Tribunal deletes transfer pricing adjustments on domestic transactions after section 92BA clause omission

The ITAT Kolkata allowed the assessee's cross objection and deleted TP adjustments made by the AO regarding SDTs with AEs. The tribunal held that since clause (i) of section 92BA was omitted from the statute, it should be construed as never having existed. Consequently, no ALP determination was required for transactions with specified persons under section 40A(2)(b) of domestic transactions, making the reference to the TPO unnecessary. The decision relied on the Karnataka HC ruling in Texport Overseas Pvt. Ltd.

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Issues Involved:
1. Condonation of delay in filing the appeal by the Revenue and the Cross Objection by the assessee.
2. Validity of adjustments made with respect to Specified Domestic Transactions (SDTs) after the omission of clause (i) of section 92BA of the Income Tax Act, 1961.

Summary:

Issue 1: Condonation of Delay
The appeal by the Revenue was delayed by 85 days, and the Cross Objection by the assessee was delayed by 110 days. The Tribunal considered the reasons for the delays, noting that procedural approvals and communication delays were responsible for the Revenue's delay, while the assessee's delay was due to becoming aware of the correct legal position concerning section 92BA through various decisions. The Tribunal referenced the Supreme Court's liberal interpretation of "sufficient cause" under Section 5 of the Limitation Act, emphasizing that justice should not be denied on technical grounds. Consequently, the Tribunal condoned both delays and admitted the appeal and Cross Objection.

Issue 2: Validity of Adjustments for SDTs
The assessee argued that the adjustments related to SDTs should be deleted as clause (i) of section 92BA was omitted by the Finance Act, 2017, with the effect that the provision never existed in the statute. The Tribunal noted that the omission of a statutory provision without a saving clause means it is as if the provision never existed. The Tribunal cited the Supreme Court's decisions in Kolhapur Canesugar Works Ltd. v. Union of India and General Finance Co. v. ACIT, which support this interpretation.

The Tribunal found that since clause (i) of section 92BA was omitted, no Arm's Length Price determination was required for transactions under section 40A(2)(b), rendering the adjustments and references made by the Transfer Pricing Officer (TPO) invalid and contrary to law. The Tribunal also referenced the Karnataka High Court's decision in PCIT v. Texport Overseas Pvt. Ltd., which upheld this view.

Conclusion:
The Tribunal allowed the Cross Objection of the assessee, resulting in the deletion of the adjustments made in respect of the SDTs. Consequently, the appeal by the Revenue was dismissed as the adjustments did not survive the legal scrutiny.

Order Pronounced:
The appeal of the Revenue was dismissed, and the Cross Objection of the assessee was allowed. The order was pronounced in the open court on 29th November, 2023.

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