High Court Of Bombay
Hindalco Industries Ltd. VS. ACIT, TPO-1(5)
Section : 92CA
Dr. D.Y. Chandrachud And A.A. Sayed, Jj.
Writ Petition (L) No. 2782 Of 2011
December 23, 2011
JUDGMENT
Dr. D.Y. Chandrachud, J. – In these proceedings under Article 226 of the Constitution, the Petitioner has sought to challenge (i) An order dated 31 October 2011 passed by the Additional Commissioner of Income-tax, Transfer Pricing Officer -1(5); (ii) A reference made on 9 October 2009 by the Assistant Commissioner of Income-tax to the Transfer Pricing Officer; and (iii) The approval granted by the Commissioner of Income-tax – VI.
2. The Petitioner filed a return of income on 30 September 2008. Together with the Return of Income, Form 3CEB prescribed under Section 92E of the Income-tax Act, 1961 read with Rule 10E of the Income-tax Rules 1962 was enclosed which reflected international transactions worth Rs.2267 crores of the Petitioner with its Associated Enterprises (AE’s) namely Aditya Birla Minerals Ltd., Australia, Birla Nifty Pty. Ltd., Australia, Birla MT Gorden Pty. Ltd., Australia and AB Minerals BV (Netherlands). In Form 3CEB which was signed by the Chartered Accountant, there was a certification of having examined records of the Petitioner relating to international transactions entered into during the previous year ending on 31 March 2008. The particulars required to be furnished under Section 92E were furnished in the annexures to the Form. Among the international transactions that were disclosed, the Petitioner stated that it had an international transaction under which, in pursuance of its business plans, the Petitioner had acquired Novelis Inc. through its wholly owned subsidiary AB Minerals (Netherlands) BV. It was stated that in discharging its responsibility to arrange funds for this acquisition, the Petitioner had provided a corporate guarantee to a bank which had provided the Netherlands based subsidiary of the Petitioner with funds necessary for acquisition.
3. On 25 September 2009, the Assessing Officer addressed a letter to the Commissioner of Income-tax-VI, Mumbai seeking approval for a reference under Section 92CA(1) to the Transfer Pricing Officer for computation of the Arms Length Price in relation to 17 Assessees of which the Petitioner was mentioned at Serial No.12. In seeking the approval of the Commissioner, the Assessing Officer relied upon an instruction of the Central Board of Direct Taxes requiring that all cases where international transactions exceed a stipulated amount of Rs. 15 crores and covered by Section 92C be selected for compulsory scrutiny. The approval of the Commissioner of Income-tax – VI was communicated to the Assessing Officer under an intimation dated 30 September 2009. The Assessing Officer made a reference to the Transfer Pricing Officer on 9 October 2009 stating that she considered it necessary and expedient to make a reference under Section 92CA(1) for the computation of the Arms Length Price. The Transfer Pricing Officer initially issued a notice to the Petitioner under Section 92CA on 3 March 2010. During the course of the proceedings, the Transfer Pricing Officer issued a further notice dated 4 October 2011 recording that from Form 3CEB submitted on 30 September 2008, it appeared that the Petitioner had furnished a guarantee on behalf of its Associated Enterprise for Financial Year 2007-08 in the amount of Rs.15,988 crores. The notice adverted to the fact that the Transfer Pricing report furnished on 11 March 2011 stated as follows :-
“As a part of its global expansion strategy Hindalco acquired a giant company Novelis Inc. Canada on 15 May 2007, in a transaction aggregating US $ 3.48 billion.
In order to consummate this transaction, Hindalco had to avail borrowing and financing from international lenders. Hindalco therefore created 100% subsidiary company in the Netherlands known as AV Minerals, Netherlands (‘BVCo’). BVCo in turn created another 100% subsidiary in Canada, A V Metals (‘Sub Co’). Both BVCo and SubCo were specifically created as Special Purpose Vehicles (‘SPVs’) by Hindalco for the purpose of this acquisition. The acquisition of Novelis was funded by a bridge loan from a consortium of international banks. This loan was drawn by BVCo (the 100% SPV created by Hindalco).
Hindalco, as the parent company had the prime responsibility to arrange the availability of funds to these SPVs. Hindalco, in discharge of this obligation, provided a corporate guarantee to the international banks for due performance of the facility agreement entered into by BVCo with these banks for availing the bridge loan for the acquisition of Novelis.
The acquisition of Novelis was done with the express purpose of strengthening Hindalco’s global position as an integrated aluminium producer with the presence in the entire value chain. This acquisition positioned Hindalco as a globally integrated aluminium producer with low-cost alumina and aluminium production facilities combined with a high-end aluminium rolled product capabilities. Therefore, looking at the objective and intent behind this acquisition, it is clear that the acquisition was intended to increase the global reach of the growth under the flagship parent company i.e. Hindalco.
