O R D E R
Per Padmavathy S, Accountant Member
This appeal is directed against the order passed by the DCIT, Circle-5(1)(1), Bangalore dated 27/07/2017 u/s 143(3) r.w.s 144C of the Income-tax Act 1961 (the Act) for the asst. year 2013-14.
2. The Brief facts of the case are that the assessee is an Indian company engaged in the business of manufacturing of Ingots/Billets &
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TMT bars and also into whole sale trading of TMT bar and MS Steel structure procured from various suppliers. The assessee filed the return of income for the asst. year 2013-14 on 30/09/2021 declaring a total income of Rs.32,36,120/- and the same was processed under the provisions of sec. 143(1) of the Act. The assessee's case was selected for scrutiny assessment and notice under section 143(2) of the Act was issued on 02.09.2014. The case was referred to the Transfer Pricing Office (TPO) vide letter dated 16.02.2016. The TPO vide letter dated 23.03.2016 called upon the assessee to submit documents maintained under the provisions of section 92D of the Act and the assessee submitted the same on 20.07.2016. The learned TPO issued notice dated 20.09.20 16 upon the assessee to show cause why the TP Documentation should not be rejected, adopting the comparables selected by the TPO and calling for objections. The assessee vide letter dated 03.10.2016 submitted a detailed reply demonstrating why the learned TPO should not proceed with the proposed comparables. The TPO however without appreciating the submissions of the appellant proceeded to pass the order under section 92CA of the Act proposing an adjustment of Rs.59,34,03,425/-, and the details are provided below:
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3. The AO passed the draft assessment order dated 30.12.2016. The assessee raised objections before the DRP. The DRP after considering the submissions of the assessee gave partial relief to the assessee whereby the DRP directed the AO to rectify the mistake in the returned income considered and allowed the additions made towards PF&ESI. The DRP however confirmed the TP adjustment made by the TPO. The AO concluded the assessment by considering the directions of the DRP and passed the assessment order under section 143(3) read with section 92CA of the Act vide his order dated
27.07.20 17.
4. Aggrieved by the order of assessment, the assessee is filing the appeal before the Tribunal.
5. During the course of hearing, the learned counsel for the assessee moved an application for the admission of the additional grounds with a request that since the additional grounds goes to the root of the case it should be admitted and be disposed off at the threshold. The additional ground raised by the assessee is reproduced below
"The TPO, DRP and the AO have failed to consider the fact that the provisions of section 92BA of the Income-tax Act 1961 have been amended vide Finance Act 2017 to exclude specified domestic transactions which are contained under section 92BA read with 40A(2)(b) from the purview of transfer pricing regulations"
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6. The learned AR submitted that there was an amendment in section 92BA by the Finance Act, 2017 w.e.f. 01 .04.2017 whereby clause (ii) of section 92BA relating to "any expenditure in respect of which payment has been made or is to be made to a person referred to clause (b) of sub section (2) of section 40A" was omitted and on account of its omission, the impugned transaction would not fall within the definition of specified domestic transaction. Therefore, it has become necessary for the assessee to raise this additional ground before the Tribunal.
7. The admission of the additional grounds were strongly objected by the learned DR on the premise that these grounds were never raised before the DRP nor were they raised in the original grounds of appeal and hence should not be admitted.
8. We heard the rival submissions on the admission of the additional grounds. The additional grounds raised are pure legal issue, which does not require investigation of new facts. Hence, placing reliance on the judgment of the Hon'ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC), we admit the additional grounds.
9. The learned AR also submitted that the similar issue was considered by the coordinate bench of the Tribunal in the case of
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Texport Overseas Pvt. Ltd., in IT(TP)A No.1722/Bang/2017 and that the said order of the Tribunal is confirmed by the High Court of Karnataka vide ITA No.392/2018 order dated 12/12/2019. The learned AR therefore submitted that decision of jurisdictional High Court is applicable directly to the assessee's case and prayed for the deletion of the TP adjustments made.
10. The Ld DR supported the decisions of the lower authorities.
11. We heard the rival submissions and perused the material on record. We notice that co-ordinate bench of the Tribunal in the case of Texport Overseas Pvt. Ltd. (supra has considered the similar issue, wherein it is held that -
4. The learned AR invited our attention that provision of section 92BA was brought on statute by the Finance Act, 2012 w.e.f. 01.04.2013 relevant to assessment year 2013-14. Therefore, it is the first year when the transactions are to be examined in the light of provision of section 92BA of the Act. The AO having observed that the assessee has entered into specified domestic transaction covered under section 92BA of the IT Act and made a reference under section 92CA, to TPO for computation of ALP. Accordingly, TPO has computed the ALP which, was objected to by the asséssee before the DRP and DRP disposed off the objections with certain findings/directions.
