Tribunal invalidates TP adjustments under Section 92BA(i) due to retrospective omission, remands trade creditors issue for further consideration.

The Tribunal allowed the appeal partly, invalidating TP adjustments under Section 92BA(i) due to its retrospective omission by the Finance Act 2017. The AO was directed to delete the TP adjustments and reassess under Section 40A(2). Regarding the addition of trade creditors under Section 68, the Tribunal remanded the matter to the AO for reconsideration based on the evidence provided by the assessee, emphasizing the need for a valid reason for any rejection.

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Issues Involved:
1. Validity of TP addition under Section 92BA(i) post its omission by Finance Act 2017.
2. Applicability of Section 68 to trade creditors.

Issue-wise Detailed Analysis:

1. Validity of TP Addition under Section 92BA(i) Post its Omission by Finance Act 2017:

The primary issue raised by the assessee was the applicability of Section 92BA(i) of the Income-tax Act, 1961, which was omitted by the Finance Act 2017. The assessee argued that the omission of Section 92BA(i) should be considered retrospective, thus invalidating any TP additions made under this provision. The Tribunal noted that various courts, including the Karnataka High Court, have held that the omission of Section 92BA(i) is retrospective. The Tribunal cited the case of Texport Overseas Pvt Ltd v DCIT, where the Karnataka High Court confirmed that the omission of Section 92BA(i) meant it should be treated as if it never existed. Consequently, the Tribunal held that any reference to the TPO in respect of specified domestic transactions under Section 92BA(i) was invalid. The AO was directed to delete the TP adjustments made under Section 92CA of the Act. However, the Tribunal restored the matter to the AO to examine the claim of expenditure under Section 40A(2) of the Act, following the same approach as in the Texport Overseas case.

2. Applicability of Section 68 to Trade Creditors:

The second issue pertained to the addition of Rs. 52,87,093/- under Section 68 of the Act, related to outstanding balances of trade creditors. The AO had initially made an addition of Rs. 3,97,93,505/- under Section 68, citing the assessee's failure to prove the genuineness, identity, and creditworthiness of the creditors. However, during remand proceedings, the AO accepted the genuineness of transactions except for three creditors. The assessee provided additional evidence, including ledger extracts, confirmation letters, and bank statements, to substantiate the genuineness of these transactions. Despite this, the AO made the addition without referencing the evidence provided. The Tribunal found that the AO's reason for rejecting the claim, which was the failure to furnish a stock register, was not valid. The Tribunal directed the AO to reconsider the addition of Rs. 52,87,093/- in light of the evidence already submitted and any further evidence the assessee might provide regarding the repayment of trade credits. The AO was instructed to reassess the claim in accordance with the law, ensuring the assessee was given an opportunity to be heard.

Conclusion:

The appeal was partly allowed for statistical purposes. The Tribunal concluded that the TP adjustments under Section 92BA(i) were invalid due to the retrospective omission of the provision. The matter was remanded to the AO for reassessment under Section 40A(2). Additionally, the issue of trade creditor additions under Section 68 was also remanded to the AO for fresh consideration based on the evidence provided by the assessee.

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