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2023 (3) TMI 962 - AT - Income TaxTP Adjustment - reference made to learned TPO under clause (i) to section 92BA - addition made in respect of the Specified domestic transaction and also in respect of international transaction - HELD THAT - We noticed that the effect of omission of clause (i) in section 92BA relating to the specified domestic transaction was examined by the Coordinate Bench in the case of Edelweiss Rural Corporate Services Limited 2022 (6) TMI 1373 - ITAT MUMBAI and the Tribunal by following the decision rendered in the case of Texport Overseas Pvt. Ltd. 2017 (12) TMI 1719 - ITAT BANGALORE held that the reference made to learned TPO under clause (i) to section 92BA is not valid and consequently transfer pricing adjustment made in respect of the Specified domestic transaction is liable to be deleted. We direct the Assessing Officer to delete the transfer pricing adjustment made in respect of specified domestic transaction. Addition u/s 40A - As submitted by DR the Specified Domestic transactions entered with the related parties are required to be examined afresh in terms of section 40A(2)(a) of the Act. Accordingly we restore this issue to the file of the Assessing Officer with the direction to examine the same in terms of section 40A(2)(a) of the Act. TP adjustment in respect of international transactions entered with AE - Hon ble Bombay High Court in the case of CIT Vs. Thyssen Krupp Industries Pvt. Ltd 2015 (12) TMI 1076 - BOMBAY HIGH COURT has held that the transfer pricing adjustment is mandated in respect of international transaction entered with the related parties meaning thereby there is no requirement of making any adjustment in respect of transactions entered with unrelated parties. Accordingly we direct the Assessing Officer/TPO to restrict the transfer pricing adjustment on the international transactions entered with AEs only.
Issues Involved:
1. Transfer pricing adjustment for specified domestic transactions. 2. Transfer pricing adjustment for international transactions. Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment for Specified Domestic Transactions: The assessee challenged the addition made by the Assessing Officer (AO) related to the transfer pricing adjustment for specified domestic transactions. The AO, following the Transfer Pricing Officer's (TPO) proposal, made an adjustment of Rs. 2,76,89,691/-, which was confirmed by the Dispute Resolution Panel (DRP). The assessee argued that the adjustment should not have been made due to the omission of Clause (i) in Section 92BA of the Income Tax Act by the Finance Act 2017, effective from 1.4.2017. The assessee relied on the Karnataka High Court's decision in PCIT Vs. Texport Overseas Pvt. Ltd., which held that the omission of this provision means it should be considered as if it never existed. Therefore, the AO/TPO was not justified in making the transfer pricing adjustment for specified domestic transactions. The Department, however, contended that specified domestic transactions with related parties should be examined under Section 40A(2)(a) of the Act. The Tribunal reviewed the case and noted that the Coordinate Bench in Edelweiss Rural & Corporate Services Limited had followed the Karnataka High Court's decision, holding that the reference to the TPO under Clause (i) of Section 92BA was invalid, and thus, the transfer pricing adjustment for specified domestic transactions should be deleted. The Tribunal directed the AO to delete the transfer pricing adjustment but also to examine the transactions afresh under Section 40A(2)(a) of the Act. 2. Transfer Pricing Adjustment for International Transactions: The assessee also contested the transfer pricing adjustment made by the TPO for international transactions, arguing that the adjustment was made at the entity level, including transactions with non-Associated Enterprises (non-AEs). The assessee cited the Bombay High Court's decision in CIT Vs. Thyssen Krupp Industries Pvt. Ltd., which stated that transfer pricing adjustments should only apply to international transactions with related parties (AEs). The Tribunal agreed with this argument, noting that the transfer pricing adjustment should be restricted to transactions with AEs only, as mandated by the Bombay High Court's ruling. Conclusion: The Tribunal allowed the appeal filed by the assessee. It directed the AO to delete the transfer pricing adjustment for specified domestic transactions and to re-examine these transactions under Section 40A(2)(a) of the Act. Additionally, it instructed the AO/TPO to restrict the transfer pricing adjustment for international transactions to those entered into with AEs only. Order Pronounced: The order was pronounced in the open court on 28.11.2022.
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