Transfer Pricing Adjustment Deleted: Tribunal Rejects TPO's Rejection of External Comparables

The Tribunal allowed the assessee's appeal, ruling that the transfer pricing adjustment made under the omitted clause of the Act should be deleted. The Tribunal found fault with the rejection of external comparables by the TPO and upheld the inclusion of an internal comparable JV agreement. The departmental appeal was dismissed as it was based on incorrect factual presumptions. The Tribunal held that the reference to the TPO was invalid due to the omitted clause, directing the deletion of additions made by the AO and dismissing the departmental appeal.

---

---

Issues Involved:
1. Omission of transactions covered under section 40A(2)(b) of the Act from the ambit of Specified Domestic Transactions.
2. Rejection of External Comparable.
3. Rejection of Internal Comparable JV Agreement between SMS Paryavaran Limited and SPML.
4. Departmental Appeal.

Summary:

1. Omission of Transactions Covered Under Section 40A(2)(b) of the Act:
The assessee argued that the transfer pricing adjustment made under clause (i) of section 92BA of the Act should be deleted as this clause was omitted by the Finance Act, 2017, effective from 01.04.2017. The Tribunal agreed, citing the Supreme Court's ruling in Kolhapur Canesugar Works Ltd. vs. Union of India, which states that the omission of a statute without a saving clause means it is considered never to have existed. Thus, the proceedings initiated under the omitted clause do not survive.

2. Rejection of External Comparable:
The assessee provided several external comparables which were rejected by the TPO on technical grounds such as lack of strict comparability and persistent losses in some companies. The Tribunal noted that the TPO did not appropriately adjust for differences as required by Rule 10B of the Income Tax Rules.

3. Rejection of Internal Comparable JV Agreement between SMS Paryavaran Limited and SPML:
The CIT(A) included the JV agreement between SMS Paryavaran Limited and SPML as a comparable, rejecting the TPO's claim that it was a related party transaction. The Tribunal upheld this inclusion, noting that SMS Paryavaran Limited was an independent party and not related to the assessee's group. The Tribunal also highlighted that no appropriate adjustments were made for the differences in the agreements.

4. Departmental Appeal:
The department's appeal was based on the presumption that the JV agreement was between the assessee and SMS Paryavaran Limited, which was factually incorrect. The Tribunal dismissed the departmental appeal as it had already decided the assessee's appeal on the legal issue, rendering the departmental appeal unsustainable.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the reference to the TPO under section 92CA was invalid and bad in law due to the omission of clause (i) of section 92BA. Consequently, the Tribunal directed the deletion of the additions made by the AO and dismissed the departmental appeal.

---