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2022 (6) TMI 179 - AT - Income TaxTP Adjustment - AO made a reference to TPO u/s 92CA to determine arms length price as the assessee had entered into specified domestic transaction - Reference to the TPO in respect of specified domestic transactions - claim of expenditure in terms of the provisions of sec. 40A(2)(b) - as submitted provisions of section 92BA of the Income-tax Act 1961 have been amended vide Finance Act 2017 to exclude specified domestic transactions which are contained under section 92BA read with 40A(2)(b) from the purview of transfer pricing regulations - HELD THAT - Considering the binding effect of the decision rendered in TEXPORT OVERSEAS (P.) LTD. 2019 (12) TMI 1312 - KARNATAKA HIGH COURT we respectfully follow the same and hold that the reference to the TPO in respect of specified domestic transactions mentioned in clause (i) of sec. 92BA is not valid as the said provision is omitted since inception. Accordingly, we direct the AO to delete the additions relating to specified domestic transactions made u/s 92CA of the Act. We notice that the coordinate bench in the case of Texport Overseas Pvt. Ltd. 2017 (12) TMI 1719 - ITAT BANGALORE has restored the matter to the file of the AO under the direction to examine the claim of expenditure in accordance with the provisions of sec. 40A(2)(b) of the Act. Following the same, we restore this issue to the file of the AO with the direction to examine the claim of expenditure in terms of the provisions of sec. 40A(2)(b) of the Act. The various grounds raised by the with respect to transfer pricing adjustments made by the TPO and the direction of the DRP have become infructuous and hence dismissed. The AO is directed to look into the facts afresh and decide the case on merits as per the provisions of law after giving a reasonable opportunity of being heard to the assessee in this regard - Appeal of assessee allowed.
Issues Involved:
1. Validity of Transfer Pricing (TP) adjustments due to the amendment in Section 92BA of the Income-tax Act, 1961. 2. Admission of additional grounds by the Tribunal. 3. Examination of the claim of expenditure under Section 40A(2)(b) of the Act. Issue-wise Detailed Analysis: 1. Validity of Transfer Pricing (TP) Adjustments: The primary issue revolves around the amendment in Section 92BA by the Finance Act, 2017, which omitted clause (i) related to specified domestic transactions from 01.04.2017. The Tribunal noted that the omission of this clause implied it was never part of the statute. Consequently, any proceedings or actions initiated under this clause were deemed invalid. This position was supported by the judgments of the Supreme Court in Kolhapur Canesugar Works Ltd. v. Union of India and General Finance Co. v. Assistant Commissioner of Income-tax, which clarified that omission of a statutory provision without a saving clause renders the provision as if it never existed. The Tribunal held that the reference made by the AO to the TPO under Section 92CA was invalid, and thus, the subsequent TP adjustments proposed by the TPO and upheld by the DRP were unsustainable in law. 2. Admission of Additional Grounds: The assessee moved an application for the admission of additional grounds, arguing that the amendment to Section 92BA was a pure legal issue requiring no new fact investigation. The Tribunal, relying on the Supreme Court's judgment in National Thermal Power Co. Ltd. v. CIT, admitted the additional grounds. The Tribunal emphasized that legal issues can be raised at any stage if they go to the root of the matter and do not necessitate further fact-finding. 3. Examination of the Claim of Expenditure under Section 40A(2)(b): Following the invalidation of the TP adjustments, the Tribunal directed the AO to re-examine the claim of expenditure under Section 40A(2)(b) of the Act. The Tribunal cited the coordinate bench's decision in Texport Overseas Pvt. Ltd., which was affirmed by the Karnataka High Court. The Tribunal instructed the AO to assess the claim of expenditure afresh as per the provisions of Section 40A(2)(b) and provide the assessee with a reasonable opportunity of being heard. Conclusion: The Tribunal allowed the appeal of the assessee, directing the deletion of TP adjustments and restoring the matter to the AO for re-examination of the expenditure claim under Section 40A(2)(b). The Tribunal's decision was based on the legal principle that the omission of a statutory provision without a saving clause renders it as if it never existed, thereby invalidating any actions taken under it. The Tribunal also emphasized the importance of providing a fair opportunity to the assessee in reassessment proceedings.
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