The Income Tax Appellate Tribunal (ITAT), Mumbai bench held that the reference to the Transfer Pricing Officer for transfer pricing adjustment towards the Specified Domestic Transaction (SDT) under Section 92BA(i) of the Income Tax Act, 1961, has been omitted as per the Finance Act, 2017.
Hind Aluminium Industries Pvt. Ltd, the assessee, after filing the income tax return, had the case selected for scrutiny. Subsequently, the case was referred to the Transfer Pricing Officer under Section 92CA(1) for determining the arm’s length price of the transaction between the assessee company and its associate enterprises under Section 92BA(i) of the Income Tax Act.
The Transfer Pricing Officer observed that during the year, the assessee had purchased aluminum wire rod (Alloy) and aluminum wire rod-EC amounting to Rs. 1,48,08,19,668/- from the Associate Enterprises (AE). The assessee had benchmarked the transactions using the Comparable Uncontrolled Price (CUP) as the most appropriate method, with the AE as the tested party. The TPO noted that the price of items purchased from the AE was higher than that from third parties.
Aggrieved by the order, the assessee filed an appeal before the CIT(A), who held that the preference made by the Assessing Officer to the TPO regarding such SDT is invalid and bad in law. Consequently, the revenue filed another appeal before the tribunal.
During the proceedings, Vipul Joshi, the assessee’s representative, submitted that once the omission has been made, it is deemed that the clause was never part of the Act, while the department argued that the omission was brought about by the amendment in the Finance Act, 2017.
Pravin Salunkhe, Counsel for Revenue, argued that the amendment to Section 92BA by the Finance Act, 2017, was effective from 01/04/2017, omitting clause (i). The legislature intended to omit the clause from the assessment year 2017-18 onwards, and this provision was in existence in the assessment year 2013-14, inserted by the Finance Bill 2012.
Referring to the provision of Finance Bill 2017, he stated that the amendment would take effect from 01/04/2017, applicable to the Assessment Year 2017-18.
The tribunal relied on the decision of Kolhapur Canesugar Works Ltd vs. Union of India, observing that once the statute omitted clause (i) of Section 92BA through the Finance Act, 2017, it never existed and is not to be considered as law.
After reviewing the facts and records, the two-member bench of Padmavathy S (Accountant Member) and Amit Shukla (Judicial Member) held that the exemption of Section 92BA(i) of the Income Tax Act implies that any reference to the TPO for SDT in Section 92BA(i) is invalid, and no transfer pricing adjustment can be made on such SDT. Therefore, the bench dismissed the appeal filed by the revenue.
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