002 could be one of the reasons for reassessment for period prior to introduction of amendedChapter X in the Act?Chapter X in the Act? (iii) Whether provisions of Chapter X are attracted when both the parties to a transaction are subject to tax in India, inabsence of allegation of transfer of profits out of India orevasion of tax?” (iv) Whether opportunity of being heard is required beforereferring the matter of determination of arm’s length priceto Transfer Pricing Officer?referring the matter of determination of arm’s length priceto Transfer Pricing Officer? 11. Before we consider the above questions, it will be appropriate to reproduce the relevant statutory provisions of Section92 (unamended), Section 147, Section 92 (amended) to Section 92F(amended). Section 92 (unamended):- “Where a business is carried on between a resident and anon-resident and it appears to the Assessing Officer that,owing to the close connection between them, the courseof business is so arranged that the business transactedbetween them produces to the resident either no profits orless than the ordinary profits which might be expected toarise in that business, the Assessing Officer shalldetermine the amount of profits which may reasonably bedeemed to have been derived therefrom and include suchamount in the total income of the resident.” -Section 147: “If the Assessing Officer has reason to believe that anyincome chargeable to tax has escaped assessment for anyassessment year, he may, subject to the provisions ofsections 148 to 153, assess or reassess such income andalso any other income chargeable to tax which hasescaped assessment and which comes to his noticesubsequently in the course of the proceedings under thissection, or recompute the loss or the depreciationallowance or any other allowance, as the case may be, forthe assessment year concerned (hereafter in this sectionand in sections 148 to 153 referred to as the relevantassessment year) : Provided that where an assessment under sub-section (3)of section 143 or this section has been made for therelevant assessment year, no action shall be taken under “If the Assessing Officer has reason to believe that anyincome chargeable to tax has escaped assessment for anyassessment year, he may, subject to the provisions ofsections 148 to 153, assess or reassess such income andalso any other income chargeable to tax which hasescaped assessment and which comes to his noticesubsequently in the course of the proceedings under thissection, or recompute the loss or the depreciationallowance or any other allowance, as the case may be, forthe assessment year concerned (hereafter in this sectionand in sections 148 to 153 referred to as the relevantassessment year) : Provided that where an assessment under sub-section (3)of section 143 or this section has been made for therelevant assessment year, no action shall be taken under this section after the expiry of four years from the end ofthe relevant assessment year, unless any incomechargeable to tax has escaped assessment for suchassessment year by reason of the failure on the part of theassessee to make a return under section 139 or in responseto a notice issued under sub-section (1) of section 142 orsection 148 or to disclose fully and truly all material factsnecessary for his assessment for that assessment year. Explanation 1 : Production before the Assessing Officerof account books or other evidence from which materialevidence could with due diligence have been discoveredby the Assessing Officer will not necessarily amount todisclosure within the meaning of the foregoing proviso. Explanation 2 : For the purposes of this section, thefollowing shall also be deemed to be cases where incomechargeable to tax has escaped assessment, namely :- (a)Where no return of income has been furnished by theassessee although his total income or the total income ofany other person in respect of which he is assessableunder this Act during the previous year exceeded themaximum amount which is not chargeable to income-tax; (b) Where a return of income has been furnished by theassessee but no assessment has been made and it isnoticed by the Assessing Officer that the assessee hasunderstated the income or has claimed excessive loss,deduction, allowance or relief in the return; (c) Where an assessment has been made, but - (i) Income chargeable to tax has been underassessed; or (ii) Such income has been assessed at too low a rate; or (iii) Such income has been made the subject of excessiverelief under this Act; or (iv) Excessive loss or depreciation allowance or any otherallowance under this Act has been computed.” -Section 92 to 92F: “92.(1) Any income arising from an internationaltransaction shall be computed having regard to the arm’slength price. Explanation.—For the removal of doubts, it is herebyclarified that the allowance for any expense or interestarising from an international transaction shall also bedetermined having regard to the arm’s length price. (2) Where in an international transaction, two or moreassociated enterprises enter into a mutual agreement orarrangement for the allocation or apportionment of, or anycontribution to, any cost or expense incurred or to beincurred in connection with a benefit, service or facilityprovided or to be provided to any one or more of suchenterprises, the cost or expense allocated or apportionedto, or, as the case may be, contributed by, any suchenterprise shall be determined having regard to the arm’s length price of such benefit, service or facility, as the casemay be. Explanation.—For the removal of doubts, it is herebyclarified that the allowance for any expense or interestarising from an international transaction shall also bedetermined having regard to the arm’s length price. (2) Where in an international transaction, two or moreassociated enterprises enter into a mutual agreement orarrangement for the allocation or apportionment of, or anycontribution to, any cost or expense incurred or to beincurred in connection with a benefit, service or facilityprovided or to be provided to any one or more of suchenterprises, the cost or expense allocated or apportionedto, or, as the case may be, contributed by, any suchenterprise shall be determined having regard to the arm’s length price of such benefit, service or facility, as the casemay be. (3) The provisions of this section shall not apply in a casewhere the computation of income under sub-section (1) orthe determination of the allowance for any expense orinterest under that sub-section, or the determination of anycost or expense allocated or apportioned, or, as the casemay be, contributed under sub-section (2), has the effectof reducing the income chargeable to tax or increasing theloss, as the case may be, computed on the basis of entriesmade in the books of account in respect of the previousyear in which the international transaction was enteredinto. 92A. (1) For the purposes of this section and sections 92,92B, 92C, 92D, 92E and 92F, associated enterprise, inrelation to another enterprise, means an enterprise a()which participates, directly or indirectly, orthrough one or more intermediaries, in themanagement or control or capital of the otherenterprise; orthrough one or more intermediaries, in themanagement or control or capital of the otherenterprise; or (b)in respect of which one or more persons whoparticipate, directly or indirectly, or through one ormore intermediaries, in its management or controlor capital, are the same persons who participate,directly or indirectly, or through one or moreintermediaries, in the management or control orcapital of the other enterprise.participate, directly or indirectly, or through one ormore intermediaries, in its management or controlor capital, are the same persons who participate,directly or indirectly, or through one or moreintermediaries, in the management or control orcapital of the other enterprise. (2) For the purposes of sub-section (1), twoenterprises shall be deemed to be associated enterprises if,at any time during the previous year, a()one enterprise holds, directly or indirectly, sharescarrying not less than twenty-six per cent of thevoting power in the other enterprise; orcarrying not less than twenty-six per cent of thevoting power in the other enterprise; or (b)any person or enterprise holds, directly orindirectly, shares carrying not less than twenty-sixper cent of the voting power in each of suchenterprises; orindirectly, shares carrying not less than twenty-sixper cent of the voting power in each of suchenterprises; or c()a loan advanced by one enterprise to the otherenterprise constitutes not less than fifty-one percent of the book value of the total assets of theother enterprise; or (d) one enterprise guarantees not less than ten per centof the total borrowings of the other enterprise; or e() more than half of the board of directors ormembers of the governing board, or one or moreexecutive directors or executive members of thegoverning board of one enterprise, are appointedby the other enterprise; or (f) more than half of the directors or members of thegoverning board, or one or more of the executivedirectors or members of the governing board, ofeach of the two enterprises are appointed by thesame person or persons; or (g) the manufacture or processing of goods or articlesor business carried out by one enterprise is whollydependent on the use of know-how, patents, (h) (i) (j) (k) (d) one enterprise guarantees not less than ten per centof the total borrowings of the other enterprise; or e() more than half of the board of directors ormembers of the governing board, or one or moreexecutive directors or executive members of thegoverning board of one enterprise, are appointedby the other enterprise; or (f) more than half of the directors or members of thegoverning board, or one or more of the executivedirectors or members of the governing board, ofeach of the two enterprises are appointed by thesame