AO’s self-determination of ALP without referring to TPO is “erroneous & prejudicial to interests of revenue”

Ranbaxy Laboratories Ltd vs. CIT (Delhi High Court)

The assessee entered into international transactions with its AEs, the value of which exceeded Rs. 5 crores. The AO passed an order u/s 143(3) in which he recorded the finding that he had examined the transactions and found them to be at arms’ length and no transfer pricing adjustment was required to be made. The CIT thereafter passed an order u/s 263 on the ground that in view of Instruction No. 3 of 2003 dated 20.5.2003, the AO ought to have referred the issue to the TPO instead of himself determining the arms’ length price of the transactions and that the assessment order was consequently “erroneous and prejudicial to the interests of the revenue”. On appeal, the Tribunal upheld the revision order. On further appeal by the assessee, HELD dismissing the appeal: