2021 (10) TMI 791 - AT - Income Tax

Invalid Transfer Pricing Officer reference impacts transfer pricing adjustment sustainability, remanded for expenditure claims re-examination to prevent tax benefits. Decision emphasizes tax law compliance.

The Tribunal found the reference to the Transfer Pricing Officer under Section 92BA(i) invalid due to its omission, rendering the transfer pricing ... TP Adjustment in respect of Specified Domestic Transactions - Reference to the TPO in respect of specified domestic transactions - claim of the expenditure in accordance with provisions of section 40A(2) - HELD THAT:- As consistent with the view taken by the Tribunal in AY 2015- 16 [2021 (2) TMI 793 - ITAT BANGALORE], we hold that the reference to the TPO in respect of specified domestic transaction mentioned in section 92BA(i) of the Act is not valid as the said provision has been omitted. Accordingly, we restore the matter to the file of the A.O. with a direction to examine the claim of the expenditure in accordance with the provisions of section 40A(2) of the Act. Appeal filed by the assessee is treated as allowed for statistical purposes. Issues Involved:1. Validity of Transfer Pricing Adjustment under Section 92BA(i) of the Income-tax Act, 1961.2. Examination of expenditure claims under Section 40A(2) of the Income-tax Act, 1961.Detailed Analysis:1. Validity of Transfer Pricing Adjustment under Section 92BA(i):The appeal centers on the transfer pricing adjustment of Rs. 1,36,59,869/- made by the Assessing Officer (AO) in respect of specified domestic transactions. The assessee argued that the provision of Section 92BA(i) dealing with transfer pricing adjustment for specified domestic transactions was omitted by the Finance Act, 2017, effective from 1.4.2017. This omission was examined in the assessee’s own case for the assessment year 2015-16 by the Bangalore bench of the Tribunal, which followed the Karnataka High Court's decision in Texport Overseas P Ltd. The Tribunal held that the reference to the Transfer Pricing Officer (TPO) under the now-omitted Section 92BA(i) was invalid. Consequently, the Tribunal restored the matter to the AO to examine the expenditure claims under Section 40A(2) of the Act.The Tribunal reiterated that the omission of Section 92BA(i) implies it should be treated as if it never existed. This interpretation aligns with the Supreme Court’s ruling in Kolhapur Canesugar Works Ltd. and the Karnataka High Court’s decision in Texport Overseas Pvt. Ltd., which stated that the omission of a statutory provision without a saving clause renders any proceedings under that provision invalid. Therefore, the reference to the TPO was deemed invalid, and the adjustment made under Section 92CA was unsustainable.2. Examination of Expenditure Claims under Section 40A(2):Given the invalidity of the transfer pricing adjustment, the Tribunal directed the AO to re-examine the expenditure claims under Section 40A(2) of the Act. This section deals with the disallowance of excessive or unreasonable payments to related parties. The Tribunal’s direction to the AO was to ensure that the claims are scrutinized in line with the provisions of Section 40A(2), which aims to prevent tax evasion through inflated expenses in transactions with related parties.The Tribunal’s decision was consistent with its previous ruling for the assessment year 2015-16, where it had also restored the matter to the AO for examination under Section 40A(2). This approach ensures that while the transfer pricing adjustment under the now-omitted provision is invalid, the expenditure claims are still subject to scrutiny to prevent any undue tax benefits.Conclusion:The Tribunal concluded that the reference to the TPO under Section 92BA(i) was invalid due to the omission of the provision. Consequently, the transfer pricing adjustment was not sustainable. The Tribunal restored the matter to the AO to examine the expenditure claims under Section 40A(2) to ensure compliance with the Act’s provisions. The appeal was thus allowed for statistical purposes, with the AO directed to re-assess the claims accordingly.