TMI Blog2022 (5) TMI 971X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 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 deductib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. (185,4573,238)/-, The Appellant strongly objects to the addition made in the assessment order. Transfer Pricing grounds General: 2. The Ld. Assessing Officer has erred in making reference to the Ld. Transfer Pricing Officer u/s. 92CA(1) of the Act. The reference made is bad in law and accordingly, the order of the Ld. Transfer Pricing Officer is void ab initio. 3. The Ld. Assessing Officer in pursuance of the direction of the Ld. Transfer Pricing Officer and as confirmed by the Ld. Dispute Resolution Panel, has erred in making adjustment of Rs. 23,42,64,637/- in respect of certain specified domestic transactions. 4. Without prejudice to the above, the deletion of clause (i) of section 92BA by Finance Act, 2017 whereby the transaction of any expenditure in respect of which payment is made to a person referred to in section 40A(2)(b) was removed from the definition of specified domestic transaction, is retrospective in nature and therefore, the entire transfer pricing adjustment made in case of the appellant is bad in law. No tax evasion 5. The Ld. Assessing Officer, Transfer Pricing Officer and the Ld. Dispute Resolution Panel has erred in no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company has failed to produce any reliable documentary evidence inspite of the fact that all the details as to the quotations from third parties and the margin computation in respect of projects where the work was subcontracted to AEs and to third parties were submitted. The Ld. Dispute Resolution Panel has erred in confirming the same. 6.6. Without prejudice to the above, the Ld. Transfer Pricing Officer, as confirmed by the Ld. Dispute Resolution Panel, has erred in not applying the 'Other method' (viz. quotations received from third parties) as the most appropriate method. 6.7. Without prejudice to the above, the Ld. Transfer Pricing Officer has erred in taking nine companies viz. M/s. GPT Infra PROJECTS Ltd., M/s. KNR Construction Ltd., M/s. MBL Infrastructure Ltd., M/s. Mcnally Bharat Engineering Company Ltd., M/s. NCC Ltd., M/s. Pratibha Industries Ltd., M/s. RPP Infra Project Ltd., M/s. Simplex Project Ltd. and M/s. Tantia Construction Ltd. as comparable to the assessee company without appreciating that the said companies are not comparable either functionally or otherwise. The Ld. Dispute Resolution Panel has erred in confirming the same. 6.8. Witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in not taking into consideration the same. 7.2. Without prejudice to the above, the Ld. Transfer Pricing Officer has erred in not appreciating that the AE had sold the equipments to the assessee at a margin of 7% added on material cost + 26.5% overheads, whereas sale of equipments to unrelated parties was at a margin of 10.34% on material cost + 26.5% overheads. The Ld. Dispute Resolution Panel has erred in confirming the action of the Ld. Transfer Pricing Officer. Corporate tax grounds 8. The Ld. Assessing Officer has erred in disallowing a sum of Rs. 6,53,54,313/u/s. 14A of the Act. The Ld. Dispute Resolution Panel has erred in confirming the same. 9. The Ld. Assessing Officer has erred in disallowing a sum of Rs. 62,653/- being property taxes while computing income from house property. The Ld. Dispute Resolution Panel has erred in confirming the same. 3. At the time of hearing, none appeared on behalf of the assessee despite issue of notices. This appeal is filed in the year 2017 and since then this appeal is fixed for hearing on seven times and out of that on last 5 occasions there is no appearance from the assessee. On earlier occasion also an advocat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, selected 9 comparables companies, adopted Transactional Net Margin Method (TNMM) as the most appropriate method, determined OP/OI as the profit level indicator, arrived at an average PLI of 10.23% of the comparables and thereafter proposed an adjustment of Rs. 20,64,57,852/- of the domestic transaction of Civil work of Rs. 91,66,27,772/-. 8. The assessee has also purchased equipments of Rs. 69,51,69,632/- from its Associated Enterprises (AEs). Assessee submitted that the seller is the tested party and considering the FAR analysis 7% markup is considered at Arm's Length Price. 9. The Transfer Pricing Officer rejected the contention of the assessee, analyzed the financials of the Associated Enterprises, and found that the profit earned by the Associated Enterprises from the sale to third party would be lower by 3.6% and therefore, associated enterprise has overcharged assessee to that extent. Therefore, he made an adjustment of Rs. 2,78,06,785/-. Accordingly, learned TPO passed order u/s. 92 CA (3) of the income tax act on 31 October 2016 proposing an adjustment of ₹ 234,264,637/- to the arm's-length price of the specified domestic transactions towards civil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determining the arm's-length price. 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. [2020] 114 taxmann.com 568 (Karnataka), 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 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Having carefully examined the issue in the light of provisions of section 6 of the General Clauses Act, their Lordship has observed that in such a case, the court is to look to the provisions in the rule which has been introduced after omission of the previous rule to determine whether a pending proceeding will continue or lapse. If there is a provision therein that pending proceedings shall continue and be disposed of under the old rule as if the rule has not been deleted or omitted then such a proceeding will continue. If the case is covered by Section 6 of the General Clauses Act or there is a pari-materia provision in the statute under which the rule has been framed in that case also the pending proceeding will not be affected by omission of the rule. In the absence of any such provisions in the statute or in the rule, the pending proceeding will lapse under rule under which the notice was issued or proceeding being omitted or deleted . 8. In the case of General Finance Co., Vs. ACIT, their Lordship of the Apex Court has again examined the issue and held that the principle underlying section 6 as saving the right to initiate proceedings for liabilities incurred duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B(i) and reference made to TPO under section 92CA is invalid and bad in law. Therefore, the consequential order passed by the TPO and DRP is also not sustainable in the eyes of law. 11. Under these circumstances, where this clause (i) is_ omitted from the Statute since its inception, the AO ought to have required to frame the assessment in normal course after making necessary enquiries of particular claim of expenditure in accordance with law. But this exercise could not have been done on account of provisions of section 92BA Clause (i) of the Act. Now when this clause (i) has been omitted from the statute by virtue of the aforesaid amendments, the AO is required to adjudicate the issue of claim of expenditures in accordance with law after affording opportunity of being heard to the assessee. We therefore set aside the orders of the AO and the DRP and restore the matter to the AO with the direction to readjudicate the issue of claim of expenditure incurred in respect of which payment has been made or is to be made to person referred to in clause (b) of sub-section 2 of section 40A of the Act. Accordingly, since we have restored the matter to the AO, we find no justification to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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