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2023 (10) TMI 1358 - AT - Income TaxValidity of initiation of TP proceedings - resultant effect of omitted clause (i) of section 92BA with effect form 01/04/2017 - addition of specified domestic transaction by invoking provision of Clause (i) of Section 92BA as omitted from the Act - HELD THAT - It is an undisputed fact that the reference to the ld. TPO with respect to specified domestic transaction was made under clause (i) of Section 92BA which was brought in the statute by the Finance Act 2012, however, has been omitted from the statute of the Finance Act 2017 w.e.f. 01/04/2017. The case of the assessee is that once omission has been made without the said clause, it is deemed that the said clause was never part of the Act wherein as the case of the department is that the omission was brought by the amendment by the Finance Act 2017 w.e.f. 01/04/2017. Therefore, the reference at that point of time was valid. This issue has been discussed in the case of PCIT vs. Texport Overseas (P) Ltd. 2019 (12) TMI 1312 - KARNATAKA HIGH COURT relying upon the judgment of Kolhapur Canesugar Works Ltd vs. Union of India 2000 (2) TMI 823 - SUPREME COURT have held that once the statute has omitted clause (i) of Section 92BA by the Finance Act, 2017, the resultant fact is that it had never been enacted and to be considered as a law and it never existed. DR referred to various judgments of the Apex Court including the judgment of Hon ble Supreme Court in the case of Shri Bhagwati Steel Rolling vs. Commissioner of Central Excise 2015 (11) TMI 1172 - SUPREME COURT This exact issue has been dealt in detail in the case of Yorkn Tech Pvt. Ltd., 2021 (8) TMI 1374 - ITAT DELHI that once a provision in the statute has been omitted without any saving clause in the Act, then, it is treated that if provisions does not exist when such provisions are challenged before the Court and the aforesaid decision of the Tribunal, the ratio and principle laid down by the Constitutional Bench as well as subsequently, judgments referred by the ld. DR has been discussed in detail, therefore, following the same ratio we hold that in view of the exemption of Section 92BA(i) will lead to inference that in so far as any reference to the ld. TPO for SDT in Section 92BA(i) is invalid and no transfer pricing adjustment can be made on such SDT. Accordingly, the cross objection of the assessee is allowed and consequently, the appeal of the Revenue is dismissed.
Issues Involved:
1. Deletion of Transfer Pricing Adjustment 2. Calculation of Arm's Length Price using the CUP method 3. Application of 3% variation at transactional or aggregate level 4. Validity of Transfer Pricing proceedings post-omission of Clause (i) to Section 92BA 5. Reference to TPO without sanction of CIT Summary: 1. Deletion of Transfer Pricing Adjustment: The Revenue contended that the CIT(A) erred in deleting the Transfer Pricing adjustment due to the difference between the purchase price paid by the assessee to its AE and its Arm's Length Price (ALP) for a Specified Domestic Transaction (SDT). The Tribunal upheld the CIT(A)'s decision, noting that the variation was less than 3%, thus no adjustment was necessary as per the second proviso to Section 92C(2). 2. Calculation of Arm's Length Price using the CUP method: The Revenue argued that the CIT(A) incorrectly concluded that the ALP calculated by the assessee was in accordance with the CUP method, suggesting that monthly averages should be used instead of an aggregate basis due to price fluctuations. The Tribunal upheld the CIT(A)'s approach, emphasizing that the CUP method applied on an aggregate basis was appropriate. 3. Application of 3% variation at transactional or aggregate level: The Revenue claimed that the CIT(A) should have applied the 3% variation at the transactional level rather than the aggregate level. The Tribunal supported the CIT(A)'s application of the 3% variation on an aggregate basis, affirming that no adjustment was needed as the variation was within the permissible range. 4. Validity of Transfer Pricing proceedings post-omission of Clause (i) to Section 92BA: The assessee argued that the initiation of Transfer Pricing proceedings was invalid since Clause (i) of Section 92BA, under which the reference was made, was omitted by the Finance Act, 2017. The Tribunal agreed, referencing the Karnataka High Court's decision in PCIT vs. Texport Overseas (P) Ltd., which held that an omitted provision is considered as if it never existed. Consequently, the Tribunal ruled that any reference to the TPO for SDT under the omitted clause was invalid, and no Transfer Pricing adjustment could be made on such SDT. 5. Reference to TPO without sanction of CIT: The assessee also contended that the reference to the TPO was made without the previous sanction of the CIT, violating Section 92CA of the Act. The Tribunal did not explicitly address this issue, as the primary issue regarding the omission of Clause (i) of Section 92BA rendered the proceedings invalid. Conclusion: The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection, ruling that the omission of Clause (i) of Section 92BA invalidated the Transfer Pricing proceedings and adjustments. The Tribunal's decision was pronounced on 30th October, 2023.
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