THE PRINCIPAL COMMISSIONER OF INCOME TAX-4, MUMBAI versus M/S. S.G. ASIA HOLDINGS

Citation: [2019] 10 S.C.R. 133 · Decided: 13-08-2018 · Supreme Court of India · Bench: UDAY UMESH LALIT · Disposal: Appeal(s) allowed
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Judgment (excerpt)

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THE PRINCIPAL COMMISSIONER OF INCOME TAX-4,
MUMBAI
v.
M/s. S.G. ASIA HOLDINGS (INDIA)PVT. LTD.
(Civil Appeal No. 6144 of 2019)
AUGUST 13, 2018
[UDAY UMESH LALIT AND VINEET SARAN, JJ.]
Income Tax Act, 1961:  s.92 – Transfer Pricing Adjustment –
Respondent received certain amount of brokerage from its parent
company – During the assessment proceedings, respondent was
directed to furnish details about the parent company and the rate
of brokerage that was charged – According to the Assessing Officer,
the brokerage charged by the respondent was only 0.05% which
was found to be at a lower rate as compared to the prevalent rates
in market – Assessing Officer, therefore, while computing the
assessment made an addition of Rs.2,89,82,746/- under s.92 of the
Act – Appellate Authority confirmed the addition made by the
Assessing Officer – Tribunal set aside the findings rendered by the
first two authorities and held that Transfer Pricing Adjustment made
by the Assessing Officer was contrary to the mandatory instructions
issued by CBDT in its Instruction No.3/2003 dated 20.05.2003 –
The view so taken by the Tribunal was affirmed by the High Court
– On appeal, held: In view of the guidelines issued by the CBDT in
Instruction No.3/2003 the Tribunal was right in observing that by
not making reference to the Transfer Pricing Officer (TPO), the
Assessing Officer had breached the mandatory instructions issued
by the CBDT – Matter remitted to the Assessing Officer for making
appropriate reference to the TPO – CBDT’s Instruction No.3/2003.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 6144
of 2019.
From the Judgment and Order dated 27.08.2018 by the High Court
of Bombay in Income Tax Appeal No. 281/2016.
Mahabir Singh, Sr. Adv., V. Girish Chowdary, H. R. Rao,
Mrs. Anil Katiyar, Advs. for the Appellant.
   [2019] 10 S.C.R. 133
133
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SUPREME COURT REPORTS
[2019] 10 S.C.R.
Arijit Chakravarty, Arush Negi, Abhishek Tilak, Himanshu Tyagi,
Advs. for the Respondent.
The Judgment of the Court was delivered by
UDAY UMESH LALIT, J.
1. This Appeal by Special Leave challenges the judgment and
final order dated 27.08.2018 passed by the High Court of Bombay
dismissing Income Tax Appeal No.281 of 2016 preferred by the appellant
herein and thereby confirming the order dated 22.04.2015 passed by the
Income Tax Appellate Tribunal (‘the Tribunal’, for short) in ITA No.2399/
Mum/2009.
2. The facts leading to the filing of this Appeal are as under:-
A)
The respondent had received certain amount of brokerage
from its parent company.  During the assessment
proceedings the respondent was directed to furnish details
about the parent company and the rate of brokerage that
was charged.  After the details were furnished, the
respondent was asked to establish if the parent company
was involved in arbitrage activity and whether the rate
charged was higher.  After considering the material on
record, according to the Assessing Officer, the brokerage
charged by the respondent was only 0.05% which was
found to be at a lower rate as compared to the prevalent
rates in market.  The Assessing Officer, therefore, while
computing the assessment under Section 143(3) of the
Income Tax Act, 1961 (‘the Act’, for short), by his order
dated 27.12.2007 made an addition of Rs.2,89,82,746/-
under Section 92 of the Act.
B)
The respondent being aggrieved preferred an appeal
before the CIT(A)1, who by his order dated 16.02.2009
confirmed the addition made by the Assessing Officer
and dismissed the appeal.  The matter was carried further
by filing ITA No.2399/Mum/2009 before the Tribunal.
C)
The Tribunal by its order dated 22.04.2015 set aside the
findings rendered by the first two authorities and held that
1 Commissioner of Income Tax (Appeals)
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transfer pricing adjustment made by the Assessing Officer
was contrary to the mandatory instructions issued by
CBDT2 in its Instruction No.3/2003 dated 20.05.2003.
While allowing the appeal, the Tribunal observed as under:-
“16.1  After considering the entire judicial discussion
discussed hereinabove, in our considered opinion, the
mandatory instructions issued by the Central Board
of Direct Taxes cannot be brushed aside lightly.  By
not making reference to the Transfer Pricing Officer,
the AO has breached the mandatory instructions
issued by the CBDT thereby making the assessment
order on this issue in violation of the provisions of
the law.  We, therefore, set aside the findings of the
Ld
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