Court affirms TPO’s authority in transfer pricing adjustments, ruling against the assessee’s jurisdictional claims.

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Case Name:

M/s. POS Hyundai Steel manufacturing Pvt Ltd. Vs The Commissioner of Income Tax (High Court of Madras)

Tax Case Appeal No.458 of 2018

Date: 19th March 2021

Key Takeaways

• The court confirmed that the TPO had jurisdiction to make transfer pricing adjustments even after the Assessing Officer had completed the assessment.
• The assessee’s failure to raise jurisdictional objections during the proceedings precluded them from doing so later.
• The ruling reinforces the principle that compliance with tax authorities is crucial and that parties cannot later contest jurisdiction if they participated in the process without objection.

Issue

Did the TPO have jurisdiction to conduct transfer pricing adjustments after the Assessing Officer had completed the assessment under Section 143(3) of the Income Tax Act?

Facts

• The assessee, a Joint Venture Company, filed its income tax return for the assessment year 2003-04, which was processed and selected for scrutiny.
• The case was referred to the TPO due to the high value of international transactions exceeding Rs. 5 crores.
• The TPO adopted the Comparable Uncontrolled Price (CUP) method for determining the Arm’s Length Price (ALP) and proposed adjustments based on comparisons with unrelated parties.
• The Assessing Officer completed the assessment on February 28, 2006, but later rectified the order under Section 154 after the TPO’s adjustments.

Arguments

• Assessee’s Argument: The assessee argued that the TPO acted without jurisdiction after the assessment was completed and that the subsequent order of the TPO could not rectify the earlier assessment.
• Revenue’s Argument: The Revenue contended that the TPO had the authority to make adjustments and that the assessee had not raised any jurisdictional objections during the proceedings, thus waiving their right to contest it later.

Key Legal Precedents

• The court referenced T.S. Balaram, ITO Vs. Volkart Brothers [(1971) 82 ITR 50 (SC)] to support the argument that jurisdictional issues must be raised at the earliest opportunity.
• The court also cited K. Ravindranathan Nair Vs. CIT [(2001) 247 ITR 0178 (SC)] and Mangalore Ganesh Beedi Works Vs. CIT [(2015) 378 ITR 0640 (SC)] to emphasize that unless a finding is perverse, the correctness of the order in an appeal under Section 260A would not arise.

Judgement

The court ruled against the assessee, affirming that the TPO had jurisdiction to make transfer pricing adjustments. The court reasoned that the assessee had participated in the proceedings without raising any objections regarding jurisdiction, thus precluding them from contesting it later. The court dismissed the appeal, confirming the TPO’s adjustments and the Assessing Officer’s rectification order.

FAQs

Q1: What does this ruling mean for the assessee?

A: The ruling means that the assessee cannot contest the TPO’s adjustments or the jurisdiction of the Assessing Officer since they did not raise these issues during the proceedings.

Q2: Can the assessee challenge the TPO’s authority in future cases?

A: No, the ruling establishes that if the assessee participates in the process without objection, they cannot later claim that the TPO lacked jurisdiction.

Q3: What is the significance of this case?

A: This case reinforces the importance of compliance and timely objections in tax proceedings, highlighting that failure to raise jurisdictional issues can lead to waiving those rights.

This appeal, filed by the assessee under Section 260A of the Income Tax Act, 1961 (for short, the Act), is directed against the order dated 26.04.2017 in I.T.A.No.30/Mds/2017 passed by the Income Tax Appellate Tribunal, Chennai 'D' Bench ('the Tribunal' for brevity) for the assessment year 2003-04.

2. The appeal was admitted on 23.01.2019 to decide the following substantial questions of law:

"1. Whether on the facts and circumstances of the case, the revised order passed by the Assessing Officer u/s 154 is without jurisdiction and is liable to be quashed?

2. Whether on the facts and circumstances of the case, the Tribunal was right in summarily rejecting the TNMM Method adopted by the Appellant, without appreciating the limitations in applying the CUP Method?

3. Whether on the facts and circumstances of the case, the Tribunal was right in holding that the Appellant is estopped from changing the most appropriate method during the assessment proceedings/appellate proceedings without appreciating the need and merit of the new method for determination of arm's length price?

4. Whether on the facts and in the circumstances of the case, the Tribunal was right in confirming the rejection of adjustment made for quantity discount given to the Non-AE which is otherwise to be allowed in view of Rule 10B(3)?

5. Whether on the facts and circumstances of the case, the Tribunal was right in remanding the issue of trading segment to the CIT(A) when all the facts to adjudicate the issue were before it nad applicability of CUP Method is itself in question?"

3. The assessee is a Joint Venture Company promoted by three Korean Multi-Nationals, Hyundai Corporation (HC), Pohang Iron & Steel Company (POSCO) and POSCO Steel Service and Sales Company (POSTEEL) for manufacture of steel sheets and components out of cold rolled steel coils for supply predominantly to Hyundai Motor India Limited (HMIL) and other Automobile and White Goods Industries.

4. For the assessment year under consideration, i.e. AY 2003-04,

the assessee filed its return of income on 28.11.2003 declaring a total

income of Rs.2,74,72,658/-. The return was processed and the case was

selected for scrutiny. As the aggregate value of international transaction

made by the assessee exceeded Rs.5 crores, the case was referred to the

Transfer Pricing Officer (hereinafter referred to as 'TPO'). During the year, the assessee imported steel coils from Hyundai Corporation, Korea and

Hyundai Hysco, Korea and adopted the Comparable Uncontrolled Price

Method (CUP) as the Most Appropriate Method (MAM) to arrive at Arm's

Length Price (ALP).

5. The assessee had two schemes of activities, namely the Trading

Segment and Manufacturing Segment. For the transactions in the

manufacturing segment, the assessee computed the ALP by taking the

weighted average price of its imports and the weighted average price of the

unrelated importer. The assessee made an adjustment of 5% towards volume

discount as the import volume of the unrelated importer is 12 times more

than the assessee's import of the same grade. In the transfer pricing study

prepared and submitted before the TPO, the assessee did not provide any

analysis to compute the ALP for the materials imported in the trading

segment.

