Tribunal invalidates TPO reference, upholds assessee's valuation method, deletes Rs. 6,93,89,490 adjustment

The Tribunal allowed the assessee's appeal, holding that the omission of clause (i) of Section 92BA by the Finance Act, 2017, rendered any reference to the Transfer Pricing Officer (TPO) and subsequent adjustments invalid. The Tribunal found the valuation method used by the assessee to be meritorious and conducted in accordance with prescribed rules. The appeal was allowed, and the adjustment of Rs. 6,93,89,490/- was deleted.

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Issues Involved:
1. Adjustment on account of Specified Domestic Transaction (SDT) for the purchase of office space.
2. Validity of reference to Transfer Pricing Officer (TPO) for Domestic Transfer Pricing after the omission of clause (i) of Section 92BA by the Finance Act, 2017.
3. Merits of the valuation method used by the assessee for the purchase of office space.

Issue-wise Detailed Analysis:

1. Adjustment on account of Specified Domestic Transaction (SDT) for the purchase of office space:
The assessee challenged the adjustment of Rs. 6,93,89,490/- made on account of SDT related to the purchase of office space from its holding company. The assessee argued that the transaction was conducted in accordance with a valuation report and was duly reported in Form No. 3CEB. The TPO, however, rejected the valuation methods used by the assessee, including rates from 99acres.com and the valuation report by a Government-approved valuer, and instead adopted the circle rate of Noida Authority, leading to a significant adjustment. The Dispute Resolution Panel (DRP) partially accepted the assessee's arguments but still made an adjustment, leading to the final addition of Rs. 6,93,89,490/-.

2. Validity of reference to TPO for Domestic Transfer Pricing after the omission of clause (i) of Section 92BA by the Finance Act, 2017:
The core argument presented by the assessee was that clause (i) of Section 92BA, which mandated the reference to TPO for SDT, was omitted by the Finance Act, 2017, effective from 01.04.2017. The omission meant that the provision was deemed never to have existed. The reference to the TPO was made on 29.11.2018, well after the omission of the clause. The assessee cited several judicial precedents, including the Karnataka High Court's decision in PCIT vs. Texport Overseas Pvt. Ltd., which held that actions initiated under an omitted provision are invalid. The Tribunal agreed with this argument, stating that without a saving clause, the omission of clause (i) of Section 92BA rendered any subsequent proceedings under it null and void.

3. Merits of the valuation method used by the assessee for the purchase of office space:
The assessee used the "Other Method" prescribed in Rule 10AB of the Income-tax Rules, 1962, to value the property, considering the Government-approved valuer's report, circle rates, and resale rates from 99acres.com. The TPO rejected these methods, citing inconsistencies and lack of supporting evidence. The DRP also rejected some aspects of the valuation but accepted the super area and a portion of the car parking spaces. The Tribunal, however, found that the TPO's and DRP's rejections were not fully justified, especially given the omission of clause (i) of Section 92BA, which invalidated the reference to the TPO in the first place.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the omission of clause (i) of Section 92BA by the Finance Act, 2017, rendered any reference to the TPO and subsequent adjustments invalid. The Tribunal's decision was based on the principle that an omitted provision is treated as if it never existed, and any actions initiated under such a provision post-omission are null and void. The Tribunal also found merit in the assessee's valuation method, which was conducted in accordance with prescribed rules and supported by a Government-approved valuer's report. The appeal was thus allowed, and the adjustment of Rs. 6,93,89,490/- was deleted.

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