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5. The learned counsel for the assessee further contended that sub clause (I) of section 92BA under which has undertaken the transactions which has exceeded the prescribed limit, was omitted by the Finance Act, 2017 w.e.f. 01.04.2017. Since clause (i) has been omitted from the statute by virtue of the amendment, this particular sub clause shall be deemed not to be on the statute since the beginning. In support of his contention, the learned counsel for the assessee has placed a heavy reliance upon the judgment of the Apex Court in the case of Koihapur Canesugar Works Ltd.. Vs. Union of India in Appeal (Civil) 2132 of 1994 vide judgment dated 01.02.2000 in which the constitution bench has held that section 6 only applies to repeals and not to omissions, and applies when the repeal is of a Central Act or Regulation and not as a Rule. It was further clarified by the Apex Court that in such a case the court is to look to the provisions in the rule which has been introduced after omission, of the previous rule to determine whether a pending proceeding will continue or lapse. If there is a provision therein that pending proceedings shall continue and be disposed of under the old rule as if the rule has not been deleted or omitted then such a proceeding will continue. If the case is covered by Section 6 of the General Clauses Act or there is a pari-materia provision in the statute under which the rule has been framed in that case also the pending proceeding will not be affected by omission of the rule. A further reliance was also placed upon the judgment of the Apex Court in the case of General Finance Co. Vs. Assistant Commissioner of Income-tax 257 ITR 38 (SC) in which the Apex Court has held that the principle underlying section 6 as saving the right to initiate proceedings for liabilities incurred during the currency of the Act will not apply to omission of a provision in an Act but only to repeal, Omission being different from repeal as held in the aforesaid decisions. Reliance was also placed upon the order of the Tribunal in the case of CT Vs. GE
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Thermometrics India Pvt. Ltd. in ITA No. 876/2008 in which while dealing the omission sub-section (9) of Section 10B the Hon'ble High Court has held that once the section is omitted from the statute book, the result is it had never been passed and be considered as a law that never exists and therefore, when the assessment orders were passed, the AO was not justified in taking note of a provision which was not in the statute book and denying benefit to the , Therefore, in the light of these judicial pronouncements, sub-section (i) of section 92BA shall be deemed to be not on the statute since beginning.
6. The learned DR on the other hand has contended that even if it is held that the clause (i) of section 92BA relating to expenditures in respect of which payment has been made or is to be made to person referred to in clause (b) of sub section 2 of section 40A of the Act is not on the statute since beginning in view of the amendment and in the light of various judicial pronouncements the reference made by AO to TPO is bad in law, the AO is required to examine the claim of the in the light of other provisions of the Act.
"7. Having carefully examined the orders of authorities below in the light of rival submissions and relevant provisions and various judicial pronouncements, we find that by virtue of the insertion of section 92BA on the statute as per clause (i), any expenditure in respect of which payment has been made or is to be made to person referred to in clause (b) of sub section 2 of section 40A exceeds the prescribed limit, it would be a specified domestic transaction for which AO is required to make a reference to TPO under section 92CA of the Act for determination of the ALP. In the instant case, since the transaction exceeds the prescribed limit it becomes the specified domestic transaction for which reference was made by the AO to the TPO under section 92CA for
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determination of the ALP. Consequently, the TPO submitted a report which was objected to by the learned counsel for the assessee and filed a objection before the DRP. Having adjudicated the objections, the DRP has issued certain directions and consequently the AO passed an order. Subsequently, by Finance Act, 2017 w.e.f. 01.04.2017, clause (i) of section 92BA was omitted from the statute. Now the question arises as to whether on account of omission of clause (i) from the statute, the proceedings already initiated or action taken under clause (i) becomes redundant or otiose. In this regard, our attention was invited to judgment of the Apex Court in the case of Kolhapur Canesugar Works Ltd., (supra) in which the impact of omission of old rule 10 and 10A was examined.