6. The Assessing Officer completed the assessment under Section

143(3) of the Act by order dated 28.02.2006 and made some additions and

disallowances and restricted the transfer pricing adjustment to

Rs.28,36,273/-. Thereafter, the TPO, vide order dated 16.03.2006, rejected

the assessee's comparison by weighted average method and the claim of

volume discount, and proposed an adjustment of Rs.58,07,322.24/- in the

manufacturing segment. The TPO compared the steel coil grades purchased

in the trading segment with the purchases made in the manufacturing

segment and proposed an adjustment of Rs.2,69,34,151.10/-. By doing so,

the TPO rejected the assessee's claim that there are differences in quality of

steel grades purchased in the trading segment and these coils are not

identical to the steel purchased in the manufacturing segment. The

Assessing Officer, after considering the adjustment made by TPO, rectified

the assessment order dated 28.02.2006 by exercising his powers under

Section 154 of the Act read with Section 92CA(4) by order dated

30.05.2006 confirming the additions made by the TPO.

7. The assessee would state that though they did not challenge the

jurisdiction of the Assessing Officer to exercise powers under Section 154,

this being a jurisdictional issue, the assessee is not precluded from raising

such a contention for the first time before this Court. It is submitted that the

order of rectification passed under Section 154 is without jurisdiction as

there was no mistake apparent from the records as on the date of which the

assessment was completed under Section 143(3) by order dated 28.02.2006.

It is further submitted that the subsequent order of the TPO dated

16.03.2006 will not make the order of assessment dated 28.02.2006

rectifiable under Section 154 of the Act.

8. The assessee filed appeal against the assessment order before

the Commissioner of Income Tax (Appeals)-3, Chennai (hereinafter referred

to as 'CIT(A)'). The assessee raised additional grounds before the CIT(A)

stating that it used Transactional Net Margin Method (TNMM) as the most

appropriate method for computing the ALP and provided an analysis on the

same.

9. The CIT(A) called for a Remand Report from the TPO and

accordingly, a report dated 10.02.2016 was submitted stating that during the

TP proceedings, the assessee had adopted CUP method as the MAM in the

TP documentation and resorting to TNMM is only an after thought. Further,

in TP analysis, only in the absence of internal comparables, external

comparables will be taken for comparability purpose using TNMM. Further,

the TPO held that in the assessee's case, internal comparables are available

and all other factors that would be analysed for CUP method are also

satisfied and hence, CUP is the most suitable method. Further, the TPO

stated that the prices of the Non-Associated Enterprises (AE) are much less

than the prices of the assessee company and as the prices of Non-AE and

AE are after volume discount, further allowance for volume discount was

not called for.

10. After perusal of the Remand Report, the CIT(A), by order

dated 30.09.2016, confirmed the transfer pricing order dated 16.03.2006

and the Remand Report dated 10.02.2016 and held that the CUP method is

the most appropriate method. Further, the CIT(A) confirmed the order of the

TPO and the Remand Report and held that the allowance for volume

discount is not called for.

11. Aggrieved by the order of the CIT(A), the assessee filed

appeal before the Tribunal. The appeal was partly allowed by order dated

26.04.2017, which is impugned in this appeal. The Tribunal held that the

assessee itself adopted CUP method in its TP study, which was accepted by

the TPO/Assessing Officer and cannot seek for substitution of another

method as MAM as it would lead to reopening of assessment. Further, the

Tribunal held that the assessee is a Joint Venture Company of Hyundai

Corporation and expects more concessions than unrelated companies and

the assessee neither demonstrated with bills that it did not get volume

discount nor did it produce any agreement between AE and Non-AE

companies for such volume discounts. Therefore, the claim of adjustment on

account of volume discount was rejected. With regard to the claim of non-

comparability of steel purchased in the trading segment, the Tribunal

remanded the matter back to the file of the CIT(A) for adjudication.

12. Mr.R.Sandeep Bagmar, learned counsel for the appellant made

his submissions on the substantial questions of law, which have been framed

for consideration.

13. With regard to substantial question of law No.1, it was

submitted that the TPO does not have jurisdiction to conduct a transfer

pricing adjustment once the assessment has been completed by the

Assessing Officer under Section 143(3) of the Act. The Assessing Officer, in

the order dated 28.02.2006, has accepted the ALP, as computed by the

assessee, and exercised his jurisdiction under Section 92C(3) and completed

the assessment. The TPO has no jurisdiction to parallely exercise power

under Section 92CA, after completion of the assessment by the Assessing

Officer. This is so because the TPO is ceased to have jurisdiction on

completion of the assessment vide order dated 28.02.2006. Further, it is

submitted that the Assessing Officer, under the guise of invoking his power

under Section 154 of the Act, seeks to review the assessment order dated

28.02.2006, which is impermissible as the subsequent order of the TPO

cannot be a ground to invoke the provisions of Section 154 to rectify an

order of assessment when there is no "mistake apparent on the record". The

Assessing Officer in fact has exercised powers vested by the Commissioner

under Section 263 of the Act and therefore, the order is without jurisdiction.

In support of such contention, reliance was placed on the decision of the

Hon'ble Supreme Court in the case of T.S.Balaram, ITO Vs. Volkart

Brothers and others [(1971) 82 ITR 50 (SC)].

14. The learned counsel for the appellant requested the Court to

deal with substantial question of law Nos.2 and 3 together. It is submitted

that it is a settled position that there is no estoppel in law and the duty of the

Assessing Officer is to compute the total income in accordance with the

provisions of the Act. In support of such contention, reliance was placed on

the decision of the Hon'ble Supreme Court in the case of Kanwar Singh

Saini Vs. High Court of Delhi [(2012) 4 SCC 307. Further, it is submitted

that the assessment year under consideration was the second year of

implementation of Chapter X of the Act and the law was evolving as to how

to determine the MAM and therefore, the tax payer is not estopped from

pointing out a mistake in the assessment, though such mistake is a result of

evidence adduced by the tax payer. In support of this contention, the learned

counsel referred to the decision of the Delhi High Court in the case of PCIT

Vs. Matrix Cellular International Services P. Ltd. [ITA.No.484 of 2017,

dated 22.11.2017]. Reliance was also placed on the decision of the High

Court of Punjab and Haryana in the case of CIT, Chandigarh Vs.

