Re-assessment under section 147 on the basis of Transfer Pricing Adjustment

Escapement Assessment / Re-assessment under section 147 on the basis of Transfer Pricing Adjustment

Punjab-Haryana High Court in case of M/S Coca Cola India Inc. vs Assistant Commissioner of Income-tax on 17 December, 2008, ruled that “the income of earlier years can be reassessed and reaudit on the basis of transfer pricing rulings passed in subsequent years. For reassessment or re-audit, the tax officer should legitimately form an opinion that an income has been incorrectly audited and escaped appropriate audit in earlier years.

Facts of Case

-      Coca Cola Inc. a Company, is a foreign company having breach office in India as M/s Coca Cola India Inc. rendering services to group companies in a consideration for which fees calculated on the basis of actual cost plue 5% markup.

-      It was assessed AY 1998-99 to 2001-02 without any addition.

-      For the AY – 2002-03, the profit declared by M/s Coca Cola India, was very low and transfer pricing officer made as adjustment under section 92 of the Income-tax Act.

-      Further, based on TPO adjustment, assessing officer proposed to re-open the previous assessment.

-      Objection before P&H HC (1) Is it order passed by TPO be the basis for reassessment for period prior to transfer pricing regulations introduced in Income-tax act. (2) will the opportunity of being heard before case reference made to TPO. 

Ruling of the P&H HC

1.   Income-tax provision for re-assessment under section 147 is not in any manner controlled by section 92 of the ITA, nor was there any limitation to the consideration of any material having nexus with the opinion of the issue of escapement of assessment of income.

2.   The taxpayer is not required to be given an opportunity of being heard at the stage when it is referred to TPO.

Click here for detail P&H HC Order - https://phhc.gov.in/enq_caseno.php?var1=CWP&var2=16681&var3=2005

file:///C:/Users/admin/Downloads/CWP_16681_2005_17_12_2008_FINAL_ORDER.pdf