In the present case, the provision of Corporate Guarantee by Hindalco to international banks was in substance only to serve the limited purpose of arranging funds for overseas business expansion for Hindalco itself through the SPV. Further, in discharging its responsibility to arrange funds for this acquisition, Hindalco has provided a corporate guarantee to the international banks who have in turn provided funds to BVCo. Thus in the opinion of the company, and having regard to the economic and commercial factors, it would be inappropriate for Hindalco to charge a fee from BVCo for providing such a guarantee as there was no service provided by Hindalco to BVCo, which was merely a SPV, and like all SPVs, was created to fulfill the specific objective of acquiring Novell for the parent company, Hindalco.
Hence, looking to the overall substance of the transaction no scope remains to charge a Guarantee Fee for Corporate Guarantee provided to such SPV. Thus no determination of arm’s length price is warranted from an Indian transfer pricing perspective. In the alternative, charge of a NIL guarantee fee satisfies the criteria of arm’s length return to Hindalco, considering the facts and circumstances of the case.”
4. Since the data on the overseas AE was not available with the TPO, the Petitioner was called upon to submit details of what would have been the cost of borrowing to the AE without the guarantee. Consequently, a disclosure of details was sought in regard to the following :-
“1. The credit rating given by the Bank to the taxpayer, while extending loan to the AE;
2. The currency in which the loan is extended to the AE;
3. The credit rating given by the Bank to the AE on stand alone basis;
4. The rate of interest and the duration of the loan extended by the Bank to your AE;
5. The rate of interest that could have been charged by the Bank, if the guarantee is not provided by the AE. If this information is not available, the credit rating of the AEs and the equivalent rate of interest of unsecured debt in the AE country for the equivalent credit rating of your AE. If this information is not available, please submit the complete audited financial statements of the AE for the last three years upto and including the financial year in which the guarantee is provided by the taxpayer.”
Details of guarantees furnished earlier by the Petitioner to its AEs in the preceding years and outstandings as on 1 April 2007 were also sought.
5. In the proceedings before the Transfer Pricing Officer, the Petitioner was duly represented by its Joint President Taxation. The Transfer Pricing Officer conducted proceedings on 10 August 2011, 30 August 2011, 7 September 2011, 14 September 2011, 26 September 2011, 5 October 2011, 14 October 2011 and 21 October 2011. During the course of the proceedings, the Petitioner submitted replies. Among those on the record of these proceedings are letters addressed by the Petitioner to the Transfer Pricing Officer on 14 October 2011 and 21 October 2011. The Transfer Pricing Officer made a determination of the Arm’s Length Price by his order dated 31 October 2011.
6. The Petitioner in these proceedings now seeks to question the validity of the approval granted by the Commissioner of Income-tax to the Assessing Officer, the reference made by the Assessing Officer to the Transfer Pricing Officer on 9 October 2009 and of the order dated 31 October 2011 passed by the Transfer Pricing Officer.
7. Counsel appearing on behalf of the Petitioner submitted that (i) Section 92CA empowers the Assessing Officer to make a reference to the Transfer Pricing Officer where the Assessee has entered into an international transaction in any previous year and the Assessing Officer considers it necessary to do so with the previous approval of the Commissioner for computation of the Arm’s Length Price in relation to the international transaction. The submission is that before a reference can be made, the Assessing Officer must consider it necessary or expedient to do so and the Commissioner has to grant his approval. It has been urged that the reference was made on the basis of an instruction of the Board stipulating that all cases involving any international transactions in excess of Rs.15 crores would entail a reference and that the Assessing Officer had not fulfilled the jurisdictional condition necessitated for making a reference. Moreover, it was urged that the Commissioner had not acted in accordance with the statute when he granted his approval in the case of as many as 17 Assessees; (ii) Upon a reference being made by the Assessing Officer to the Transfer Pricing Officer, Section 92CA(3) requires the Transfer Pricing Officer to determine the Arm’s Length Price in relation to the international transaction in accordance with sub-Section (3) of Section 92C. The proviso to Section 92C(3) requires the Assessing Officer to furnish an opportunity by serving a notice calling upon the Assessee to show cause why the Arm’s Length Price should not be determined on the basis of material, information or documents in the possession of the Assessing Officer. It has been urged that there was a breach of the principles of natural justice by the Transfer Pricing Officer since according to the Petitioner, the requirements of the Proviso to Section 92C(3) were not fulfilled; (iii) A reference under Section 92CA(1) can be made only where an Assessee has entered into an international transaction. In the present case, the guarantee was issued by the bank at the behest of the Petitioner and as between the bank and the Petitioner there is no international transaction. Moreover, the expression “international transaction” is defined in Section 92B and the issuance of a guarantee does not involve either the sale of goods or the provision of a service. On this ground, it has been urged on behalf of the Petitioner that the interference of this Court in the exercise of its jurisdiction under Article 226 of the Constitution is warranted.