M/s.Quark Systems India Pvt. Ltd. [ITA.No.594 of 2010, dated

16.05.2011]. It is further submitted that the determination of approximate

ALP is the key factor, for which MAM has to be followed and if at any

stage of the proceedings, it is found that by adopting one of the prescribed

methods, other than chosen earlier, the most appropriate ALP can be

determined. It is submitted that in the assessee's case, TNMM is the MAM

over CUP method. Further, the learned counsel referred to the subsequent

assessment order where the assessee has adopted the TNMM as the MAM

and the same was accepted by the Assessing Officer/TPO.

15. With regard to the substantial question of law No.4, the

learned counsel submitted that in the CUP method, necessary adjustments

are required to be made in order to arrive at the ALP. By referring to Rule

10B(1)(a)(ii), it is submitted that the price can be adjusted to account for

any differences between the international transaction and in the assessee's

case, on the basis of the letter issued by one of its AE, who supplied to the

third party comparable, had stated that it had offered volume discount based

on the quantity purchased. Further, it is submitted that under Rule 10B(3), if

accurate adjustments are not made to a comparable to eliminate effects of

material evidences, then such comparable ceases to be an uncontrolled

transaction and consequently, no ALP can be determined on the basis of that

comparable. In this regard, reliance was placed on the decision of the High

Court of Bombay in the case of PCIT Vs. M/s.Merck Ltd. [ITA.No.726 of

2017, dated 16.09.2019.

16. With regard to the substantial question No.5, the learned

counsel for the appellant submitted that the Tribunal ought not to have

remanded the matter with regard to the issue of trading segment when all

the facts to adjudicate the issue were brought before it and applicability of

CUP method itself was in question. On this issue, it is submitted that for

adopting CUP method, there is a requirement of high degree of

comparability in products, functions performed, contractual terms,

characteristics and volume of transactions, etc., and in the assessee's case,

comparison of PSCEN with SPCEN-HMI is not appropriate. It is further

submitted that the grades of steel imported for the trading segment are very

specific in nature in order to cater to the requirements of HMI. This is

because the steel used for automobile industry is different from steel used

for goods and appliances. Therefore, SPCEN cannot be a comparable for

SPCEN-HMI under CUP method. It is further submitted that comparison of

prices of the grades of steel imported by the appellant to its manufacturing

segment and trading segment is incorrect, as there is differences in

specifications and quality. The assessee sought to support this stand by

producing Mill Test Certificate for the imports made by them. Therefore,

SPCEN and SPCEN-HMI cannot be comparables in terms of Rule 10B(3)

read with Rule 10B(1)(a) and consequently, CUP method cannot be

adopted. Further, it is submitted that the remand order of the Tribunal to

ascertain comparables in trading segment for applying CUP method is a

futile exercise as there are no comparables available and therefore, the

supplementary transfer pricing study and adopting TNMM as the MAM

should be accepted.

17. On the above grounds, the learned counsel for the appellant

sought for interference with the order passed by the Tribunal and answering

the substantial questions in favour of the assessee.

18. Mr.T.Ravikumar, learned Senior Standing Counsel appearing

for the respondent submitted that the assessee had submitted a note with

reference to the information and documents required to be provided under

Section 92D and 92E of the Act, wherein, they have, in no uncertain terms,

stated that having regard to the nature of transaction and their activity and

the product which they deal with the available data, the assessee had

adopted the most appropriate method of CUP method. Further, the assessee

stated that the data required for external comparables may be difficult to

obtain and interpret or it may be incomplete. Therefore, they have chosen

the internal comparables of comparable uncontrolled transaction price

method.

19. The assessee produced a letter from Hyundai Corporation

addressing to the TPO dated 10.02.2006 with regard to offering of volume

discount to overseas customers. It is further submitted that the TPO issued

show cause notice dated 03.03.2006 with regard to three issues, namely

non-maintenance of transfer pricing documentation; SPCD and SPCEN

grade steel and SPCEN-HMIT and SPCD-HMI grade steel.

20. On the first issue, the TPO stated that the assessee failed to

keep, maintain and produce the TP documentation for international

transactions representing purchase of 12751.31 MT of steel to initiate

penalty proceedings under Section 271AA of the Act. With regard to the

second issue, the TPO proposed to make adjustments to the import price of

SPCD and SPCEN grade steel. On the third issue, after taking note of the

reply, which was filed by the assessee, the TPO stated that as per the

assessee company's claim that the materials SPCEN and SPCEN-HMI,

SPCD and SPCD-HMI are not identical and hence not comparable, is not

tenable as the assessee could not prove the difference in quality with

documentary evidence. Further, the TPO stated that the assessee has

submitted the sale invoice copies of similar transactions made in India by

TISCO and claimed that the purchase price is comparatively low. The TPO

proposed that this claim could not be accepted as the company has an

obligation with Tamil Nadu Government to purchase 30% of their raw

material requirements from local market and thus, it becomes a controlled

transaction. The TPO also referred to the 'Statistics on Iron and Steel

Industry in 2003' published by OECD. Thus, the TPO stated that the sale

transactions of the assessee company made with Non-Associate Enterprises

with regard to material SPCEN and SPCD are taken as comparables for

comparing with the sale price of SPCEN-HMI and SPCD-HMI made to AE.

On doing so, difference in price totals to the tune of Rs.2,69,34,151.10 and

this is to be adjusted to the purchase price of materials.

21. The assessee was called upon to submit their objections for

the adjustment proposed. The assessee submitted their reply dated

13.03.2006 requesting to drop the proposal in the show cause notice dated

03.03.2006. The reply was on the merits of the matter as to how they seek to

sustain their contention.

22. The TPO passed orders dated 16.03.2006 under Section

92CA(3) confirming the proposal in the show cause notice and held that

CUP method is the MAM. The Assessing Officer issued show cause notice

dated 28.03.2006. In the said notice, under the column "particulars of

mistake proposed to be rectified", it was stated that the ALP is less than the

actual import price of particular grade. Hence, there will be an addition to

the total income taken for tax purposes. The assessee submitted their reply

dated 29.05.2006. Thereafter, the Assessing Officer passed orders dated

30.05.2006 under Section 154 read with Section 92CA(4) of the Act.