person or persons; or (g) the manufacture or processing of goods or articlesor business carried out by one enterprise is whollydependent on the use of know-how, patents, (h) (i) (j) (k) copyrights, trade-marks, licences, franchises orany other business or commercial rights of similarnature, or any data, documentation, drawing orspecification relating to any patent, invention,model, design, secret formula or process, of whichthe other enterprise is the owner or in respect ofwhich the other enterprise has exclusive rights; orninety per cent or more of the raw materials andconsumables required for the manufacture orprocessing of goods or articles carried out by oneenterprise, are supplied by the other enterprise, orby persons specified by the other enterprise, andthe prices and other conditions relating to thesupply are influenced by such other enterprise; orthe goods or articles manufactured or processed byone enterprise, are sold to the other enterprise or topersons specified by the other enterprise, and theprices and other conditions relating thereto areinfluenced by such other enterprise; or where one enterprise is controlled by anindividual, the other enterprise is also controlledby such individual or his relative or jointly bysuch individual and relative of such individual; or where one enterprise is controlled by a Hinduundivided family, the other enterprise is controlledby a member of such Hindu undivided family orby a relative of a member of such Hindu undividedfamily or jointly by such member and his relative;or (l)where one enterprise is a firm, association ofpersons or body of individuals, the other enterpriseholds not less than ten per cent interest in suchfirm, association of persons or body ofindividuals; orpersons or body of individuals, the other enterpriseholds not less than ten per cent interest in suchfirm, association of persons or body ofindividuals; or m()there exists between the two enterprises, anyrelationship of mutual interest, as may beprescribed.relationship of mutual interest, as may beprescribed. 92B.(1) For the purposes of this section and sections 92,92C, 92D and 92E, “international transaction” means atransaction between two or more associated enterprises,either or both of whom are non-residents, in the nature ofpurchase, sale or lease of tangible or intangible property,or provision of services, or lending or borrowing money,or any other transaction having a bearing on the profits,income, losses or assets of such enterprises, and shallinclude a mutual agreement or arrangement between twoor more associated enterprises for the allocation orapportionment of, or any contribution to, any cost orexpense incurred or to be incurred in connection with abenefit, service or facility provided or to be provided toany one or more of such enterprises. (2) A transaction entered into by an enterprise with aperson other than an associated enterprise shall, for thepurposes of sub-section (1), be deemed to be a transactionentered into between two associated enterprises, if thereexists a prior agreement in relation to the relevanttransaction between such other person and the associated enterprise, or the terms of the relevant transaction aredetermined in substance between such other person andthe associated enterprise. (2) A transaction entered into by an enterprise with aperson other than an associated enterprise shall, for thepurposes of sub-section (1), be deemed to be a transactionentered into between two associated enterprises, if thereexists a prior agreement in relation to the relevanttransaction between such other person and the associated enterprise, or the terms of the relevant transaction aredetermined in substance between such other person andthe associated enterprise. 92C.(1) The arm’s length price in relation to aninternational transaction shall be determined by any of thefollowing methods, being the most appropriate method,having regard to the nature of transaction or class oftransaction or class of associated persons or functionsperformed by such persons or such other relevant factorsas the Board 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 theBoard.Board. (2) The most appropriate method referred to in sub-section (1) shall be applied, for determination of arm’slength price, in the manner as may be prescribed : Provided that where more than one price is determined by the most appropriate method, the arm’s length price shallbe taken to be the arithmetical mean of such prices, or, atthe option of the assessee, a price which may vary fromthe arithmetical mean by an amount not exceeding fiveper cent of such arithmetical mean. (3) Where during the course of any proceeding forthe assessment of income, the Assessing Officer is, on the basis of material or information or document in hispossession, of the opinion that— a()the price charged or paid in an internationaltransaction has not been determined in accordancewith sub-sections (1) and (2); ortransaction has not been