8. On the other hand, it has been urged on behalf of the Revenue that (i) Form 3CEB under Section 92E which was enclosed with the return of income reflected international transactions and the fact that the Petitioner has entered into an international transaction is evident from the Form which has been certified by the Chartered Accountant on 29 September 2008; (ii) The exercise of the Writ Jurisdiction under Article 226 of the Constitution is not warranted at the present stage. The Transfer Pricing Officer having made a determination under Section 92CA(3), the Assessing Officer is required to compute the income of the Assessee under Section 92C(4) in conformity with the Arm’s Length Price determined by the Transfer Pricing Officer. Before the Assessing Officer does so, he is duty bound under Section 144C(1) to forward a draft of the proposed order of assessment to the Assessee, if he proposes to make any variation in the income on last return that is prejudicial to the Assessee. Thereupon, the Assessee has a remedy before the Dispute Resolution Panel. Even thereafter, the Assessee has available to it the remedy of an appeal under Section 253(1)(d) upon an order passed by the Assessing Officer under Section 143(3) or Section 147 in pursuance of the directions of the Dispute Resolution Panel; (iii) The reference in the present case was made by the Assessing Officer to the Transfer Pricing Officer on 9 October 2009, pursuant to the approval granted on 13 September 2009. The Assessee participated before the Transfer Pricing Officer and was duly represented. The Petition under Article 226 of the Constitution has been filed on 15 December 2011. Having received the initial notice from the Transfer Pricing Officer on 3 March 2010 and having participated in the proceedings before the Transfer Pricing Officer, the proceedings under Article 226 should not be entertained at this stage particularly since adequate remedies are available to the Assessee; (iv ) The Assessee was furnished a notice by the Transfer Pricing Officer consistent with the provisions of Section 92CA(3) and the proviso to Section 92C(3). This is evident inter-alia from the communication addressed by the Transfer Pricing Officer to the Assessee on 4 October 2011 (Exhibit A). The responses of the Assessee dated 14 October 2011 and 21 October 2011 would show that the Assessee was on notice of the nature of the proceedings before the Assessing Officer and the ambit of the enquiry. Having made submissions before the Assessing Officer, the Assessee should not be allowed to urge to the contrary.
9. The rival submissions now fall for determination.
10. Section 92(1) provides that any income arising from an international transaction shall be computed having regard to the Arm’s Length Price. Section 92B(1) defines the expression “international transaction” while Section 92C provides for the computation of the Arm’s Length Price. Under sub-Section (3) of Section 92C, the Assessing Officer is empowered to determine the Arm’s Length Price in relation to an international transaction on the basis of the provisions of sub-Sections (1) and (2) taking account of such material, information or documents as is available with him, where he is of the opinion inter-alia that the price charged or paid in an international transaction has not been determined in accordance with sub-Sections (1) and (2), or where the information and documents relating to the transaction have not been kept by the Assessee in accordance with the statutory provisions; or where the information or data used in the computation is not reliable or correct or the Assessee has failed to furnish within a specified time any document which he is required to furnish. Section 92CA empowers the Assessing Officer to make a reference to the Transfer Pricing Officer. Under sub-Section 1 of Section 92CA, where any person being an Assessee has entered into an international transaction in any previous year and the Assessing Officer considers it necessary or expedient so to do, he may, with the Commissioner’s approval refer the computation of the Arm’s Length Price in relation to the international transaction under Section 92C to the Transfer Pricing Officer. Upon a reference being made to him, the Transfer Pricing Officer is required to serve upon the Assessee a notice requiring the Assessee to produce any evidence on which the Assessee may rely upon in support of the computation made by him of the Arm’s Length Price in relation to the international transaction. After considering the evidence which the Assessee may produce and after taking into account all relevant materials which he has gathered, the Transfer Pricing Officer can determine the Arm’s Length Price in accordance with sub-Section (3) of Section 92C. The proviso to sub-Section (3) requires the Assessing Officer to furnish a notice calling upon the Assessee to show cause why the Arm’s Length Price should not be determined on the basis of material, information or documents in the possession of the Assessing Officer. Once a determination is made by the Transfer Pricing Officer, the Assessing Officer under Section 92CA(4) has to compute the total income of the Assessee in conformity with the Arm’s Length Price as determined by the Transfer Pricing Officer. Section 144C mandates that the Assessing Officer shall forward a draft of the proposed order of assessment if he proposes to make any variation in the income or loss returned which is prejudicial to the interest of the Assessee. Upon receipt of the draft order, the Assessee is entitled to submit his objections to the variation with the Dispute Resolution Panel and the Assessing Officer under sub-Section (5) of Section 144C. The Dispute Resolution Panel where it has received any objections from the Assessee is empowered to issue such directions, as it thinks fit, for the guidance of the Assessing Officer. The Dispute Resolution Panel is empowered under sub-Section (7) to make its own enquiry or to cause any further enquiry to be made by any Income-tax Authority. Under sub-Section (8) the Panel may confirm, reduce or enhance the variations of the draft order so, however, that it shall not set aside any variation or issue any direction under sub-Section (5) for further enquiry and passing of the assessment order. Under Section 253(1)(d ), an order passed by the Assessing Officer under Section 143(3) or Section 147 in pursuance of the directions of the Dispute Resolution Panel is subject to an appeal before the Appellate Tribunal.