23. The assessee challenged the order by filing an appeal before

the CIT(A). The CIT(A) called for a remand report from the TPO, which

was submitted on 10.02.2016, wherein the TPO stated that CUP method is

the suitable method. The CIT(A) passed order dated 30.09.2016 and after

referring to the remand report, observed that the assessee is resorting to

approbate and reprobate and this is one of the species of estoppel. Further,

the CIT(A) agreed with the Assessing Officer that CUP method is the

MAM. Thus, the CIT(A) held that the TPO's order has answered the

assessee's arguments and in view of the findings given by the Assessing

Officer in his remand report and the speaking order passed by the TPO, the

addition was confirmed and the appeal was dismissed.

24. Aggrieved by the same, the assessee went on appeal before the

Tribunal and expect for the issue raising the substantial question of law

No.5, all other issues were decided against the assessee and the issue arising

in question No.5 was remanded to the CIT(A) for adjudication based on the

request made by the assessee, for which the Revenue did not object.

25. It is submitted that the issue relating to the jurisdiction of the

Assessing Officer to invoke Section 154 of the Act was never raised before

the Assessing Officer or the CIT(A) or the Tribunal and such being the case,

the assessee is not the person aggrieved over the same and the issue has

become final. Furthermore, the jurisdictional issue should have been raised

by the assessee at the earliest point of time.

26. In support of this contention, the learned Senior Standing

Counsel placed reliance on the following decisions:

(i) K.Ravindranathan Nair Vs. CIT [(2001) 247

ITR 0178 (SC)]

(ii) Mangalore Ganesh Beedi Works Vs. CIT

[(2015) 378 ITR 0640 (SC)]

(iii) P.R.Narahari Rao Vs. CIT [(2008) 299 ITR

0400 (Ker)]

(iv) Ramanlal Kamdar Vs. CIT [1977) 108 ITR

0073 (Mad)]

(v) Anjuga Chit Fund (P) Ltd. Vs. DCIT [(2009)

318 ITR 0121 (Mad)]

(vi) Sundaram Finance Ltd. Vs. ACIT [(2018) 93

taxmann.com 250 (Mad)]

(vii) Sundaram Finance Ltd. Vs. DCIT [(2018)

99 taxmann.com 152 (SC)].

27. Thus, it is submitted that unless the finding of the fact is

challenged as perverse, the assessee is precluded from raising such a

contention for the first time before this Court.

28. Further, reference was made to the scope of Section 154 of the

Act and that it falls in Chapter XIV, which deals with procedure for

assessment and it is submitted that this aspect has been lucidly brought out

in the decision in K.Ravindranathan Nair.

29. The learned Senior Standing Counsel referred to Rules

10B(2), 10B(3), 10B(4), 10B(5), 10D(3)(e), 10D(4) and 10D(5). These rules

were referred to buttress the submission regarding the data, which is to be

furnished by the assessee and how it speaks of the current year's data and

also speaks of the data to be made available if the current year data is not

available and also mentioned about the agreements and other records and

whatever documents were furnished by the assessee during the assessment

proceedings was to justify CUP method as the MAM. Therefore, it is

submitted that the plea of jurisdiction cannot be raised by the assessee at

distance of time.

30. Further, it is submitted that the assessee cannot plead that the

rule of consistency has to be adopted, since admittedly, the assessments,

which have been referred to by the learned counsel are all assessments,

which are subsequent to the assessment order under consideration in this

appeal and in support of such contention, reliance was placed on the

decisions of the Hon'ble Supreme Court in the cases of CIT Vs Oswal Agro

Mills Limited [(2009) 313 ITR 24, C.K.Gangadharan and another Vs.

CIT [(2008) 304 ITR 0061], Catholic Syrian Bank Ltd. Vs. CIT [(2012)

343 ITR 0270]. Therefore, it submitted that substantial question of law No.1

may be answered against the assessee.

31. With regard to substantial question of law Nos.2 and 3, the

learned Senior Standing Counsel had elaborately referred to the factual

matrix as to how the TPO has assigned reasons to sustain his conclusion

that CUP method is the MAM and as to how the CIT(A) confirmed the

orders passed by the TPO as well as observations and findings recorded in

the remand report. Therefore, it is submitted that it is not a case of change of

the most appropriate method nor it would be a case of estoppel, but it is a

confirmation done by the authority considering the facts and figures.

Therefore, the learned counsel prayed for answering substantial question

Nos.2 and 3 against the assessee.

32. With regard to substantial question of law No.4, the learned

Senior Standing Counsel referred to the relevant portion of the findings

recorded by the Assessing Officer, the TPO, the remand report and the order

of the CIT(A) as confirmed by the Tribunal and submitted that the reasoning

is fully justified, more particularly when the appropriate method was held to

be the CUP method.

33. With regard to substantial question of law No.5, it is

submitted that the assessee cannot seek to question the remand as the

assessee is the one who sought for the matter to be remanded to the CIT(A)

for adjudication and the Revenue did not make any objection for remanding

the matter back to the CIT(A), which has been specifically recorded by the

Tribunal in paragraph 9.0 of the impugned order.

34. On the above grounds, the learned Senior Standing Counsel

appearing for the respondent sought for dismissal of the appeal.

35. We have elaborately heard Mr.R.Sandeep Bagmar, learned

counsel for the appellant-assessee and Mr.T.Ravikumar, learned Senior

Standing Counsel appearing for the respondent-Revenue.

36. As noticed above, the learned counsel for the appellant was

fair in submitting that the question of jurisdiction of the Assessing Officer

to exercise power under Section 154 of the Act was never raised at any

earlier point of time and being raised for the first time in this appeal.

37. It is the submission of the learned counsel for the appellant

that the said issue involves jurisdiction of the Assessing Officer to invoke

power under Section 154 and no new facts are brought before the Hon'ble

Court and the same is purely a question of law to be adjudicated under

Section 260(A) of the Act.

38. The following dates would be relevant before we proceed to

take note of the relevant facts and law on the subject.