Having carefully examined the issue in the light of provisions of section 6 of the General Clauses Act, their Lordship has observed
"that in such a case, the court is to look to the provisions in the rule which has been introduced after omission of the previous rule to determine whether a pending proceeding will continue or lapse. If there is a provision therein that pending proceedings shall continue and be disposed of under the old rule as if the rule has not been deleted or omitted then such a proceeding will continue. If the case is covered by Section 6 of the General Clauses Act or there is a pari-materia provision in the statute under which the rule has been framed in that case also the pending proceeding will not be affected by omission of the rule. In the absence of any such provisions in the statute or in the rule, the pending proceeding will lapse under rule under which the notice was issued or proceeding being omitted or deleted".
8. In the case of General Finance Co., Vs. ACIT, their Lordship of the Apex Court has again examined the issue and held that the
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principle underlying section 6 as saving the right to initiate proceedings for liabilities incurred during the currency of the Act will not apply to omission of a provision in an Act but only to repeal, omission being different from repeal as held in different cases. Following the aforesaid judgments, the jurisdictional High Court has also expressed the same view in the case of CIT Vs. GE Thermometrics India Pvt. Ltd. The relevant observation of the jurisdictional High Court is extracted hereunder:
"8. Admittedly, in the instant case, there is no saving clause or provision introduced by way of an amendment while omitting sub-section (9) of Section 10B. Therefore, once the aforesaid section is omitted from the statute book, the result is it had never been passed and be considered as a law that never exists and therefore, when the assessment orders were passed in 2006, the AO was not justified in taking note of a provision which was not in the statute book and denying benefit to the assessee. The whole object of such omission is to extend the benefit under Section 10B of the Act irrespective of the fact whether during the period to which they are entitled to the benefit, the ownership continues with the original assessee or it is transferred to another person. Benefit is to the undertaking and not to the person who is running the business. We do not see any merit in these appeals. The substantial question of law is answered in favour of the assessee and against the revenue. Accordingly, the appeals are dismissed."
9. From the aforesaid judgments, it has become abundantly clear that once a particular provision of section is omitted from the statute, it shall be deemed to be omitted from its inception unless and until there is some saving clause or provision to make it clear that action taken or proceeding initiated under that provision or
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section would continue and would not be left on account of omission.
10. In the instant case, undisputedly, by the Finance Act, 2017, clause (i) of section 92BA has been omitted w.e.f. 01.04.2017. Once this clause is omitted by subsequent amendment, it would be deemed that clause (i) was never been on the statute. While omitting the clause (i) of section 92BA, nothing was specified whether the proceeding initiated or action taken on this continue. Therefore, the proceeding initiated or action taken under that clause would not survive at all. In this legal position, the cognizance taken by the AO under section 92B(i) and reference made to TPO under section 92CA is invalid and bad in law. Therefore, the consequential order passed by the TPO and DRP is also not sustainable in the eyes of law.
11. Under these circumstances, where this clause (i) is omitted from the statute since its inception, the AO ought have required to frame the assessment in normal course after making necessary enquiries of particular claim of expenditure in accordance with law. But this exercise could not have been done on account of provisions of section 92BA Clause (i) of the Act. Now when this clause (i) has been omitted from the statute by virtue of the aforesaid amendments, the AO is required to adjudicate the issue of claim of expenditures in accordance with law after affording opportunity of being heard to the assessee. We therefore set aside the orders of the AO and the DRP and restore the matter to the AO with the direction to readjudicate the issue of claim of expenditure incurred in respect of which payment has been made or is to be made to person referred to in clause (b) of sub section 2 of section 40A of the Act. Accordingly, since we have restored the matter to the AO, we find no justification to deal with
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the other issues on merit. Accordingly, appeal of the assessee stand allowed for statistical purposes."
12. The Hon'ble Karnataka High Court upheld the above decision of the Tribunal with the following observations.
5. Having heard learned Advocates appearing for parties and on perusal of records in general and order passed by tribunal in particular it is clearly noticeable that Clause (i) of section 92BA of the Act came to be omitted w.e.f. 01.04.2019 by Finance Act, 2014. As to whether omission would save the acts is an issue which is no more res intigra in the light of authoritative pronouncement of Hon'ble Apex Court in the matter of Kolhapur Canesugar Works Ltd. v. Union of India AIR 2000 SC 811 whereunder Apex Court has examined the effect of repeal of a statute vis-a-vis deletion/addition of a provision in an enactment and its effect thereof. The import of section 6 of General Clauses Act has also been examined and it came to be held:
"37. The position is well known that at common law, the normal effect of repealing a statute or deleting a provision is to obliterate it from the statute-book as completely as if it had never been passed, and the statute must be considered as a law that never existed. To this rule, an exception is engrafted by the provisions of section 6(1). If a provision of a statute is unconditionally omitted without a saving clause in favour of pending proceedings, all actions must stop where the omission finds them, and if final relief has not been granted before the omission goes into effect, it cannot be granted afterwards. Savings of the nature contained in section 6 or in special Acts may modify the position. Thus the operation of repeal or
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deletion as to the future and the past largely depends on the savings applicable. In a case where a particular provision in a statute is omitted and in its place another provision dealing with the same contingency is introduced without a saving clause in favour of pending proceedings then it can be reasonably inferred that the intention of the legislature is that the pending proceedings shall not continue but fresh proceedings for the same purpose may be initiated under the new provision."
