Tribunal directs reassessment on sections 40A(2)(b) & 14A, upholds some adjustments, invalidates retrospective transfer pricing changes.

The Tribunal partly allowed the appeal, directing the Assessing Officer to re-examine transactions under section 40A(2)(b) and restrict disallowance under section 14A to exempt income. The appellant's objections to various adjustments were considered, with some upheld and others requiring further examination. The Tribunal emphasized the retrospective nature of the deletion of clause (i) of section 92BA, invalidating certain transfer pricing adjustments.

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Issues Involved:

1. Determination of total income by the Assessing Officer.
2. Reference to the Transfer Pricing Officer under section 92CA(1).
3. Adjustment of specified domestic transactions.
4. Retrospective nature of the deletion of clause (i) of section 92BA.
5. Tax evasion in specified domestic transactions.
6. Adjustment of civil work expenditure subcontracted to AEs.
7. Adjustment of purchase of equipment from AE.
8. Disallowance under section 14A.
9. Disallowance of property taxes while computing income from house property.

Issue-wise Detailed Analysis:

1. Determination of Total Income by the Assessing Officer:
The Assessing Officer determined the total income of the appellant at Rs. (1,55,49,10,430)/- as against the returned income of Rs. (185,4573,238)/-. The appellant strongly objected to this addition.

2. Reference to the Transfer Pricing Officer under Section 92CA(1):
The Assessing Officer made a reference to the Transfer Pricing Officer (TPO) under section 92CA(1), which the appellant claimed was "bad in law" and thus void ab initio.

3. Adjustment of Specified Domestic Transactions:
The TPO, as confirmed by the Dispute Resolution Panel (DRP), made an adjustment of Rs. 23,42,64,637/- in respect of certain specified domestic transactions, which the appellant contested.

4. Retrospective Nature of the Deletion of Clause (i) of Section 92BA:
The appellant argued that the deletion of clause (i) of section 92BA by the Finance Act, 2017 should be considered retrospective, rendering the entire transfer pricing adjustment invalid. The Tribunal referred to the Karnataka High Court's decision in PCIT vs. Texport Overseas (P.) Ltd., which held that the omission of section 92BA(i) is retrospective and thus any action taken under it is invalid.

5. Tax Evasion in Specified Domestic Transactions:
The appellant contended that there was no tax evasion since both the AEs and the appellant company were loss-making entities, making the transactions tax neutral. The Tribunal did not provide specific relief on this ground but focused on the retrospective application of the deletion of section 92BA(i).

6. Adjustment of Civil Work Expenditure Subcontracted to AEs:
The TPO made an adjustment of Rs. 20,64,57,852/- by recomputing the arm's length price for civil work expenditure subcontracted to IVRCL Ltd. and Palladium Infrastructure and Project Ltd. The TPO rejected the Comparable Uncontrolled Price (CUP) method applied by the appellant and used the Transactional Net Margin Method (TNMM) instead. The Tribunal directed the Assessing Officer to re-examine these transactions under section 40A(2)(b).

7. Adjustment of Purchase of Equipment from AE:
The TPO made an adjustment of Rs. 2,78,06,785/- for the purchase of equipment from Hindustan Dorr Oliver Technologies Ltd., claiming the AE had overcharged the appellant. The Tribunal directed the Assessing Officer to re-examine this transaction under section 40A(2)(b).

8. Disallowance under Section 14A:
The Assessing Officer disallowed Rs. 6,53,54,313/- under section 14A, which included Rs. 5,84,880/- for interest expenditure. The Tribunal directed the disallowance to be restricted to the exempt income of Rs. 1,12,635/-.

9. Disallowance of Property Taxes while Computing Income from House Property:
The Assessing Officer disallowed Rs. 8,46,635/- out of the municipal tax, claiming 50% of the property was occupied by the appellant for its own use. The Tribunal upheld the DRP's direction to restrict the disallowance to Rs. 8,46,653/-.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the Assessing Officer to re-examine the transactions under section 40A(2)(b) and to restrict the disallowance under section 14A to the exempt income. The appeal was partly allowed, with some grounds dismissed and others requiring re-examination.

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