39. On 21.11.2005, a reference was received by the TPO under

Section 92CA(1) from the Assessing Officer, wherein the Assessing Officer

made the reference for determination of ALP with reference to all

transactions reported in Form No.3CEB filed by the assessee. Accordingly,

a notice under Section 92CA(2) was issued to the assessee on 28.11.2005 to

furnish the details called for in an enclosed questionnaire. The assessee

submitted the details called for in the questionnaire on 13.01.2006 and the

AGM (Finance) of the assessee company attended the hearings conducted

by the TPO on various dates. While the matter was in issue before the TPO

and the assessee was extending full cooperation to the proceedings, the

Assessing Officer passed an order under Section 143(3) of the Act on

28.02.2006. The contention of the appellant is that in the assessment order,

the Assessing Officer made an adjustment of ALP and added a sum of

Rs.28,36,273/- to the total income Therefore, it is submitted that the

Assessing Officer has become functus officio and cannot rectify or revise

his order, after completing his assessment vide order dated 28.02.2006. The

TPO, after hearing the assessee on various dates, passed an order dated

16.03.2006 under Section 92CA(3).

40. In the later part of this judgment, we shall go into the findings

rendered by the TPO. The TPO directed the Assessing Officer to compute

the total income of the assessee in accordance with Section Sub-Section (4)

of Section 92C of the Act, after giving an opportunity to the assessee and

simultaneously clarified that the findings and discussions are applicable

only in respect of the reference received for the assessment year 2003-04

and not for subsequent assessment years.

41. Pursuant to such order, the Assessing Officer issued notice

under Section 154 of the Act. In the notice, the Assessing Officer stated that

she proposed to rectify the defect with regard to ALP, which is less than the

actual import price of particular grade and hence, there will be an addition

to the total income taken for tax purposes.

42. The assessee submitted their reply dated 29.05.2006 referring

to their earlier reply dated 13.03.2006 filed to the show cause notice dated

30.03.2006 and the written submissions dated 20.02.2006 filed before the

TPO. Further, the assessee also referred to all other communications filed

for submission of documents, offering clarification and technical

explanation for the difference in quality of import material. Further, the

assessee stated that the TPO had compared the transaction date, import price

wherever it is higher only and ignored the transactions the import prices are

lower and did not consider the volume discount offered by supplier and a

5% variation allowed by CBDT Circular dated 23.08.2001. Further, with

regard to ALP for SPCEN and SPCD Trading grades, the assessee stated

that the TPO had compared the import price of unidentical goods, which are

not of same quality. Accordingly, the assessee prayed for dropping the total

loading of Rs.2,99,05,100/- to the international transactions towards the

ALP.

43. Thus, it is seen that the assessee, at no point of time,

questioned the jurisdiction of the Assessing Officer to implement the

directions of the TPO vide order dated 16.03.2006. The thin line of

argument, which is now placed before us, is by referring to the printed

notice form under Section 154, which was issued to the assessee.

44. As noticed above, the assessment order dated 28.02.2006 is an

order passed under Section 143(3) of the Act and not an order passed under

Section 92C(3) of the Act. This is evident from the preamble portion of the

assessment order in column No.13. The assessee did not raise any

contention before the TPO that either the reference made to him under

Section 92CA(1) was erroneous or without jurisdiction or that the TPO has

no jurisdiction to deal with the matter on account of the assessment order

dated 28.02.2006 under Section 143(3) of the Act.

45. In our opinion, the assessee was conscious that they cannot

raise such an objection because the order of reference was made and

received by the TPO on 21.11.2005, much prior to the order passed under

Section 143(3). Even thereafter, the assessee had an opportunity to question

the jurisdiction of the TPO as the TPO had issued notice under Section

92CA(2), dated 28.11.2005, whereunder the assessee was directed to furnish

details and a questionnaire was appended to the notice. The assessee did not

raise any objection with regard to the jurisdiction but complied with the

demand in the notice dated 28.11.2005 and submitted the details called for

in the questionnaire on 13.01.2006.

46. The order passed by the TPO shows that the assessee had

cooperated in the proceedings and their authorized representative, i.e. AGM

(Finance) of the company, has attended the hearings on various dates.

Therefore, it will not lie in the mouth of the assessee to now state that the

entire proceedings are vitiated and that the order passed by the TPO under

Section 92CA(3) of the Act would be a paper order. The TPO issued

directions to the Assessing Officer to compute the total income of the

assessee in accordance with Section Sub-Section (4) of Section 92C of the

Act. This is a mandate prescribed in the statute. The TPO also directed the

Assessing Officer to afford an opportunity to the assessee.

47. Precisely, the Assessing Officer has complied with the

directions of the TPO in its letter and spirit. The notice clearly states that the

ALP being less than the actual price of a particular grade, there has to be an

addition to the total income taken for tax purposes. The assessee clearly

understood the implication as they were aware of the TPO's order dated

16.03.2006, which was after affording full opportunity to the assessee.

Therefore, the assessee thought fit not to question the jurisdiction of the

Assessing Officer in issuing a notice in a form prescribed for notice under

Section 154 of the Act. The reply given by them, dated 29.05.2006, is on

merits and not a whisper about the alleged jurisdiction of the Assessing

Officer to issue the notice. The Assessing Officer passed the order under

Section 92CA(4) of the Act and this being a mandate under the statute, the

Assessing Officer had to follow. Once again, the assessee was fully aware of

the implications and presumably for such reason, did not raise any

objections as regards the validity of the notice dated 28.03.2006, when they

filed appeal before the CIT(A) in February, 2011. In any event, what is

relevant is "substance" over "form". The conduct of the assessee clearly

demonstrates that they rightly understood the legal position and the present

attempt of the assessee to question the jurisdiction of the Assessing Officer

deserves to be rejected.

