Assessee’s Contentions

Revenue’s Contentions

Tribunal’s Judgment

The AO cannot determine the ALP of SDTs without first referring the matter to the TPO under Section 92CA(1). The assessment was therefore void in law.

The AO relied on the TP adjustment made by the TPO in AY 2015–16 and proportionately applied it to AY 2016–17. Clause 3.3 of CBDT Instruction No. 3/2016 supported the AO's approach.

The ITAT held that the AO ought to have referred the matter to the TPO. However, failure to do so constituted only a procedural irregularity and not an illegality rendering the assessment void.

Since no draft assessment order under Section 144C was issued, the assessee was deprived of its right to approach the DRP. Accordingly, the assessment deserved to be quashed.

The Revenue argued that the assessment was based on an existing TP determination and should not be quashed merely because the matter was not referred to the TPO.

Relying on SC in S.G. Asia Holdings India Pvt. Ltd., the ITAT set aside the assessment and restored the matter to the AO for making a proper reference to the TPO and completing a de novo assessment.