Reference made to TPO without passing a speaking order is invalid

CA Saurabh Chokhra

Brief of the case:

• The Hon’ble Gujarat HC in the above cited case held that a reference to the Transfer Pricing Officer (TPO )can be made only after passing a speaking odder disposing off the objections raised by assessee. In the present case since, the reference was made without passing such a speaking order, the reference so made was invalid.
• Therefore, AO required to make fresh reference after passing a speaking order.

Facts of the case:

• The petitioner reached to High court by filling a write petition under Article 226 of the Indian Constitution. The assessee in the present petition challenged that despite the specific instructions issued by the CBDT issued vide Instruction No.3/2016 dated 10th March, 2016, by which,before making a reference to the TPO, the Assessing Officer is required to deal with the objection raised by the petitioner assessee and is required to pass a speaking order disposing off the same.

Contention of the Revenue:

• Revenue contended that the assessee has itself accepted that it has entered into specific domestic transactions , therefore, reference made by AO to TPO to validate the transfer price declared by assessee was valid and for that no requirement of passing speaking order.

Held by Hon’ble Gujarat HC:

• It is not in dispute that AO did not pass a speaking order while making reference to the TPO which is a requirement of Instruction No 3/2016 dated 10^th March, 2016 issued by the CBDT.Before making a reference to the TPO, the assessee is required to be given an opportunity to show cause why the reference may not be made to the TPO and thereafter a speaking order is required to be passed by the Assessing Officer while making a reference to the TPO.
• In view of the above the reference so made by AO without passing a speaking order being invalid herby quashed and the matter to be remitted back to AO to pass a speaking order after considering the objections raised by the petitioner.
• Such exercise shall be completed within a period of four weeks from the date of this order.