48. That apart, the grounds and additional ground of objections

show that the validity of the notice dated 28.03.2006 was never called in

question. The CIT(A) called for a remand report from the TPO. If,

according to the Assessing Officer, the order of assessment dated

30.05.2006 passed under Section 92CA(4) is a nullity, it would have been

well open to the assessee to raise such a contention before the CIT(A) and

seek for setting aside the order. Rather, the assessee reconciled themselves

with the direction issued by the CIT(A) to the TPO by calling for a remand

report. The assessee was given an opportunity after the remand report was

received and they made their submissions by way of additional submissions

dated 28.09.2016. In the said additional submissions, no where the

jurisdiction of the Assessing Officer has been questioned. The CIT(A)

proceeded to decide the matter on merits and passed orders dated

30.09.2016. The assessee carried the matter on appeal to the Tribunal and

once again, the assessee never raised any contention with regard to the

validity of the notice dated 28.03.2006. Thus, considering this factual

situation, we are of the clear view that the present attempt of the assessee is

not tenable and accordingly rejected.

49. We have elaborately set out the facts in the preceding

paragraph to demonstrate that the argument before us is not on the question

of jurisdiction, but it is entirely couched on facts qua the conduct of the

assessee, which would clearly preclude the assessee from raising such a

question alleging the same to be a substantial question of law.

50. Though the Revenue had placed reliance on the decision of

the Hon'ble Supreme Court in the case of Samtel India Ltd. Vs. CIT, Delhi

[(2012) 25 taxmann.com 535], the learned counsel for the appellant would

submit that looking into the facts, this decision will support the assessee.

However, what is required to be seen in the said decision is the ratio laid

down with regard to Section 154, which falls under Chapter XIV of the Act.

It is pointed out by the Revenue that Section 154 finds place in Chapter XIV

which deals with Procedure for Assessment. Section 154 deals with

rectification of mistake apparent from the record. Chapter XIV not only

deals with assessment and re-assessment and it also deals with re-

computation and the object of re-computation is to assess (quantify) the

correct taxable income and such re-computation of a correct taxable income

is a matter of procedure. This decision squarely explains the procedure of

assessment as settled down in Chapter XIV of the Act and Section 154 falls

under the said Chapter.

51. At the risk of reputation, we may point out that the assessment

order dated 28.02.2006 is an order under Section 143(3) and not an order

under Section 92C(3) of the Act.

52. The argument of the assessee before us is that the Assessing

Officer has exercised jurisdiction under Section 92C(3) and the TPO

parallely cannot exercise his power under Section 92CA. On facts, the

assessee is wrong.

53. Reference to the TPO was as early as on 21.11.2005. The

assessee submitted the details called for in the questionnaire on 13.01.2006

furnishing all relevant information and participated in the proceedings

before the TPO, which culminated in an order dated 16.03.2006 under

Section 92CA(3) with a direction to the Assessing Officer to compute the

total income in accordance with Sub-Section 4 of Section 92 of the Act.

54. Thus, the assessee having been fully aware of the factual

position, the faint attempt made before us alleging the question to be a

substantial question of law is not sustainable.

55. The question pertaining to the jurisdiction of the Assessing

Officer to issue notice dated 28.03.2006 is not a pure question of law but

greatly entwined into the factual thicket. Thus, the assessee, having not

objected to any of the orders passed by all the hierarchy of authorities on the

said ground, is wholly precluded from raising such a contention before this

Court for the first time alleging the same to be a substantial question of law.

56. We draw support to this conclusion from not only the decision

in Samtel India Ltd., but the decision in K.Ravindranathan Nair, wherein

it was held that unless the finding of the Tribunal on facts is perverse, the

question of considering the correctness of the order in an appeal under

Section 260A of the Act would not arise. The decision in Mangalore

Ganesh Beedi Works would also support the said conclusion, more

particularly, the observations contained in paragraphs 19 and 20, wherein

reference was made to the decision in K.Ravindranathan Nair. The

decisions in Ramanlal Kamdar and Anjuga Chit Fund (P) Ltd. would also

support our conclusion.

57. Thus, for the above reasons, substantial question of law No.1

is answered against the assessee.

58. The substantial questions of law 2 and 3 are taken up together

as requested by the learned counsel for the appellant.

59. The assessee would submit that the authorities and the

Tribunal was of the view that the assessee is estopped from contending that

the TNMM is the MAM after having adopted the CUP method in their TP

study at the first instance. There can be no quarrel about the legal position

which has been laid down in Matrix Cellular International Services P. Ltd.

and M/s.Quark Systems India Pvt. Ltd. (supra), wherein it has been held

that use of one method in a transfer pricing report does not estoppe the

assessee from later claiming that another method is the most appropriate

one, provided that it is the correct position.

60. But, in the case on hand, we find that the TPO, at the first

instance, did not foreclose the assessee solely on the ground of estoppel. To

explain this position, we may refer to the order passed by the TPO dated

16.03.2006 under Section 92CA(3) of the Act. In paragraph 6 of the order,

the TPO referred to the method adopted by the assessee, namely the CUP

method, as the MAM to arrive at the ALP. The reason for adoption of CUP

method and the step involved in arriving at the ALP by the assessee was

clearly spelt out in the transfer pricing document. After reproducing the

relevant portion of the transfer pricing document, the TPO proceeded to

consider as to what would be the appropriate method. In paragraph 6.2,

analysis of ALP has been done. The 6 steps and the computation of the ALP

for the assessment year is given in a tabulated form. In a note below the

tabulated form, it has been stated as follows:

"Note

* The import price as determined using an

uncontrolled Transactions is more than the actual

import price from the Associated Company.

Hence, the Arm's Length Price is the actual import

price.

** A Comparable Uncontrolled transactions is not

available for this imported material."

61. The TPO has observed that from the steps listed down in his

order, it is clear that the assessee company has adopted weighted average

method for comparison of the transactions and Rule 10A of the Income Tax

Rules, 1962 clearly gives the definition of uncontrolled transaction. After

referring to Rule 10A, the TPO has observed as follows:

"In Step 3 Assessee Company has made an

adjustment of 5% towards volume discount.

Assessee Company has claimed 5% - 10% volume

discount on the prices of Non Associate

Enterprise. On perusal of the "Order sheet price

of POSCO" and the prices of Non Associate

Enterprise, it is noted that the prices of Non AE is

much less than the prices of POSCO.