11. In the present case, the Assessing Officer, while making a reference to the Transfer Pricing Officer stated in her order dated 9 October 2009 that she considered it necessary or expedient so to do. While seeking the approval of the Commissioner, the Assessing Officer relied upon an instruction of the CBDT which stipulates that all cases where international transactions exceeding Rs. 15 crores are involved, shall within the meaning of Section 92 be selected for compulsory scrutiny. The Commissioner granted his approval on 30 September 2009. The Transfer Pricing Officer issued a notice to the Assessee as far back as on 3 March 2010 upon receipt of the reference. The Petitioner participated in the proceedings before the Transfer Pricing Officer. Eight hearings took place before the Transfer Pricing Officer in the course of which the Petitioner submitted its representations. The Transfer Pricing Officer has now rendered a determination on 31 October 2011. At this stage, we are of the considered view that it would be inappropriate for this Court to exercise its writ jurisdiction under Article 226 of the Constitution to entertain a Petition challenging the validity of the reference made by the Assessing Officer to the Transfer Pricing Officer on 9 October 2009 and the underlying approval of the Commissioner dated 30 September 2009, both of which have been issued over two years ago. The Petitioner, in any case had notice before the Transfer Pricing Officer as far back as on 3 March 2010 and participated in those proceedings. Under the statutory provisions, to which a reference is made earlier, a comprehensive remedy is available to the Petitioner before the Assessing Officer frames an order of Assessment. A draft order has to be prepared to which the Petitioner is entitled to submit its objections. Even against the draft order, the Petitioner has a remedy of moving the Dispute Resolution Panel. Though the Assessing Officer is bound by the determination of the Arm’s Length Price by the Transfer Pricing Officer, it is evident from the statutory scheme that the Appellate Tribunal before which remedy of an Appeal is available would be entitled to consider every aspect of the matter when it renders its decision in the exercise of its appellate powers.
12. In this view of the matter, we are not inclined to exercise the writ jurisdiction under Article 226 of the Constitution at this stage. We find no merit in the submission that there was a breach of the principles of natural justice by the Transfer Pricing Officer. Under sub-Section (3) of Section 92CA the Transfer Pricing Officer is required to comply with the principles of natural justice and to render a determination of the Arm’s Length Price in relation to the international transaction in accordance with Section 92C(3), the proviso to which has been noted earlier. The Delhi High Court in its decision in Maruti Suzuki India Ltd. v. Addl. CIT [2010] 328 ITR 210/ 192 Taxman 317 has affirmed the importance of complying with the principles of natural justice for the purposes of the proceeding. In this case, the Petitioner was on notice of the nature of the enquiry which was being pursued by the Transfer Pricing Officer. The Transfer Pricing Officer addressed a communication on 4 October 2011 detailing the information that was required and the basis on which disclosure was sought. The Petitioner adduced detailed submissions by its letter dated 14 and 21 October 2011.
13. We are of the view that there is no breach of the principles of natural justice which would warrant the interference of this Court under Article 226 of the Constitution, at this stage. We however clarify that in the remedy which is available to the Petitioner in appeal, it would be open to the Petitioner to urge all appropriate grounds and contentions and these observations are made by the Court confined to the question as to whether a Petition under Article 226 of the Constitution should be entertained at this stage. Before we conclude, we may also note that in the present case, there is no challenge to the validity of the instructions issued by the CBDT (Instruction 3/2003). The validity thereof has been upheld by the Delhi High Court in Sony India (P.) Ltd. v. CBDT [2007] 288 ITR 52/[2006] 157 Taxman 125 .
14. For the aforesaid reasons, no case for interference under Article 226 of the Constitution is made out. The Petition is accordingly dismissed.
[Citation : 359 ITR 46]
