Transfer pricing adjustments on domestic transactions not permissible after Section 92BA clause omission

The ITAT Delhi dismissed the revenue's request for a Special Bench reference regarding TP adjustments on domestic transactions after omission of Clause (i) of Section 92BA. Following precedent from Karnataka HC in Taxport Overseas case and coordinate bench decision in DLF Urban case, the tribunal held that no transfer pricing adjustments could be made on domestic transactions post-omission of the clause. The assessee's appeal was allowed, and the impugned order was set aside as legally unsustainable.

---

---

1. ISSUES PRESENTED and CONSIDERED

The primary issues considered in this judgment revolve around the applicability of transfer pricing adjustments on specified domestic transactions following the omission of Clause (i) of Section 92BA of the Income Tax Act, 1961 by the Finance Act, 2017. The core legal questions include:

• Whether the omission of Clause (i) of Section 92BA, effective from 01/04/2017, invalidates transfer pricing adjustments made on domestic transactions for the Assessment Year 2016-17Rs.
• Whether the retrospective application of the omission affects ongoing or completed assessmentsRs.
• The impact of conflicting judgments from non-jurisdictional High Courts and the treatment of these precedents by the Tribunal.

2. ISSUE-WISE DETAILED ANALYSIS

Omission of Clause (i) of Section 92BA and Its Retrospective Application

• Relevant Legal Framework and Precedents: The Finance Act, 2017 omitted Clause (i) of Section 92BA, which initially included specified domestic transactions under the transfer pricing regulations. The Tribunal considered precedents from various High Courts, including the Karnataka High Court in Texport Overseas Pvt. Ltd., which held that the omission of a statutory provision should be treated as if it never existed.
• Court's Interpretation and Reasoning: The Tribunal relied on the principle that once a provision is omitted, it should be considered non-existent, negating any proceedings initiated under it. This interpretation aligns with the decision in Texport Overseas Pvt. Ltd. and similar cases.
• Key Evidence and Findings: The Tribunal noted that the omission was effective from 01/04/2017, and the transactions in question occurred during the Assessment Year 2016-17. The Tribunal examined the legislative intent and judicial precedents to determine the retrospective effect.
• Application of Law to Facts: The Tribunal applied the principle that the omission of Clause (i) of Section 92BA nullifies any transfer pricing adjustments made on domestic transactions, as these adjustments were based on a provision that no longer exists.
• Treatment of Competing Arguments: The Tribunal considered the Department's reliance on Supreme Court judgments, such as Fiber Boards Pvt. Ltd. and Shree Bhagwati Steel Rolling Mills, which discuss the effects of statutory omissions. However, the Tribunal found these cases distinguishable and not directly applicable to the issue at hand.
• Conclusions: The Tribunal concluded that no transfer pricing adjustment could be made on domestic transactions for the Assessment Year 2016-17 due to the omission of Clause (i) of Section 92BA.

Impact of Conflicting Judgments from Non-Jurisdictional High Courts

• Relevant Legal Framework and Precedents: The Tribunal examined the persuasive value of non-jurisdictional High Court judgments, particularly when jurisdictional High Court decisions are absent.
• Court's Interpretation and Reasoning: The Tribunal emphasized the principle that non-jurisdictional High Court judgments have persuasive value but are not binding. The Tribunal followed the Karnataka High Court's decision in Texport Overseas Pvt. Ltd. due to its persuasive reasoning and relevance to the issue.
• Key Evidence and Findings: The Tribunal noted conflicting interpretations by different benches of the ITAT and other High Courts, acknowledging the need for consistency in applying judicial precedents.
• Application of Law to Facts: The Tribunal applied the persuasive reasoning from the Karnataka High Court, finding it more aligned with the legislative intent and the principle of statutory interpretation.
• Treatment of Competing Arguments: The Tribunal addressed the Department's argument for referring the matter to a special bench due to conflicting decisions but declined the request, citing the adequacy of existing precedents.
• Conclusions: The Tribunal decided to follow the Karnataka High Court's decision, reinforcing the principle that omitted provisions should be treated as if they never existed.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: The Tribunal quoted, "once this section is omitted w.e.f. 01.04.2017, the resultant effect is that it had never been passed to be considered as a law and never existed."
• Core Principles Established: The judgment reinforced the principle that the omission of a statutory provision should be treated as if it never existed, impacting ongoing and completed proceedings under the omitted provision.
• Final Determinations on Each Issue: The Tribunal allowed the appeal of the appellant assessee, setting aside the transfer pricing adjustments made on domestic transactions. The appeal of the Department of Revenue was dismissed, affirming the non-applicability of omitted provisions to the Assessment Year 2016-17.

---