Further, if the contention of the assessee company

for 5% volume discount on the basis of Hyundai

Corporations letter dated 10.02.2006 which reads

as follows: "With regard to above, we confirm that

we offer a discount on the range of 5%-10% on

the steel coils exported to Indian importers viz

M/s.Mahindra Intertrade Limited during the

period April 2002-March 2003 based on their

quantity volume. We further state that per our

sales promotion practice, we had offered a 5%

volume discount duly adjusted in the C & F price

in USD/MT to our overseas customer

M/s.Mahindra Intertrade Limited for the

particular grade of steel coils based on the

quantity volume purchased by the said importer

during the said review period" is considered, then

it can be construed that the volume discount of 5%

has also been given in the prices of Associate

Enterprise. Hence, as the prices of Non AE and

AE is after Volume Discount further allowance for

volume discount is not called for. Therefore the

claim of volume discount is not allowed."

62. Next, the discussion was about the SPCEN-HMI and SPCD-

HMI and the following finding has been given:

"The assessee company has submitted the invoice

copies of transactions made in India, with TISCO,

and claims that the purchase price SPCEN-HMI

and SPCD-HMI is comparatively low. This claim

cannot be accepted as the company has the

obligation with the Government to purchase 30%

of their requirements from local markets, which

becomes a controlled transaction, and further it is

not possible to compare an international

transaction with a national transaction. Hence the

choice of comparing the price with TISCO

invoices is not considered.

Therefore, the sale transactions of a company

made with Non-Associate enterprises with regard

to material SPCEN and SPCD are taken as

comparables to be compared with the sale price of

SPCEN-HMI and SPCD-HMI made to AE. On a

transaction to transaction based comparison of

prices as given in Ann III for SPCEN and Ann IV

of SPCD, it works out to a difference in prices to

the tune of Rs.2,69,34,151.10 which is to be

adjusted to the purchase price of materials.

SPCEN-HMI Rs.21,98,232.27

SPCD-HMI Rs.4,945,918.83

TOTAL Rs.2,69,34,151.10"

63. Next, the TPO mentioned about the failure on the part of the

assessee to keep and maintain information and document in respect of

international transactions and ultimately proceeded to determine the Arm's

Length Price, which is as follows:

"7. DETERMINATION OF ARMS LENGTH

PRICE:

As per the provision of sub-section (1) of

Section 92 of Income Tax Act, any income arising

out of international transaction shall be computed

having regard to Arms length price, which is

determined by applying most appropriate method

having regard to nature of transactions, functions

performed and other relevant factors. In this case,

as discussed above, I am of the opinion that the

price charged or paid in the above stated

international transactions have not been

determined in accordance with the subsection (1)

and (2) of Section 92C of Income Tax Act. Hence,

on the basis of materials available with me and

after giving opportunity to the assessee, I proceed

to determine the Arms length price in relation to

the above said international transactions in

accordance with subsection (1) and (2) of Section

92C, as under:

FOR IMPORT OF STEEL:

Value of international transactions as admitted by

the assessee Rs.52,23,28,558/-

Adjustment for differences

as discussed above

SPCEN & SPCD Rs.58,07,322.24

SPCEN-HMI &

SPCD-HMI Rs.2,69,34,151.10

Less: Amount be reduced from purchase cost

and added to total income Rs.2,836,373.00

Rs.2,99,05,100/-

Arm's Length Price

now determined at Rs.49,24,23,458/-

Total value of adjustments

made as discussed above Rs.2,99,05,100/-

8. Hence, the Assessing officer may accordingly

compute the total income of the assessee in

accordance with subsection (4) of Section 92C of

Income Tax Act, after giving an opportunity to the

assessee. It is hereby clarified that the findings

and discussions made in this order are applicable

only in respect of reference received for

Assessment Year 2003-04 and not for subsequent

Assessment Years.

Addl. Commissioner of Income Tax

Transfer Pricing Officer-II(i/c)

Chennai 600 034."

64. As mentioned above, when the matter was on appeal before

the CIT(A), remand report was called for from the TPO and report dated

10.02.2016 was submitted. It is relevant to extract the following paragraph

of the said report:

"Accordingly the case was studied and it was

noticed that the assessee adopted Comparable

Uncontrolled Price Method (CUP) as the most

appropriate method to arrive at Arm's Length

Price. The company's activity was to import steel

mother coils from its Shareholder company

M/s.Hyundai Corporation Korea. The assessee

company adopted weighted average method for

comparison of the transactions. While calculating

the ALP, the assessee company had made an

adjustment of 5% towards volume discount. The

assessee company had claimed 5%-10% volume

discount on the prices of Non-AE. On perusal it

was noticed that the prices of Non-AE was much

less than the prices of the assessee company.

Hence, as the prices of Non-AE and AE is after

volume discount, further allowance for volume

discount was not called for and therefore, the

claim of volume discount was not allowed.

Accordingly, based on transaction to transaction

analysis, the difference in the purchase prices a

downward adjustment to the tune of

Rs.2,99,05,100/- was made.

The assessee company had failed to provide

comparable information during the TP

proceedings, initiation of penalty u/s 271AA on

the assessee company was suggested to the

Assessing Officer.

Accordingly, the Assessing Officer added

Rs.2,99,05,100/- to the total income of the

assessee company and completed assessment u/s

143(3) of the IT Act, on 28.02.2006."

65. After recording the above facts, the TPO dealt with the

additional grounds raised by the assessee requesting to adopt TNMM

method for comparing the margin of the tested party and submitted some

comparables after doing the comparability analysis. The TPO, after noting

the said submission of the assessee, referred to the TP proceedings and the

TP documentation submitted by the assessee stating that the CUP method is

the MAM. The TPO holds that the stand taken by the assessee during the

appeal proceedings resorting to TNMM method is only an after thought and

cannot be accepted. The TPO does not state that the assessee is precluded

from raising the issue. This is clear from the observations of the TPO, which

follows after stating, that the plea is an after thought. We quote the said

observation/finding:

"In the TP analysis, only in the absence of

internal comparables, the external comparables

will be taken for the comparability purpose using

the TNMM method. But in assessee's case, the

internal comparables are very much available and

also the various factors, that would be analysed in

the CUP method, are also satisfied. The items

purchased between AE and 3rd party were also

very well comparable in the assessee's case.

Hence CUP is the suitable method.

