Hearing procedure to be followed by the Transfer Pricing Officer

Moser Baer India Ltd vs. ACIT (Delhi High Court)

Where the assessees challenged by writ petitions the orders passed by the Transfer Pricing Officer (“TPO”) determining the Arm’s Length Price (“ALP”) in relation to “International transactions” on the grounds that the said orders were passed without granting an oral hearing and without considering the documents and information filed by the assessees and without disclosing the information and documents obtained by the TPO which were used by him in the determination of the ALP, HELD, allowing the challenge:

(1) S. 92CA (3) imposes an obligation on the TPO to accord an oral hearing to the assessee. Even otherwise, an order entailing civil and penal consequences cannot be passed without a hearing.

(2) The fact that the assessee did not demand an oral hearing makes no difference. It is the constitutional obligation of the State to adopt a procedure which is both fair and just while dealing with its citizens. The fact that a citizen is unaware of his legal right cannot be used as a plank to seek legal sustenance for its actions which are otherwise invalid. It is duty of the State, in its role as a litigating party, to inform the citizen of his right i.e., to seek an oral hearing.

(3) The argument of the department that the failure to grant an oral hearing is a defect which could be cured by providing such an opportunity in the appellate forum is not acceptable.

(4) As a matter of procedure, the show-cause notice issued by the TPO just prior to the determination of ALP should refer to the documents or material available with the AO in relation to the international transaction in issue. The show cause notice should also give an option to the assessee:-

(a) To inspect the material available with the AO as give the leeway to file further material or evidence if he so desires, and

(b) to seek a personal hearing in the matter.

(5) An order is passed in breach of the principles of natural justice is a nullity in the eye of law and consequently a writ petition is maintainable notwithstanding the availability of alternate remedy.