determined in accordancewith sub-sections (1) and (2); or (b)any information and document relating to aninternational transaction have not been kept andmaintained by the assessee in accordance with theprovisions contained in sub-section (1) of section92D and 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 section92D and 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 thespecified time, any information or documentwhich he was required to furnish by a noticeissued under sub-section (3) of section 92D,specified time, any information or documentwhich he was required to furnish by a noticeissued under sub-section (3) of section 92D, the Assessing Officer may proceed to determine the arm’slength price in relation to the said international transactionin accordance with sub-sections (1) and (2), on the basisof such material or information or document availablewith him: Provided that an opportunity shall be given by theAssessing Officer by serving a notice calling upon theassessee to show cause, on a date and time to be specifiedin the notice, why the arm’s length price should not be sodetermined on the basis of material or information ordocument in the possession of the Assessing Officer. (4) Where an arm’s length price is determined by theAssessing Officer under sub-section (3), the AssessingOfficer may compute the total income of the assesseehaving regard to the arm’s length price so determined : Provided that no deduction under section 10A orsection 10AA or section 10B or under Chapter VI-A shallbe allowed in respect of the amount of income by whichthe total income of the assessee is enhanced aftercomputation of income under this sub-section : Provided that an opportunity shall be given by theAssessing Officer by serving a notice calling upon theassessee to show cause, on a date and time to be specifiedin the notice, why the arm’s length price should not be sodetermined on the basis of material or information ordocument in the possession of the Assessing Officer. (4) Where an arm’s length price is determined by theAssessing Officer under sub-section (3), the AssessingOfficer may compute the total income of the assesseehaving regard to the arm’s length price so determined : Provided that no deduction under section 10A orsection 10AA or section 10B or under Chapter VI-A shallbe allowed in respect of the amount of income by whichthe total income of the assessee is enhanced aftercomputation of income under this sub-section : Provided further that where the total income of anassociated enterprise is computed under this sub-sectionon determination of the arm’s length price paid to anotherassociated enterprise from which tax has been deducted orwas deductibleunder the provisions of Chapter XVIIB,the income of the other associated enterprise shall not berecomputed by reason of such determination of arm’slength price in the case of the first mentioned enterprise. 92CA.(1) Where any person, being the assessee, hasentered into an international transaction in any previousyear, and the Assessing Officer considers it necessary orexpedient so to do, he may, with the previous approval ofthe Commissioner, refer the computation of the armslength price in relation to the said international transactionunder 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 assessee requiring him to produce or cause to be producedon a date to be specified therein, any evidence on whichthe assessee may rely in support of the computation madeby him of the arms length price in relation to theinternational transaction referred to in sub-section (1). (3) On the date specified in the notice under sub-section(2), or as soon thereafter as may be, after hearing suchevidence as the assessee may produce, including anyinformation or documents referred to in sub-section (3) ofsection 92D and after considering such evidence as theTransfer Pricing Officer may require on any specifiedpoints and after taking into account all relevant materialswhich he has gathered, the Transfer Pricing Officer shall,by order in writing, determine the arms length price inrelation to the international transaction in accordance withsub-section (3) of section 92C and send a copy of hisorder to the Assessing Officer and to the assessee. (3A) Where a reference was made under sub-section (1)before the 1st day of June, 2007 but the order under sub-section (3) has not been made by the Transfer PricingOfficer before the said date, or a reference under sub-section (1) is made on or after the 1st day of June, 2007,an order under sub-section (3) may be made at any timebefore sixty days prior to the date on which the period oflimitation referred to in section 153, or as the case may be,in section 153B for making the order of assessment orreassessment or recomputation or fresh assessment, as thecase may be, expires. (4) On receipt of the order under sub-section (3), theAssessing Officer shall proceed to compute the totalincome of the assessee under sub-section (4) of section92C