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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI PRAMOD KUMAR & SHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the assessee challenging the impugned final assessment order dated 23/10/2018, passed by the Assessing Officer u/s 143(3) r/w section 144C(5) of the Income Tax Act, 1961 (‘the Act’) pursuant to the directions dated 26/09/2018, issued by the Dispute Resolution Panel (DRP)–3, Mumbai, for the assessment year 2014–15.
Mutha Engineering Pvt. Ltd. ITA No.7226/Mum./2018
2. In the present appeal, the assessee is aggrieved against the adjustment of Rs.5,23,79,628, in respect of specified domestic transactions entered into by the assessee.
When this appeal came up for hearing, the learned Representative appearing for the parties fairly agreed that the aforesaid issue, arising in the present appeal, is covered by the recent decision of the Co-ordinate Bench of the Tribunal in Mahindra Two Wheelers Ltd. v/s DCIT, ITA no.519/Mum./2018, order dated 28/04/2022, for the assessment year 2013-14.
We find that the Co-ordinate Bench of the Tribunal in Mahindra Two Wheelers Ltd. (supra), while dealing with the similar issue, observed as under:-
“017. We have carefully considered the rival contention and perused the orders of the lower authorities. In the present case there is an adjustment made to the income of the assessee by determining arm's-length price of specified domestic provisions by invoking the provisions of Section 92BA (1) of the act. The impugned assessment year before us is assessment year 2013 14. The above provision i.e. 92BA (i) of the act was inserted by The Finance Act, 2012 with effect from 1/4/2013 and is omitted by The Finance Act, 2017 with effect from 1/4/2017. The issue whether the adjustment can be made to the total income of the assessee by invoking the provisions of Chapter X of The Income Tax Act to the transactions covered by provisions of Section 92BA (1) for assessment year 2013-14 till it was omitted. This issue has been dealt with by the honourable Karnataka High Court in case of Texport overseas (supra) in favour of the assessee holding that as the provisions of Section 92BA (1) has been omitted from the Income Tax Act without any saving clause therefore the natural corollary would be that it did not exist at all in the statute book. Accordingly, we allow the additional ground of appeal and hold that the impugned transfer pricing adjustment of 2,196,447,328/- made by the learned assessing officer is not sustainable.
Mutha Engineering Pvt. Ltd. ITA No.7226/Mum./2018
However we are also conscious that the provisions of Section 40A (2) of the act still exists in the statute book. The decision of the Texport overseas Ltd of the coordinate bench, which was partly challenged by the revenue before the honourable High Court, also held so. In that case, the coordinate bench held that the adjustment on account of examination of the arm's-length price of the specified domestic transactions is not valid because of deletion of the provisions of Section 92BA (1) of the act with effect from 1/4/2017 without any saving clause, but it held that provisions of Section 40A (2) of the act governs the allowability of those expenditure and therefore coordinate bench set-aside the matter back to the file of the learned assessing officer. The decision of the coordinate bench setting aside the issue back to the file of the learned assessing officer for examination of allowability in accordance with the provisions of Section 40A (2) of the act has not been challenged by either of the parties before the honourable High Court. Further, the decision of the coordinate bench in case of Sobha City (supra) also held so. In view of this we set-aside ground number 5 of the appeal of the assessee back to the file of the learned assessing officer to examine allowability of expenditure in terms of provisions of Section 40A (2) of the act. 019. We do not agree with the argument of the learned authorised representative that it amounts to giving a second chance to the revenue and therefore no remand is warranted for verification of provisions of Section 40A (2) of the act. Very heavy reliance was placed on the decision of the honourable Bombay High Court in CIT versus VS Dempo and Co (private) Ltd 336 ITR 29 (Bombay). We find that in that particular decision the honourable Bombay High Court has given a categorical answer that the provisions of Section 40A (2) was not attracted in that particular cases because the subsidiary company was not at all related person of the assessee within the meaning of the provisions of Section 40A (2) (b) of the act. No such facts exist in the case. Contrary to that, in the present case the assessee, itself has stated in its TP study report as well as Report of Accountant in 3CEB stated that these transactions are covered by the provisions of Section 40 (A) (2) of the act. Even otherwise, it is not the fact that revenue is given a second chance. In the present case earlier the impression of the revenue prior to the decision of the coordinate bench and of the honourable Karnataka High Court, was that specified domestic transaction l.e. transactions that are covered by the provisions of Section 40 A (2) are required to be tested in accordance with the provisions of chapter X of the act. However when the judicial precedents show that no such provision exist in the law, the natural corollary would be to examine the allowability of these expenses u/s 40A (2) of the act. 020. In view of this ground number 5 of the appeal of the assessee is partly allowed.”
Mutha Engineering Pvt. Ltd. ITA No.7226/Mum./2018
As similar issue is arising in the present appeal, we see no reason to deviate from the view so taken by the Co-ordinate Bench of the Tribunal in the aforesaid decision. Accordingly, the transfer pricing adjustment of Rs.5,23,79,628, made by the Assessing Officer is not sustainable. However, the Assessing Officer is directed to examine the allowability of expenditure in terms of provisions of section 40A(2) of the Act. As a result, grounds no.1 to 17, raised by the assessee in the present appeal are allowed in terms indicated above.
Grounds no.18 to 22, were not argued during the course of hearing, therefore, these grounds are, accordingly, dismissed.