2024 (11) TMI 177 - HC - Income Tax

Scope of Section 92 (BA) (i) as omitted - Tribunal holding that the reference made to TPO for specified domestic transaction mentioned in clause (i) of Section 92BA of the Act is not valid as the said provision has been omitted and as such addition made in respect of same needs to be deleted - HELD THAT - As decided in M/s. Texport overseas Pvt. Ltd. 2019 (12) TMI 1312 - KARNATAKA HIGH COURT , when clause (i) of Section 92BA having been omitted by the Finance Act, 2017, with effect from 01.07.2017 from the Statute the resultant effect is that it had never been passed and to be considered as a law never been existed. Hence, decision taken by the Assessing Officer under the effect of Section 92BA and reference made to the order of TPO under Section 92CA could be invalid and bad in law. It is for this precise reason, tribunal has rightly held that order passed by the TPO and DRP is unsustainable in the eyes of law. TP Adjustment restricted only to the transaction between the Associated Enterprises (AEs) - HELD THAT - As decided in Phoenix Mecvano (India)(P.) Ltd. 2017 (6) TMI 1240 - BOMBAY HIGH COURT we find that in terms of Chapter X of the Act, re-determination of the consideration is to be done only with regard to income arising from international Transactions on determination of ALP. The adjustment which is mandated is only in respect of International Transaction and not transactions entered into by assessee with independent unrelated third parties. This is particularly so as there is no issue of avoidance of tax requiring adjustment in the valuation in respect of transactions entered into with independent third parties. The adjustment as proposed by the Revenue if allowed would result in increasing the profit in respect of transactions entered into with non-AE. This adjustment is beyond the scope and ambit of Chapter X of the Act. Decided in favour of assessee.

Summary

Issues:
Challenge to order passed by Income Tax Appellate Tribunal for assessment year 2016-17. Substantial questions of law raised for consideration. Tribunal's order questioned for various reasons. Interpretation of Section 92BA of the Act. Validity of Transfer Pricing Adjustment.

Analysis:
The appeal challenges an order by the Income Tax Appellate Tribunal for the assessment year 2016-17. The primary issues revolve around the interpretation of Section 92BA of the Act and the validity of Transfer Pricing Adjustment. The appellants raise substantial questions of law, including the Tribunal's decision on the reference to the Transfer Pricing Officer, the nature of the Tribunal's order, and the application of law in the given circumstances. The respondent argues that the questions raised are already addressed in previous judgments by the Co-ordinate Bench of the Court and the High Court of Bombay.

The omission of Section 92BA(i) of the Act by the Finance Act, 2017, effective from 01.04.2017, is a crucial aspect of the dispute. The Senior Counsel for the respondent contends that despite the assessment year predating the omission, previous judgments and legal precedents dictate that the issues raised by the appellants should be rejected. The Tribunal's decision on the applicability of the omitted provision and the subsequent actions taken by the Assessing Officer and Transfer Pricing Officer are scrutinized in light of legal principles and past judgments.

The judgment of the Co-ordinate Bench in a similar case provides guidance on the retrospective effect of the omission of statutory provisions. The court refers to the authoritative pronouncement of the Apex Court in Kohlapur Canesugar Works Ltd. v. Union of India to support its decision. The court emphasizes that the omission of Section 92BA(i) renders it as if it never existed in law, impacting the validity of actions taken based on that provision. The Tribunal's findings are aligned with legal principles and past decisions, leading to the dismissal of the appeals.

Regarding the Transfer Pricing Adjustment, the Tribunal's decision to restrict the adjustment to transactions with Associated Enterprises (AEs) is examined. The Bombay High Court's judgment provides clarity on the scope of adjustments mandated by Chapter X of the Act, emphasizing that adjustments are limited to international transactions and not transactions with independent third parties. The court upholds the Tribunal's decision, citing previous legal precedents and final judgments by higher courts.

In conclusion, the High Court dismisses the appeals, affirming the Tribunal's order and answering the substantial questions of law in favor of the Assessee and against the Revenue. The court finds no merit in the challenges raised by the appellants, as the issues are adequately addressed by existing legal interpretations and precedents.