Transfer Pricing adjustment on domestic transactions invalid after section 92BA amendment by Finance Act 2017

ITAT Mumbai held that no Transfer Pricing adjustment can be made on domestic transactions after omission of clause (i) of section 92BA by Finance Act 2017, even for transactions undertaken in AY 2016-17. The Tribunal deleted the TP adjustment, following Delhi Bench precedent in Yorkn Tech case and coordinate bench decision in Maari Multi Trading. Revenue's request to remit matter to AO for examination under section 40A(2)(b) was rejected as AO had not recorded adverse findings regarding the transactions. Assessee's appeal was allowed.

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Issues Involved:
1. Validity of Transfer Pricing Adjustment after the omission of clause (i) of Section 92BA by the Finance Act, 2017.
2. Whether the issue should be remitted back to the Assessing Officer to examine the impugned addition from the perspective of section 40A(2)(b).

Summary:

1. Validity of Transfer Pricing Adjustment:
The Tribunal addressed the validity of the Transfer Pricing Adjustment made by the Assessing Officer (AO) after the omission of clause (i) of Section 92BA by the Finance Act, 2017. The Tribunal noted that the AO had referred the specified domestic transactions (SDT) to the Transfer Pricing Officer (TPO) for determining the arm's length price (ALP), which led to a proposed adjustment. The Dispute Resolution Panel (DRP) reduced this adjustment. The Tribunal considered the legal implications of the omission of clause (i) of Section 92BA, referencing the Karnataka High Court's decision in PCIT vs. Texport Overseas (P) Ltd., which held that the omission of the clause should be considered as if it never existed. Consequently, any action taken under the omitted provision is invalid and bad in law. The Tribunal concluded that no Transfer Pricing Adjustment can be made on a domestic transaction referred by the AO after the omission of the said clause, even if the transaction occurred in the Assessment Year 2016-17.

2. Remitting the Issue to the Assessing Officer:
The Tribunal also addressed the Department's contention that the issue should be remitted back to the AO to examine the impugned addition from the perspective of section 40A(2)(b). The Tribunal observed that the AO had made the reference to the TPO considering the volume of SDT and had not recorded any adverse findings regarding the impugned transactions. Therefore, the Tribunal saw no reason to remit the issue for re-examination under section 40A(2)(b) and found no merit in the Revenue's claim.

Conclusion:
The Tribunal allowed the appeal in favor of the assessee based on the legal ground concerning the omission of clause (i) of Section 92BA. Consequently, the grounds raised regarding the merits of the case became academic and did not warrant separate consideration. The appeal of the assessee was allowed, and the order was pronounced in the open court on 24/04/2023.

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