2023 (7) TMI 1394 - AT - Income Tax

Applicability of clause (i) of section 92BA as omitted from 01.04.2017 - validity of transfer pricing reference of a specified domestic transaction - whether any transfer pricing adjustment per se can be made in respect of specified domestic transactions u/s 92BA of the Act in view of the fact that section 92BA(i) has been omitted from the statute by the Finance Act 2017 w.e.f. 01.04.2017? - HELD THAT - This issue is no longer res integra in view of the decision in the case of PCIT vs. Texport Overseas Pvt. Ltd 2019 (12) TMI 1312 - KARNATAKA HIGH COURT wherein it was held that clause (i) of section 92BA having been omitted by the Finance Act 2017 w.e.f. 01.04.2017 from the statute the resultant effect would be that it had never been passed and hence the decision taken by the AO under the effect of section 92BA of the Act and reference made to the TPO u/s 92CA of the Act was invalid and bad in law. Respectfully following the same we have no hesitation in holding that the transfer pricing adjustment made could not be made in the facts and circumstances of the instant case. Appeal of the assessee is allowed.

Summary

Issues:
The main issue in this case is whether the Assessing Officer was justified in making a transfer pricing adjustment of Rs. 91,04,673/- in relation to specified domestic transactions.

Details of the Judgment:

Issue 1 - Transfer Pricing Adjustment:
The Tribunal considered the case where the Assessing Officer made a transfer pricing adjustment of Rs. 91,04,673/- based on the directions of the Dispute Resolution Panel (DRP) concerning specified domestic transactions. The Taxation Officer (TPO) initially rejected the Cost Plus method adopted by the assessee and substituted it with the Transactional Net Margin Method (TNMM). The TPO identified comparables and arrived at an average margin of 12.99%, leading to the adjustment. The DRP upheld the TNMM as the Most Appropriate Method and directed to recompute the deduction u/s 80IC at 30%. The TPO then made the transfer pricing adjustment, which the Assessing Officer adopted in the final assessment order. However, the Tribunal observed that the section allowing transfer pricing adjustments for specified domestic transactions had been omitted from the statute by the Finance Act, 2017. Citing a decision of the Karnataka High Court, it held that the omission of the relevant section rendered the actions taken under it invalid and bad in law. Consequently, the Tribunal directed the deletion of the transfer pricing adjustment and the additional disallowance made by the Assessing Officer.

Conclusion:
In conclusion, the Tribunal allowed the appeal of the assessee, holding that the transfer pricing adjustment and the subsequent addition could not be made due to the omission of the relevant section from the statute. Therefore, the additions made by the Assessing Officer were directed to be deleted.