2023 (5) TMI 1052 - AT - Income Tax

Cognizance u/s 92BA(i) - effect of omission of law - validity of reference made to TPO under section 92CA - HELD THAT - Hon ble Supreme Court in GENERAL FINANCE CO. AND ANOTHER 2002 (9) TMI 3 - SUPREME COURT wherein it has categorically been examined with regard to the effect of deletion of a provision in the Statute and it was held that the normal effect of repealing a statute or deleting a provision is to obliterate it from the statute book as completely as if it had never been passed, and the statute must be considered as a law that never existed. In case there is no saving clause or provision introduced by way of an amendment while omitting the provision, therefore, the result is that the said provision had never been passed and we consider it as a law that never existed. Therefore, we have no hesitation to hold that the cognizance taken by the AO under section 92BA(i) are reference made to TPO under section 92CA is invalid and bad in law in view of the deletion of provision (i) of section 92BA from the enactment. As it is clear that once a particular provision of section is omitted from the Statute, it shall be deemed to be omitted from its inception until and unless there is some saving clause or provision to make it clear that action taken or proceedings initiated under that provision or section would continue and would not be left on account of omission. Since in the instant case, undisputedly, by the Finance Act, 2017, clause (i) of section 92BA has been omitted with effect from 01.04.2017, therefore, once this clause is omitted by subsequent amendment then it would be deemed that clause (i) was never there in the Statute. Therefore, we hold that the reference made to TPO under section 92CA is invalid and bad in law and hence consequential order passed by the TPO and AO is also not sustainable in the eyes of law and the addition so made/sustained by ld. CIT (A) too deserves to be deleted. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Omission of transactions covered under section 40A(2)(b) of the Act from the ambit of Specified Domestic Transactions.
2. Rejection of External Comparable.
3. Rejection of Internal Comparable JV Agreement between SMS Paryavaran Limited and SPML.
4. Departmental Appeal.

Summary:

1. Omission of Transactions Covered Under Section 40A(2)(b) of the Act:
The assessee argued that the transfer pricing adjustment made under clause (i) of section 92BA of the Act should be deleted as this clause was omitted by the Finance Act, 2017, effective from 01.04.2017. The Tribunal agreed, citing the Supreme Court's ruling in Kolhapur Canesugar Works Ltd. vs. Union of India, which states that the omission of a statute without a saving clause means it is considered never to have existed. Thus, the proceedings initiated under the omitted clause do not survive.

2. Rejection of External Comparable:
The assessee provided several external comparables which were rejected by the TPO on technical grounds such as lack of strict comparability and persistent losses in some companies. The Tribunal noted that the TPO did not appropriately adjust for differences as required by Rule 10B of the Income Tax Rules.

3. Rejection of Internal Comparable JV Agreement between SMS Paryavaran Limited and SPML:
The CIT(A) included the JV agreement between SMS Paryavaran Limited and SPML as a comparable, rejecting the TPO's claim that it was a related party transaction. The Tribunal upheld this inclusion, noting that SMS Paryavaran Limited was an independent party and not related to the assessee's group. The Tribunal also highlighted that no appropriate adjustments were made for the differences in the agreements.

4. Departmental Appeal:
The department's appeal was based on the presumption that the JV agreement was between the assessee and SMS Paryavaran Limited, which was factually incorrect. The Tribunal dismissed the departmental appeal as it had already decided the assessee's appeal on the legal issue, rendering the departmental appeal unsustainable.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the reference to the TPO under section 92CA was invalid and bad in law due to the omission of clause (i) of section 92BA. Consequently, the Tribunal directed the deletion of the additions made by the AO and dismissed the departmental appeal.