Downward transfer-pricing adjustment under s.92BA(i) deleted; omission of provision cannot be invoked retrospectively per established principle

ITAT (Chennai) - AT allowed the assessee's appeal and directed deletion of the downward transfer-pricing adjustment made under s.92BA(i) relating to specified domestic transactions. The tribunal applied the Supreme Court's reasoning that omission of a statutory provision differs from repeal and that omitted provisions cannot be invoked retrospectively under the General Clauses Act. Following precedent, the TPO's s.92BA(i) adjustment was held unsustainable and therefore deleted.

---

---

ISSUES PRESENTED AND CONSIDERED

1. Whether an additional legal ground challenging the applicability of a statutory provision (omission of clause (i) of section 92BA) may be admitted at the Tribunal stage where it raises a pure question of law.

2. Whether omission of clause (i) of section 92BA by a subsequent Finance Act (w.e.f. 01.04.2017) renders void prior transfer-pricing (TP) adjustments made under that clause for the relevant assessment year, i.e., whether omission operates retrospectively so that the provision is to be treated as never having existed for purposes of sustaining those adjustments.

3. Consequent to the above, whether TP/Specified Domestic Transaction (SDT) adjustments and references to the Transfer Pricing Officer (TPO) made under the omitted clause survive and can be sustained in assessment/appeals proceedings, or whether the matter must be remitted to the Assessing Officer (AO) for adjudication under other applicable provisions after affording hearing.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Admission of additional legal ground at Tribunal stage

Legal framework: Rules of the Tribunal permit admission of additional grounds under Tribunal procedure (r.11 ITAT Rules) and well-established principle that pure questions of law may be raised at appellate stage if they do not require fresh facts.

Precedent treatment: Reliance placed by parties on General Finance Co. and coordinate Tribunal/High Court orders admitting/deciding legal issues of omission/repeal; revenue opposed admission where party did not explain delay or show facts already on record.

Interpretation and reasoning: The Tribunal examined the petition under r.11 and concluded the additional ground challenged a pure legal question (effect of omission of s.92BA(i)) and thus could be taken at any stage. The Tribunal admitted the additional ground because it did not require new factual matrix and directly engaged statutory interpretation principles.

Ratio vs. Obiter: Ratio - admission of additional pure legal ground at Tribunal stage is permissible; Obiter - procedural objections that could be raised do not preclude admission where the ground is purely legal.

Conclusion: Additional ground challenging the applicability of s.92BA(i) was admitted as a pure legal issue that can be raised before the Tribunal.

Issue 2 - Legal effect of omission of clause (i) of section 92BA

Legal framework: Interpretation of omission/repeal under the General Clauses Act, 1897 (s.6 and s.6A) and principles established by Supreme Court and coordinate benches concerning whether omission equals repeal and whether omission affects pending or completed proceedings; statutory amendment (Finance Act) omitted s.92BA(i) w.e.f. 01.04.2017.

Precedent treatment: Conflicting lines of authorities exist. Earlier Tribunal Benches (Bangalore, Kolkata etc.) held omission results in deeming the provision never to have existed and pending actions lapse; revenue relied on later Supreme Court authority (Shree Bhagwati Steel, Fibre Boards) and s.6/s.6A to argue omission/repeal should not invalidate actions taken when provision was in force. The Tribunal in the present matter followed coordinate-bench decisions holding omission treats the provision as never having existed unless a saving clause preserves pending actions.

Interpretation and reasoning: The Tribunal analyzed whether omission of s.92BA(i) left any saving provision to preserve proceedings initiated under it. Finding none, the Tribunal applied the line of authority that omission leads to the clause being treated as not having been on the statute book (i.e., void ab initio for the purposes of continuing TP adjustments based on that clause). The Tribunal observed that where omission contains no express saving clause or transitional provision preserving proceedings, the underpinning statutory basis for making SDT/TP adjustments disappears and associated references to the TPO become invalid.

Ratio vs. Obiter: Ratio - where a statutory clause is omitted and no saving/transitional provision preserves actions initiated under it, adjustments or proceedings taken under that clause cannot be sustained and must be treated as having no statutory basis; Obiter - discussion of competing Supreme Court decisions and General Clauses Act interplay (not determinative where consistent coordinate decisions were followed).

Conclusion: Omission of s.92BA(i) w.e.f. 01.04.2017, in absence of a saving clause, must be construed as the clause never having existed for sustaining TP/SDT adjustments; therefore, additions made under that clause cannot be sustained.

Issue 3 - Consequences for TP adjustments, references to TPO, and remand to AO

Legal framework: Assessing Officer's power to make reference to TPO under section 92CA when a transaction qualifies as SDT under s.92BA; rules of assessment and requirement to afford opportunity of hearing before adjudicating disallowances/adjustments.

Precedent treatment: Coordinate bench decisions directed deletion of TP adjustments made under omitted s.92BA(i) and remitted matters to AO to re-examine claims of expenditure under ordinary provisions, with directions to afford opportunity to assessee.

Interpretation and reasoning: Applying the conclusion that s.92BA(i) ceases to exist as basis for SDT adjustments, the Tribunal held the cognizance and reference made to TPO under that clause were invalid and consequential orders cannot be sustained. The Tribunal reasoned that the AO should adjudicate disputed expenditures in the ordinary course (i.e., under applicable non-92BA provisions), after affording the assessee an opportunity of being heard, because the prior procedural path based on s.92BA(i) was not available.

Ratio vs. Obiter: Ratio - TP/SDT adjustments, TPO references and downstream orders premised solely on the omitted clause must be deleted; the matter should be remitted to the AO for re-adjudication of expenditures under the general law with observance of natural justice. Obiter - remarks on revenue's alternative remedies and potential applicability of other provisions (left for AO to consider on remand).

Conclusion: TP adjustments and additions made under the omitted s.92BA(i) are deleted; assessments premised on those adjustments are set aside and the matter is remitted to the AO to re-adjudicate disputed expenditures under appropriate provisions after affording hearing.

Ancillary points

1. Natural justice / opportunity to be heard: The Tribunal directed re-adjudication by the AO with opportunity to be heard, implicitly recognizing that any exercise under ordinary provisions must respect principles of natural justice. (Ratio: Where prior TP route collapses, AO must re-examine claims with hearing.)

2. Treatment of precedents: The Tribunal expressly followed coordinate-bench decisions that construed omission as obliterative in absence of saving clause and relied on earlier Supreme Court ratio (General Finance Co.) supporting that omission differs from repeal for purposes of s.6 GCA; where authorities conflict, the Tribunal followed the line holding omission defeats continuation of proceedings.

Final disposition (legal conclusion)

The Tribunal admitted the additional legal ground; held that omission of clause (i) of section 92BA w.e.f. 01.04.2017 removes the statutory basis for TP/SDT adjustments made under that clause (absent any saving/transitional provision); deleted the domestic TP adjustments and remanded the matter to the AO to re-adjudicate the claim of expenditure under applicable law after affording the assessee an opportunity of being heard.

---