2023 (2) TMI 1256 - AT - Income Tax

TP adjustment relating to Specified Domestic Transactions - resultant effect of omitted clause (i) of section 92BA with effect form 01/04/2017 - HELD THAT - Effect of omission of a provision has been examined in the case of Texport Overseas (P) Ltd 2017 (12) TMI 1719 - ITAT BANGALORE and the same has been affirmed by Hon ble Karnataka High Court 2019 (12) TMI 1312 - KARNATAKA HIGH COURT . It has been held in the above said cases that the proceedings in respect of omitted provisions cannot be continued. Accordingly transfer pricing adjustment relating to Specified Domestic Transactions is liable to be deleted on account of omission of provisions of sec. 92BA(i) of the Act. Even though the co-ordinate bench of Mumbai in the case of Firemenich Aromatics (I) (P) Ltd 2020 (7) TMI 658 - ITAT MUMBAI has expressed its doubt on the correctness of the decision rendered by the Bangalore bench of Tribunal in the case of Texport Overseas (P) Ltd (supra) yet the fact remains that the said decision of Bangalore bench has since been upheld by Hon ble Karnataka High Court. Accordingly we prefer to follow the decision rendered by Higher Court of Wisdom and accordingly hold that the transfer pricing adjustment made in respect of Specified Domestic Transaction on the basis of omitted provision is liable to be deleted. Specified domestic transactions are required to be examined u/s 40A(2)(b) - We notice that the Bangalore bench of Tribunal has expressed the view that the transactions with Associated Enterprises need to be examined u/s 40A(2)(b) of the Act after omission of sec.92BA(i). Accordingly the matter has been restored to the file of AO and direct the AO to delete the addition made towards the transfer pricing adjustment. Since the said specified domestic transactions are required to be examined u/s 40A(2)(b) of the Act we restore the same to the file of AO for carrying out such examination. Appeal filed by the assessee is treated as allowed for statistical purposes.

Summary

Issues:
- Challenge to assessment order for assessment year 2015-16 regarding Specified Domestic Transactions.
- Interpretation of provisions of Sec. 92BA(i) of the Act.
- Effect of omission of provisions on transfer pricing adjustments.
- Conflict in views between Bangalore and Mumbai benches of Tribunal.
- Upholding the decision of the Hon'ble Karnataka High Court.

Analysis:
1. The appeal challenges the assessment order for the assessment year 2015-16 concerning Specified Domestic Transactions. The assessing officer made an addition in the assessment, which the assessee disputes.

2. The key issue revolves around the interpretation of Sec. 92BA(i) of the Act, which allowed for transfer pricing adjustments in Specified Domestic Transactions. The assessee argued that this provision was omitted by the Finance Act, 2017, and thus, the transfer pricing adjustment should be deleted. This argument was supported by the decision of the Bangalore bench of Tribunal and subsequently upheld by the Hon'ble Karnataka High Court.

3. On the contrary, the Department argued that the Mumbai bench of Tribunal, in a different case, held a contrary view, stating that the omission of Sec. 92BA(i) did not impact the validity of transfer pricing adjustments. This conflict in views between benches added complexity to the case.

4. The Tribunal analyzed the decisions of both benches and ultimately chose to follow the decision of the Hon'ble Karnataka High Court, which upheld the deletion of transfer pricing adjustments based on the omitted provision. The Tribunal emphasized the principle that when a provision is omitted without a saving clause, pending proceedings must stop, and fresh proceedings may be initiated under new provisions.

5. Consequently, the Tribunal set aside the order on the transfer pricing issue, directing the AO to delete the addition made and examine the specified domestic transactions under a different section of the Act. The assessee was instructed to provide necessary information for this re-examination, and the appeal was treated as allowed for statistical purposes.

This detailed analysis of the judgment highlights the legal complexities surrounding transfer pricing adjustments in Specified Domestic Transactions and the impact of omitted provisions on such assessments.