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2022 (5) TMI 971 - AT - Income TaxTP Adjustment - determination of Arms Length Price of specified domestic transactions - expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of sub-section (2) of Section 40A - HELD THAT:-. According to the provisions of Section 92BA, the specified domestic transaction, in case of an assessee, covers the transaction of any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of sub-section (2) of Section 40A of the Act. To such transactions, the provisions of Section 92, 92C, 92D and 92B were made applicable. However with effect from 1/4/2017 The Finance Act, 2017 omitted Section 92BA (i) of the act. In view of the above omission, the controversy arose that whether transfer-pricing provisions are applicable to transactions covered under that clause or not. The honourable Karnataka High Court in case of PCIT vs. Texport Overseas (P.) Ltd. [2019 (12) TMI 1312 - KARNATAKA HIGH COURT] held that when clause (i) 92BA is omitted with effect from 1st April, 2017, the resultant effect is that it had never been passed and to be considered as law never existed. Therefore, the Hon'ble Karnataka High Court held that the decision taken by the Assessing Officer under the effect of section 92BA (i) and reference made to Transfer Pricing Officer under section 92CA was invalid and bad in law. In view of this, the addition made by the learned Assessing Officer by applying the provision of section 92CA to the transaction covered under section 92BA (i) of the Act deserves to be deleted. Therefore respectfully following decision of Hon'ble Karnataka High Court, we direct the learned Assessing Officer to delete the same.But we cannot lose sight of the fact that coordinate bench in that particular case specifically directed the learned assessing officer to examine the transactions with respect to provision of section 40A (2) of the Act. We hastened to add that only the arm's-length price of such specified domestic transactions could not be determined by applying the above provisions as contained in Chapter X of The Income Tax Act. Still the provisions of Section 40A (2) are on the statute book, which governs the deductibility of such expenses. Therefore, we set aside the issue to the file of the learned Assessing Officer to examine the transactions covered under 40A (2)(b) of the Act and decide issue afresh. Accordingly, grounds no. 2 to 7 of these appeals are allowed for statistical purposes. The learned Assessing Officer is directed to grant the opportunity of hearing to the assessee and decide the same in accordance with law. Disallowance under section 14A r.w.r. 8D - HELD THAT:- As we find that tax exempt income claimed by the assessee is only Rs. 1,12,635/- and therefore, disallowance under that section cannot exceed the exempt income. Accordingly, we direct the Assessing Officer to restrict the disallowance to the extent of Rs. 1,12,635/-. Accordingly, ground no. 8 is partly allowed. Disallowance of 50% of the property tax - AO found that assessee has occupied 50% of the property for its own use - HELD THAT:- Before the learned DRP, the assessee submitted that it has already disallowed Rs. 786000/- in the return of income and the learned DRP directed that disallowance should be restricted to the disallowance of Rs. 8,46,653/-. We do not find any infirmity in such direction given by the DRP. In view of this ground no. 9 of the appeal is dismissed.
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