in conformity with the arms length price as sodetermined by the Transfer Pricing Officer. (5) With a view to rectifying any mistake apparent from the record, the Transfer Pricing Officer may amend anyorder passed by him under sub-section (3), and theprovisions of section 154 shall, so far as may be, applyaccordingly. (4) On receipt of the order under sub-section (3), theAssessing Officer shall proceed to compute the totalincome of the assessee under sub-section (4) of section92C in conformity with the arms length price as sodetermined by the Transfer Pricing Officer. (5) With a view to rectifying any mistake apparent from the record, the Transfer Pricing Officer may amend anyorder passed by him under sub-section (3), and theprovisions of section 154 shall, so far as may be, applyaccordingly. (6) Where any amendment is made by the TransferPricing Officer under sub-section (5), he shall send a copyof his order to the Assessing Officer who shall thereafterproceed to amend the order of assessment in conformitywith such order of the Transfer Pricing Officer. (7) The Transfer Pricing Officer may, for the purposes ofdetermining the arms length price under this section,aexercise all or any of the powers specified in clauses ()to (d) of sub-section (1) of section 131 or sub-section (6)of section 133. Explanation.For the purposes of this section, TransferPricing Officer means a Joint Commissioner or DeputyCommissioner or Assistant Commissioner authorised bythe Board to perform all or any of the functions of anAssessing Officer specified in sections 92C and 92D inrespect of any person or class of persons. 92D. (1) Every person who has entered into aninternational transaction shall keep and maintain suchinformation and document in respect thereof, as may beprescribed. (2) Without prejudice to the provisions contained in sub-section (1), the Board may prescribe the period forwhich the information and document shall be kept andmaintained under that sub-section. (3) The Assessing Officer or the Commissioner (Appeals) may, in the course of any proceeding underthis Act, require any person who has entered into aninternational transaction to furnish any information ordocument in respect thereof, as may be prescribed undersub-section (1), within a period of thirty days from thedate of receipt of a notice issued in this regard : Provided that the Assessing Officer or the Commissioner (Appeals) may, on an application made by such person,extend the period of thirty days by a further period notexceeding thirty days. 92E. Every person who has entered into an internationaltransaction during a previous year shall obtain a reportfrom an accountant and furnish such report on or beforethe specified date in the prescribed form duly signed andverified in the prescribed manner by such accountant andsetting forth such particulars as may be prescribed. 92F.In sections 92, 92A, 92B, 92C, 92D and 92E, unlessthe context otherwise requires, (i)accountant shall have the same meaning as in theExplanation below sub-section (2) of section 288;Explanation below sub-section (2) of section 288; (ii)arms length price means a price which is appliedor proposed to be applied in a transaction betweenpersons other than associated enterprises, inuncontrolled conditions;or proposed to be applied in a transaction betweenpersons other than associated enterprises, inuncontrolled conditions; 92F.In sections 92, 92A, 92B, 92C, 92D and 92E, unlessthe context otherwise requires, (i)accountant shall have the same meaning as in theExplanation below sub-section (2) of section 288;Explanation below sub-section (2) of section 288; (ii)arms length price means a price which is appliedor proposed to be applied in a transaction betweenpersons other than associated enterprises, inuncontrolled conditions;or proposed to be applied in a transaction betweenpersons other than associated enterprises, inuncontrolled conditions; (iii) enterprise means a person (including a permanentestablishment of such person) who is, or has been,or is proposed to be, engaged in any activity,relating to the production, storage, supply,distribution, acquisition or control of articles orgoods, or know-how, patents, copyrights, trade-marks, licences, franchises or any other businessor commercial rights of similar nature, or any data,documentation, drawing or specification relatingto any patent, invention, model, design, secretformula or process, of which the other enterprise isthe owner or in respect of which the otherenterprise has exclusive rights, or the provision ofservices of any kind, or in carrying out any workin pursuance of a contract, or in investment, orproviding loan or in the business of acquiring,holding, underwriting or dealing with shares,debentures or other securities of any other bodycorporate, whether such activity or business iscarried on, directly or through one or more of itsunits or divisions or subsidiaries, or whether suchunit or division or subsidiary is located at the