Transfer pricing adjustments for domestic transactions deleted after section 92BA(i) omission from April 2017

ITAT Mumbai held that transfer pricing adjustments relating to Specified Domestic Transactions must be deleted following omission of section 92BA(i) effective 01/04/2017. The tribunal followed Karnataka HC's affirmation in Texport Overseas case that proceedings under omitted provisions cannot continue, despite Mumbai bench's doubt in Firemenich Aromatics case. The matter was restored to AO for examination under section 40A(2)(b) instead. Appeal allowed for statistical purposes with deletion of transfer pricing adjustment directed.

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Issues:
- Challenge to assessment order for assessment year 2015-16 regarding Specified Domestic Transactions.
- Interpretation of provisions of Sec. 92BA(i) of the Act.
- Effect of omission of provisions on transfer pricing adjustments.
- Conflict in views between Bangalore and Mumbai benches of Tribunal.
- Upholding the decision of the Hon'ble Karnataka High Court.

Analysis:
1. The appeal challenges the assessment order for the assessment year 2015-16 concerning Specified Domestic Transactions. The assessing officer made an addition in the assessment, which the assessee disputes.

2. The key issue revolves around the interpretation of Sec. 92BA(i) of the Act, which allowed for transfer pricing adjustments in Specified Domestic Transactions. The assessee argued that this provision was omitted by the Finance Act, 2017, and thus, the transfer pricing adjustment should be deleted. This argument was supported by the decision of the Bangalore bench of Tribunal and subsequently upheld by the Hon'ble Karnataka High Court.

3. On the contrary, the Department argued that the Mumbai bench of Tribunal, in a different case, held a contrary view, stating that the omission of Sec. 92BA(i) did not impact the validity of transfer pricing adjustments. This conflict in views between benches added complexity to the case.

4. The Tribunal analyzed the decisions of both benches and ultimately chose to follow the decision of the Hon'ble Karnataka High Court, which upheld the deletion of transfer pricing adjustments based on the omitted provision. The Tribunal emphasized the principle that when a provision is omitted without a saving clause, pending proceedings must stop, and fresh proceedings may be initiated under new provisions.

5. Consequently, the Tribunal set aside the order on the transfer pricing issue, directing the AO to delete the addition made and examine the specified domestic transactions under a different section of the Act. The assessee was instructed to provide necessary information for this re-examination, and the appeal was treated as allowed for statistical purposes.

This detailed analysis of the judgment highlights the legal complexities surrounding transfer pricing adjustments in Specified Domestic Transactions and the impact of omitted provisions on such assessments.

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