6. In fact, Co-ordinate Bench under similar circumstances had examined the effect of omission of sub-section (9) to Section 10B of the Act w.e.f. 01.04.2004 by Finance Act, 2003 and held that there was no saving clause or provision introduced by way of amendment by omitting sub-section (9) of section 10B. In the matter of General Finance Co. v. ACIT, which judgment has also been taken note of by the tribunal while repelling the contention raised by revenue with regard to retrospectivity of section 92BA(i) of the Act. Thus, when clause (i) of Section 92BA having been omitted by the Finance Act, 2017, with effect from 01.07.2017 from the Statute the resultant effect is that it had never been passed and to be considered as a law never been existed. Hence, decision taken by the Assessing Officer under the effect of section 92BI and reference made to the order of Transfer Pricing Officer-TPO under section 92CA could be invalid and bad in law.
7. It is for this precise reason, tribunal has rightly held that order passed by the TPO and DRP is unsustainable in the eyes of law. The said finding is based on the authoritative principles enunciated by the Hon'ble Supreme Court in Kolhapur Canesugar Works Ltd. referred to herein supra which has been followed by Co-ordinate Bench of this Court in the matter of M/s. GE Thermometrias India Private Ltd., stated supra. As such we are of the considered view
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that first substantial question of law raised in the appeal by the revenue in respective appeal memorandum could not arise for consideration particularly when the said issue being no more res integra.
13. Considering the binding effect of the decision rendered by the Hon'ble Karnataka High Court we respectfully follow the same and hold that the reference to the TPO in respect of specified domestic transactions mentioned in clause (i) of sec. 92BA is not valid as the said provision is omitted since inception. Accordingly, we direct the AO to delete the additions relating to specified domestic transactions made u/s 92CA of the Act.
14. We notice that the coordinate bench in the case of Texport Overseas Pvt. Ltd., (Supra) has restored the matter to the file of the AO under the direction to examine the claim of expenditure in accordance with the provisions of sec. 40A(2)(b) of the Act. Following the same, we restore this issue to the file of the AO with the direction to examine the claim of expenditure in terms of the provisions of sec. 40A(2)(b) of the Act.
15. In view of the above decision the various grounds raised by the with respect to transfer pricing adjustments made by the TPO and the direction of the DRP have become infructuous and hence dismissed. The AO is directed to look into the facts afresh and decide the case on
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merits as per the provisions of law after giving a reasonable opportunity of being heard to the assessee in this regard.
16. In the result, the appeal of the assessee is allowed. Order pronounced in court on 29th day of April, 2022 Sd/- Sd/-
(N.V VASUDEVAN) ( PADMAVATHY S) Vice President Accountant Member Bangalore,
Dated, 29th April, 2022
/ vms /
Copy to:
1. The Applicant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR, ITAT, Bangalore.
6. Guard file
By order
Asst. Registrar, ITAT, Bangalore.
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1. Date of Dictation ……………………………………
2. Date on which the typed draft is placed before the dictating Member …………………….
3. Date on which the approved draft comes to Sr.P.S .…………………………….
4. Date on which the fair order is placed before the dictating Member ………………..
5. Date on which the fair order comes back to the Sr. P.S. …………………..
6. Date of uploading the order on
website……………………………..
7. If not uploaded, furnish the reason for doing so …………………………..
8. Date on which the file goes to the Bench Clerk …………………..
9. Date on which order goes for Xerox & endorsement……………………………………
10. Date on which the file goes to the Head Clerk …………………….
11. The date on which the file goes to the Assistant Registrar for signature on the order
……………………………….
12. The date on which the file goes to dispatch section for dispatch of the Tribunal Order
………………………….
13. Date of Despatch of Order.
……………………………………………..
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