same place where the enterprise is located or at adifferent place or places; (iiia) permanent establishment, referred to in clause (iii),includes a fixed place of business through whichthe business of the enterprise is wholly or partlycarried on;includes a fixed place of business through whichthe business of the enterprise is wholly or partlycarried on; (iv)specified date shall have the same meaning asassigned to due date in Explanation 2 below sub-section (1) of section 139;assigned to due date in Explanation 2 below sub-section (1) of section 139; (v)transactionincludesanarrangement,understanding or action in concert,understanding or action in concert, (A)whether or not such arrangement,understanding or action is formal or in writing;understanding or action is formal or in writing; or (B)whether or not such arrangement,understanding or action is intended to beenforceable by legal proceeding.understanding or action is intended to beenforceable by legal proceeding. 12. It will also be appropriate to reproduce the Statement of Objects and Reasons in the speech of the Finance Minister whileintroducing the Finance Bill, 2001, as under:- “The presence of multinational enterprises in India andtheir ability to allocate profits in different jurisdictions bycontrolling prices in intra-group transactions has made theissue of transfer pricing a matter of serious concerned, Ihad set up an Expert Group in November, 1999 toexamine the issues relating to transfer pricing. Their report has been received, proposing a detailed structurefor transfer pricing legislation. Necessary legislativechanges are being made in the Finance Bill based on theserecommendations.” 13. In the memorandum explaining the provisions of theFinance Bill, it was inter-alia stated as under:- “The increasing participation of multinational groups ineconomic activities in the country has given rise to newand complex issues emerging from transactions enteredinto between two or more enterprises belonging to thesame multinational group. The profits derived by suchenterprises carrying on business in India can be controlledby the multinational groups by manipulating the pricescharged and paid in such intra-group; transactions,thereby, leading to erosion of tax revenues. report has been received, proposing a detailed structurefor transfer pricing legislation. Necessary legislativechanges are being made in the Finance Bill based on theserecommendations.” 13. In the memorandum explaining the provisions of theFinance Bill, it was inter-alia stated as under:- “The increasing participation of multinational groups ineconomic activities in the country has given rise to newand complex issues emerging from transactions enteredinto between two or more enterprises belonging to thesame multinational group. The profits derived by suchenterprises carrying on business in India can be controlledby the multinational groups by manipulating the pricescharged and paid in such intra-group; transactions,thereby, leading to erosion of tax revenues. With a view to provide a statutory framework which canlead to computation of reasonable, fair and equitableprofits and tax in India, in the case of such multinationalenterprises, new provisions are proposed to be introducedin the Income-tax Act. These provisions relating tocomputation of income from international transactionshaving regard to arm’s length price, meaning ofassociated enterprise, meaning of internationaltransaction, determination of arm’s length price, keepingand maintaining of information and documents by persons entering into international transactions, furnishing of areport from an accountant by persons entering into suchtransactions and definitions of certain expressionsoccurring in the said sections.” 14. Relevant extract from the Statement of Objects andReasons dealing with transfer pricing is given below:- “It is proposed to substitute the said section by newsections 92, 92A, 92B, 92C, 92D, 92E and 92F relating tocomputation of income from international transactionshaving regard to the arm’s length price, meaning ofassociated enterprise, meaning of internationaltransaction, computation of arm’s length price,maintenance of information and documents by personsentering into international transactions, furnishing of areport from an accountant by persons entering intointernational transaction and definitions of certainexpressions occurring in the new sections. It is proposed to substitute section 92 by a new section to provide that any income arising from aninternational transaction shall be computed having regardto arm’s length price. It further provides that the cost ofexpenses shall be at arm’s length price. The proposed new sections 92A and 92B provide meaning of the expressions “associated enterprise” and“international transaction” with reference to which theincome is to be computed under the new section 92. The proposed new section 92C provides forcomputation of arm’s length price. The section provides It is