2022 (9) TMI 1601 - AT - Income Tax

Addition of Arm s Length Price of specified domestic transaction in terms of Section 92BA (i) - above clause has been omitted by The Finance Act 2017 with effect from 1st April 2017 - HELD THAT - Hon ble Karnataka High Court in TTEXPORT OVERSEAS (P.) LTD. 2019 (12) TMI 1312 - KARNATAKA HIGH COURT has categorically held that the resultant effect of the above omission is that it had never been passed and is to be considered as law never been existed. Therefore we hold that no transfer Pricing adjustment could have been made in the hands of the assessee on account of ALP of specified domestic transactions. Accordingly we direct the learned Assessing Officer to delete the transfer pricing adjustment. Applicability of section 40A - we are conscious that the provision of Section 40A(2) of the Act are there on the statute book and this expenditure are required to be tested under that Section with respect to their allowability. In view of this we set aside the issue back to the file of AO to determine the allowability of this expenditure under Section 40A(2) of the Act. This was also mandate of decision of Texport Overseas Pvt. Ltd supra . Even otherwise it is not the case of assessee at all that provision of section 40A (20 does not apply to the assessee. Accordingly ground nos.1 to 6 of the appeal of the assessee are allowed with above directions.

Summary

Issues:
1. Applicability of Chapter X of the Income Tax Act, 1961 after the omission of clause (1) of section 92BA by the Finance Act, 2017.
2. Validity of the assessment order passed by the Assessing Officer based on the directions of the Transfer Pricing Officer and Dispute Resolution Panel.
3. Transfer pricing adjustments made on purchase of goods, office rent, and directors' remuneration.
4. Request for relief against the demand, quashing of the assessment order, and deletion of specific additions.
5. Consideration of Section 40A(2) of the Act for expenditure allowance.

Analysis:
1. The judgment addressed the issue of the applicability of Chapter X of the Income Tax Act, 1961 following the omission of clause (1) of section 92BA by the Finance Act, 2017. The Tribunal referred to a decision by the Hon'ble Karnataka High Court in PCIT vs. Taxport Overseas Pvt. Ltd., holding that the omission of the clause meant it was as if the law never existed. Consequently, the Tribunal ruled that no transfer pricing adjustment could be made in the assessee's hands on account of the Arms Length Price (ALP) of specified domestic transactions. The Assessing Officer was directed to delete the transfer pricing adjustment amounting to Rs 4,16,58,367.

2. The validity of the assessment order was questioned based on the directions of the Transfer Pricing Officer and Dispute Resolution Panel. The Tribunal considered the contentions raised by the assessee regarding the inconsistent application of methods and findings. The Tribunal found that the Assessing Officer erred in making additions on the purchase of goods, office rent, and directors' remuneration based on the directions, leading to a total income adjustment. The Tribunal allowed the appeal on these grounds and directed the deletion of specific additions as requested by the assessee.

3. The Tribunal also considered the request for relief against the demand, quashing of the assessment order, and deletion of specific additions. The Tribunal noted the grounds raised by the assessee and granted relief by allowing the appeal with specific directions to delete the transfer pricing adjustment and set aside the issue for determination under Section 40A(2) of the Act regarding expenditure allowance. The Tribunal emphasized the importance of testing the expenditure under Section 40A(2) and directed the Assessing Officer to determine the allowability of the expenditure in accordance with the law.

In conclusion, the judgment provided a detailed analysis of the issues raised by the assessee, addressing the applicability of relevant provisions, the validity of the assessment order, transfer pricing adjustments, relief against the demand, and the determination of expenditure allowance under Section 40A(2) of the Income Tax Act, 1961. The Tribunal's decision was based on legal interpretations and precedents, ensuring a fair and comprehensive resolution in favor of the assessee.