Tribunal Partially Allows Appeal, Sets Aside Transfer Pricing Adjustment, Orders Re-examination of Expenditure Allowability.

The Tribunal partially allowed the appeal against the final assessment order for AY 2014-15, setting aside the transfer pricing adjustment of Rs.5,23,79,628 made under Section 92BA (1) of the Income Tax Act, 1961, following its omission by the Finance Act, 2017. The Tribunal directed the Assessing Officer to re-examine the allowability of the expenditure under Section 40A (2), emphasizing that the omission of Section 92BA (1) did not eliminate the requirement to assess expenses under Section 40A (2). Grounds 18 to 22 were dismissed as they were not argued.

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Issues:
Appeal against final assessment order under Income Tax Act, 1961 for AY 2014-15; Adjustment of specified domestic transactions; Applicability of Section 92BA (1) and Section 40A (2) of the Act.

Analysis:
The appeal challenged the final assessment order dated 23/10/2018, concerning the adjustment of Rs.5,23,79,628 for specified domestic transactions. The issue was whether the adjustment made by determining arm's-length price under Section 92BA (1) was sustainable. The Co-ordinate Bench's decision in Mahindra Two Wheelers Ltd. v/s DCIT was referred, where it was held that post the omission of Section 92BA (1) by the Finance Act, 2017, the adjustment was not valid. The Tribunal allowed the appeal, directing the Assessing Officer to examine the expenditure's allowability under Section 40A (2) of the Act.

The Tribunal observed that the provisions of Section 40A (2) of the Act still existed despite the omission of Section 92BA (1). Referring to the decision in Texport Overseas case, it was held that the adjustment based on arm's-length price examination was not valid post omission of Section 92BA (1). However, the Tribunal directed the matter back to the Assessing Officer to examine the expenditure's allowability under Section 40A (2). The Tribunal emphasized that the omission of Section 92BA (1) did not absolve the need to assess expenses under Section 40A (2) and allowed the appeal accordingly.

During the hearing, grounds 18 to 22 were not argued and were dismissed. The Tribunal partially allowed the appeal, setting aside the transfer pricing adjustment but directing a re-examination of expenditure under Section 40A (2). The decision was pronounced on 13-07-2022, concluding the matter with a detailed analysis of the applicability of Sections 92BA (1) and 40A (2) in the context of the assessment for the AY 2014-15.

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