proposed to substitute section 92 by a new section to provide that any income arising from aninternational transaction shall be computed having regardto arm’s length price. It further provides that the cost ofexpenses shall be at arm’s length price. The proposed new sections 92A and 92B provide meaning of the expressions “associated enterprise” and“international transaction” with reference to which theincome is to be computed under the new section 92. The proposed new section 92C provides forcomputation of arm’s length price. The section provides that the arm’s length price in relation to an internationaltransaction shall be determined by (a) comparableuncontrolled price method; or (b) resale price method; or(c) cost plus method; or (d) profit split method; or (e)transactional net margin method; or (f) any other methodwhich may be prescribed by the Central Board of DirectTaxes. One of these methods shall be the mostappropriate method which shall be applied forcomputation of arm’s length price in the manner as maybe specified by the rules to be made by the Central Boardof Direct Taxes in this behalf. In a cae where more thanone price can be determined by the most appropriatemethod, in such case the arm’s length price shall be thearithmetical mean of such two or more prices. The newsection further provides that where during the course ofany proceeding for the assessment of income theAssessing Officer is, on the basis of material orinformation or document in his possession, of the opinionthat the price charged in the international transaction hasnot been determined in accordance with sub-sections (1)and (2) or information and documents relating to theinternational transaction have not been kept andmaintained by the assessee in accordance with theprovisions contained in sub-section (1) of section 29D,and the rules made in this behalf or the information ordata used in computation of the arms’ length price is notreliable or correct or the assessee has failed to furnish,within the specified time, any information or documentwhich he was required to furnish by a notice issued under sub-section (3) of section 92D, the Assessing Officer mayproceed to determine, after giving an opportunity of beingheard to the assessee, the arm’s length price in relation tothe said transaction in accordance with the sub-sections(1) and (2) of this section, on the basis of such material orinformation or documents available with him. The new section 92D seeks to provide that everyperson who has entered into an international transactionshall keep and maintain such information and documentsas may be specified by rules by the Central Board ofDirect Taxes. The Central Board of Direct Taxes mayalso specify by the rules the period for which theinformation and documents are required to be retained.During the course of any proceedings under the Act, anAssessing Officer or Commissioner (Appeals) mayrequire any person who has entered into an internationaltransaction to furnish any of the information anddocuments specified under the rules within a period ofthirty days from the date of receipt of a notice issued inthis regard, and such period may be extended by a furtherperiod not exceeding thirty days. The new section 92E seeks to provide that everyperson who has entered into an international transactionduring a previous year shall obtain a report of anaccountant and furnish such report on or before thespecified date in the prescribed form and manner. The new section 92F defines the expressions“accountant”, “Arm’s length price”, “enterprise”, “specified date” and “transaction” used in the proposednew sections 92, 92A, 92B, 92C, 92D, 92E.” 15. A reference has been made in the petition to a circular issued by the CBDT dated 23.8.2001 being Circular No.12(Annexure P-3), inter-alia, stating as under:- The new section 92E seeks to provide that everyperson who has entered into an international transactionduring a previous year shall obtain a report of anaccountant and furnish such report on or before thespecified date in the prescribed form and manner. The new section 92F defines the expressions“accountant”, “Arm’s length price”, “enterprise”, “specified date” and “transaction” used in the proposednew sections 92, 92A, 92B, 92C, 92D, 92E.” 15. A reference has been made in the petition to a circular issued by the CBDT dated 23.8.2001 being Circular No.12(Annexure P-3), inter-alia, stating as under:- “The aforesaid provisions have been enacted with a viewto provide statutory framework which can lead tocomputation of reasonable, fair and equitable profit andtax in India so that the profits chargeable to tax in Indiado not get diverted elsewhere by altering the pricescharged and paid in intra-group transactions leading toerosion of our tax revenues.” 16. We may now refer to contentions raised on behalf of the parties. 17. Learned counsel for the petitioner reiterated thesubmissions made in the writ petition and submitted that unamendedSection 92 of the