Transfer pricing adjustments for specified domestic transactions invalid after Finance Act 2017 omitted section 92BA clause

The ITAT Delhi held that transfer pricing adjustments for specified domestic transactions under section 92BA were invalid following the omission of clause (i) by Finance Act 2017 effective 01.04.2017. Following Karnataka HC precedent in PCIT vs. Texport Overseas Pvt. Ltd, the tribunal ruled that the omitted provision rendered the AO's decision and TPO reference under section 92CA invalid and bad in law. The assessee's appeal was allowed, establishing that no transfer pricing adjustments could be made for specified domestic transactions post-omission.

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Issues:
The main issue in this case is whether the Assessing Officer was justified in making a transfer pricing adjustment of Rs. 91,04,673/- in relation to specified domestic transactions.

Details of the Judgment:

Issue 1 - Transfer Pricing Adjustment:
The Tribunal considered the case where the Assessing Officer made a transfer pricing adjustment of Rs. 91,04,673/- based on the directions of the Dispute Resolution Panel (DRP) concerning specified domestic transactions. The Taxation Officer (TPO) initially rejected the Cost Plus method adopted by the assessee and substituted it with the Transactional Net Margin Method (TNMM). The TPO identified comparables and arrived at an average margin of 12.99%, leading to the adjustment. The DRP upheld the TNMM as the Most Appropriate Method and directed to recompute the deduction u/s 80IC at 30%. The TPO then made the transfer pricing adjustment, which the Assessing Officer adopted in the final assessment order. However, the Tribunal observed that the section allowing transfer pricing adjustments for specified domestic transactions had been omitted from the statute by the Finance Act, 2017. Citing a decision of the Karnataka High Court, it held that the omission of the relevant section rendered the actions taken under it invalid and bad in law. Consequently, the Tribunal directed the deletion of the transfer pricing adjustment and the additional disallowance made by the Assessing Officer.

Conclusion:
In conclusion, the Tribunal allowed the appeal of the assessee, holding that the transfer pricing adjustment and the subsequent addition could not be made due to the omission of the relevant section from the statute. Therefore, the additions made by the Assessing Officer were directed to be deleted.

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