Case Law Details
Court: Supreme Court
Citation: Coca Cola India Inc. Vs. ACIT & Ors. (SC) [Appeal (Civil) No. 646/200)] (Judgement dated 25 November 2010)
Brief : Supreme Court directs that since, foundational facts could not be established by way of writ petition, the taxpayer should be relegated to adopt proceedings before various Income-tax authorities. Thus, the Supreme Court has confirmed the decision of the Punjab and Haryana High Court allowing Assessing Officer / Transfer Pricing Officer to continue with the reassessment proceedings.
The Hon’ble Supreme Court (Supreme Court in the context of Transfer Pricing Provisions of Section 92 to 92F of the Income Tax Act, 1961 (the Act), has directed Assessing Officer (AO)/ Transfer Pricing Officer (TPO) to expeditiously hear and dispose of pending proceedings and to decide independently on the merits of case, uninfluenced by the observations of the Punjab and Haryana High Court (High Court).
The Apex Court has further ruled if the taxpayer is aggrieved by the order passed by AO/ TPO, it will have to exhaust the statutory remedy of appeal provided under the Act.
Background
• The taxpayer company is incorporated in USA and has a Branch Office (BO) in India (pursuant to obtaining permission from the Reserve Bank of India under Foreign Exchange Regulation Act, 1973 (FERA)) to render services to the Coca Cola Group of Companies in India.
• The taxpayer entered into a service agreement with Britco Foods Company Private Limited (Britco), an Indian company, under which taxpayer provided advisory services relating to advising, monitoring, and co-coordinating the activities of bottlers, in consideration for fees calculated on the basis of actual cost plus 5 percent.
• The Assessing Officer (AO), issued notices under Section 148 for assessment years 1999-2000 to 2001-02 for bringing into tax the escaped income. The reasons recorded for invoking provisions of Section 147 of the Act and issuance of notices under Section 148 of the Act, were:
-Less than ordinary profits are declared by the taxpayer under Section 92 of the Act; and
-On the similar transactions for subsequent year (i.e. AY 2002- 03) the TPO had passed order under Section 92CA of the Act, determining the arm’s length price more than that declared by the taxpayer.
Writ petition filed by the taxpayer:- Aggrieved by the reopening of completed assessments, the taxpayer filed a writ petition before the High Court..
Decision of the High Court
• Assessments of income for periods prior to April 2001 (i.e. prior to insertion of the detailed TP provisions) could be reopened on the basis of TP orders passed for subsequent years i.e. the order of the TPO for a subsequent year could become one of the relevant material for the AO to have a reason to believe that income escaped assessment, and hence reassessment of the income of earlier years is necessary.
• The scope of the Indian TP provisions is wide and squarely applicable in case of any ‘international transaction’ between two associated enterprises either or both of whom are non-residents. In the event the above conditions are fulfilled, there is no prerequisite to prove shifting of profits outside India/erosion of tax base in India, even if both the entities are chargeable to tax in India.
• AO is not required to provide the taxpayer with an opportunity of being heard, while referring the matter to the TPO for determination of the ALP.
• The regulatory approval granted by the RBI under FERA which directs the tax payer not to charge more than a particular price, should not affect determination of the ALP under the Act.
Aggrieved by the order, the taxpayer carried the matter by way of Special Leave Petition filed before the Supreme Court.
Directions issued by the Supreme Court
• The Supreme Court held that, since foundational facts could not be established by way of writ petition, the taxpayer should be relegated to adopt proceedings before various Income-tax authorities. Accordingly, the Supreme Court directed that the AO/TPO should decide independently on the merits of case, uninfluenced by the observations of the High Court.
• The Supreme Court also observed that if the taxpayer is aggrieved by the orders passed by the TPO, it would have to exhaust the statutory remedy provided under the Act.
Comments
The Supreme Court is of the view that since foundational facts, which were required to adjudicate on the matters of the case, were not established, it has directed AO/TPO to continue with the reassessment proceedings without being influenced or biased by the observations of High Court. Thus, the Supreme Court has preferred not to interfere with the proceedings of the Income-tax Department and implicitly confirmed the finding of the High Court in favor of the Income-tax Department to continue with the reassessment proceedings.
In this context, it is expedient to note that the Supreme Court itself, on merits in the case of Ess Ess Kay Engineering Co. (P) Ltd. Vs. CIT [2001] 247 ITR 818 (SC), held that merely because the case of taxpayer was accepted as correct in original assessment for relevant assessment year, it does not preclude the ITO to reopen the assessment of an earlier year on the basis of his findings of fact made on the basis of fresh materials in the course of assessment of the next assessment year.