While analyzing the assessee's additional

comparability analysis submitted during the

appellate proceedings as additional grounds of

appeal, the majority of the comparables are

functionally different and they are into multiple

activities. Also assessee has taken weighted

average data pertaining to 3 financial years

which is not in accordance with the extant rules.

In view of the above discussion, it is

requested that assessee's additional grounds of

appeal may be rejected and TPO's approach of

adopting CUP method may be upheld."

66. A reading of the above report would clearly show that the

assessee was not non-suited on the ground that he is estopped from raising

the plea that TNMM method cannot be adopted as the MAM, but on facts,

the TPO held that such plea is not tenable.

67. The matter went before the CIT(A), who took note of the

report and then additional submissions were made by the assessee. No

doubt, in one sentence, in the order passed by the CIT(A), there is an

observation that the authorized representative of the assessee is resorting to

approbate and reprobate and that is a species of estoppel and that

substituting TNMM method for CUP method is an after thought.

68. If one reads these two sentences dis-juncted from the other

portion of the order of the CIT(A), one may get an impression that the

CIT(A) concluded that the assessee is estopped from raising a contention

that they seek for adopting a different MAM. However, the order of the

CIT(A) has to be read as a whole and in doing so, we have to read the order

in its entirety, wherein the CIT(A) has referred to the earlier transactions,

the grounds of appeal, the additional grounds of objections and then

proceeded to adjudicate the matter. The CIT(A) referred to the remand

report in extenso and held that the order passed by the TPO has answered

the assessee's arguments and he has accepted the findings recorded by the

Assessing Officer in the remand report and the speaking order passed by the

TPO and accordingly confirmed the additions made.

69. Therefore, it would be incorrect to pick out couple of

sentences from the order of the CIT(A) and to state that the assessee has

been shut out on the ground of estoppel, we are fully convinced that the

assessee's case was dealt with on merits at every stage from the stage of the

order passed by the CIT(A) as well as the remand report and the CIT(A) has

recorded reasons as to why he is convinced on facts that the findings

recorded by the TPO is an answer to the assessee's arguments.

70. Therefore, we are of the definite view that the assessee has not

been non-suited on the ground of estoppel, but the entire matter has been

analysed on facts and a finding has been rendered. This finding has been re-

appreciated by the Tribunal, which can be seen from paragraph 8.0 of the

order. No doubt, in paragraph 11.0, the Tribunal made an observation that

the reopening of assessment is possible as per the provisions of Section 147

of the Act. In our view, such issue will not raise in the present case.

71. We have, in the preceding paragraphs while answering the

substantial question of law No.1, have assigned reasons as to why the

assessee is precluded from raising any contention with regard to the

jurisdiction of the officer to issue notice dated 28.03.2006 apart from

rendering a finding as to the purport and scope of the notice qua the

assessment order under Section 143(3), dated 28.02.2006 and the order

dated 16.03.2006 under Section 92CA(3) of the Act.

72. For the above reasons, we hold that there is no summary

rejection of the assessee's plea that TNMM alone should be adopted, but

findings of fact have been recorded and affirmed by the last fact finding

forum, namely the Tribunal. Therefore, substantial questions of law 2 and 3

are answered against the assessee.

73. With regard to substantial question of law No.4, the assessee

would submit that in CUP method, necessary adjustments are required to be

made in order to arrive at the ALP and under Rule 10B(1)(a)(ii), the price

can be adjusted to account for any differences between the international

transaction.

74. The learned counsel for the appellant has elaborately referred

to the "volume discount", which is based upon the quantity purchased.

Further, it is contended that under Rule 10B(3), if accurate adjustments are

not made to a comparable to eliminate effects of material differences, then

such comparable ceases to be an uncontrolled transaction and consequently,

no ALP can be determined based on that comparable.

75. We find that this issue has been elaborately dealt with by the

TPO as well as examined for its correctness by the CIT(A) and the Tribunal.

We remind ourselves that we are exercising jurisdiction under Section 260A

of the Act and required to answer a substantial question of law and not re-

appreciate the factual position.

76. Therefore, we find that there is no substantial question of law

arising for consideration on this issue. Accordingly, the same stands

rejected.

77. With regard to substantial question of law No.5, the assessee

would contend that the Tribunal fell in error in remanding the issue of

trading segment to the CIT(A) when all the facts to adjudicate the issue

were before it and applicability of CUP method itself was in question.

78. In the preceding paragraph, with regard to the most

appropriate method, we have affirmed the finding of the authorities as

confirmed by the Tribunal. While considering this question of law, we need

to take note of the conduct of the assessee, which has been recorded in

paragraph 9.0 of the impugned order, which is to the following effect:

"9.0 Ground No.5 is related to the addition

on account of difference in SPCEN and SPCD

Trading Grades.

The Assessee argued that both the SPCEN and

SPCD Trading Grades are different degrees in

comparability, characteristics for applying the

CUP method. However, no evidence is placed

before us to establish the argument. The Ld.AR

argued that this ground was raised before the

CIT(A) but the Ld.CIT(A) has not adjudicated the

ground and hence requested to remit the matter

back to the file of CIT(A) for adjudication. The

Ld.AR did not make any objection for remitting

the matter back to the file of the CIT(A)."

79. As could be seen from the finding recorded by the Tribunal, it

is the assessee, who had requested to remit the matter back to the CIT(A)

for adjudication, for which the Revenue did not object and accordingly, the

matter was remanded back to the CIT(A) to decided the same on merits.

Before us, the assessee does not state that no such request was made to the

Tribunal, but rather seek to argue the matter on merits stating that

comparison of SPCEN with SPCEN-HMI is not appropriate and that the

assessee's case is supported by Mill Test Certificate produced for the

imports made by the assessee.

80. These issues cannot be adjudicated by us in an appeal under

Section 260A and the assessee, having pleaded before the Tribunal for a

remand, which was not objected to by the Revenue, is precluded from now

contending before this Court that the Tribunal fell in error in remanding the

issue of trading segment to CIT(A).

81. Therefore, we find there is no substantial question of law on

this issue and accordingly, the same is rejected.

82. In the result, the Tax Case Appeal stands dismissed and all the

substantial questions of law raised in this appeal are answered against the

appellant-assessee. No costs.