2019 (12) TMI 1312 - HC - Income Tax

Effect of section 92BA as omitted by Finance Act 2017 w.e.f. 01.04.2017 - effect of repeal of a statute vis-a-vis deletion/addition of a provision in an enactment and its effect thereof - TP Adjustment - AO made a reference to TPO u/s 92CA to determine arms length price as the assessee had entered into specified domestic transaction and on the ground it was covered u/s 92BA - contention for revenue that tribunal was not justified in arriving at a conclusion that Clause (i) of section 92BA which had been omitted w.e.f. 01.04.2017 would be applicable retrospectively by presuming the retrospectivity particularly when the statue itself explicitly stated it to be prospective in nature - HELD THAT - On perusal of records in general and order passed by tribunal in particular it is clearly noticeable that Clause (i) of section 92BA of the Act came to be omitted w.e.f. 01.04.2019 by Finance Act 2014. As to whether omission would save the acts is an issue which is no more res intigra in the light of authoritative pronouncement of Hon ble Apex Court in the matter of Kolhapur Canesugar Works Ltd. v. Union of India 2000 (2) TMI 823 - SUPREME COURT whereunder Apex Court has examined the effect of repeal of a statute vis-a-vis deletion/addition of a provision in an enactment and its effect thereof. In the matter of General Finance Co. v. ACIT 2002 (9) TMI 3 - SUPREME COURT which judgment has also been taken note of by the tribunal while repelling the contention raised by revenue with regard to retrospectivity of section 92BA(i) of the Act. Thus 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 92BI and reference made to the order of Transfer Pricing Officer-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. The said finding is based on the authoritative principles enunciated by the Hon ble Supreme Court in Kolhapur Canesugar Works Ltd. 2000 (2) TMI 823 - SUPREME COURT . We are of the considered view that first substantial question of law raised in the appeal by the revenue in respective appeal memorandum could not arise for consideration particularly when the said issue being no more res integra. Disallowance u/s 14A r.w.r. 8D - Whether there was no exempted income and as such disallowance could not have been made even though said provision was rightly invoked by AO and as such setting aside the disallowance is erroneous? - HELD THAT - We find from the order of the Tribunal that issue relating to the deletion of disallowance made by the Assessing Officer has been remitted back to the Assessing Officer which finding is based on factual aspects which would not call for interference by us that too by formulating substantial question of law. The Assessing Officer has to undertake the exercise of factual determination. As such without expressing any opinion on merits with regard to question No. 2 formulated by the revenue in the respective appeals

Summary

Issues:
1. Interpretation of the omission of Clause (i) of section 92BA of the Income-tax Act, 1961.
2. Validity of transfer pricing adjustments and other additions made by the Assessing Officer.
3. Disallowance under section 14A r/w section 8(2)(iii) of Income Tax Rules.

Analysis:

Issue 1: Interpretation of the omission of Clause (i) of section 92BA of the Income-tax Act, 1961:
The High Court analyzed the effect of the omission of Clause (i) of section 92BA of the Act, which occurred w.e.f. 01.04.2017. The Court cited the authoritative pronouncement of the Hon'ble Supreme Court in Kolhapur Canesugar Works Ltd. v. Union of India AIR 2000 SC 811, which discussed the effect of repeal or deletion of a provision in an enactment. The Court highlighted that when a provision is unconditionally omitted without a saving clause, pending proceedings would be affected. Referring to a similar case involving the omission of a subsection in another section, the Court held that the omission of Clause (i) of Section 92BA rendered it as if it had never existed. Consequently, decisions made by the Assessing Officer under this clause were deemed invalid and unsustainable in the eyes of the law.

Issue 2: Validity of transfer pricing adjustments and other additions:
The Assessing Officer had made transfer pricing adjustments and other additions based on the reference to the transfer pricing order under section 92CA of the Act. However, the Tribunal, in line with the omission of Clause (i) of section 92BA, held that the proceedings would lapse. The Court upheld the Tribunal's decision, emphasizing that the Assessing Officer's actions under the omitted provision were legally untenable. The Court relied on the principles established in previous judgments to support its conclusion that the order passed by the Transfer Pricing Officer and the Dispute Resolution Panel was unsustainable in law.

Issue 3: Disallowance under section 14A r/w section 8(2)(iii) of Income Tax Rules:
The Court addressed the disallowance made by the Assessing Officer under section 14A r/w section 8(2)(iii) of the Income Tax Rules. The Counsel for the revenue contended that the disallowance, though rightly invoked by the Assessing Officer, was erroneously set aside by the Tribunal. The Court noted that the issue of disallowance had been remitted back to the Assessing Officer for factual determination. Without expressing an opinion on the merits of the disallowance, the Court dismissed the appeals and affirmed the Tribunal's order dated 22.12.2017.

In conclusion, the High Court's judgment clarified the impact of the omission of Clause (i) of section 92BA of the Act, rendering actions taken under this provision invalid. The Court upheld the Tribunal's decision, emphasizing the legal unsustainability of the Assessing Officer's orders based on the omitted clause. Additionally, the Court addressed the remittance of the disallowance issue back to the Assessing Officer for factual determination, ultimately dismissing the appeals and affirming the Tribunal's order.