SHRI SURESHKUMAR HARJIVANBHAI CHANDARANA,RAJKOT vs. THE ACIT, CIRCLE - 2 (2) (1), RAJKOT, RAJKOT

The Transfer Pricing Officer, DCIT, TPO-2, Ahmedabad, vide his order dated 28.10.2019, had made upward adjustment to the tune of Rs. 3,98,32,520/-. The operative part of the order reads as under :

In response to the draft order, the assessee has given his submission, vide letter dated 11.12.2019, wherein the assessee has specifically submitted that he does not want to file any objections with the DRP. The assessee has further submitted that the purchases made by him from the associated enterprises (AE), Page 3 of 11 was at the prevailing market rate and also contended that the TPO has not taken lenient view for the bench marking. The assessee also submitted that the associated enterprises and assessee both are tax neutral and hence no addition is to be made. The assessee also submitted that whole of the purchases made by him was laying in the closing stock, and accordingly the closing stock value, has to be reduced and hence there is no impact on the profitability and there is no point of intention of transfer of profit for the sad transaction. It was further submitted that the goods purchased from associated enterprise is returned at the same price in subsequent year, hence neither profit impact in this year nor in subsequent year.

Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal.

Shri Mehul Ranpura, the Learned Counsel for the assessee, argued, on merit, that the assessee has adopted CUP method (comparable uncontrolled price method) for its specified domestic transactions. However, during the assessment proceedings, the assessing officer has adopted TAMM (Transactional Net Margin Method). The Ld. Counsel for the assessee submitted that the appropriate method, as per the nature of transaction in the assessee`s case is the CUP method. The assessee has been adopting CUP method (comparable uncontrolled price method), for bench marking the specified domestic transaction, and for that the assessee has submitted necessary documentary evidences which are placed in paper-book page nos. 15, 33 and 57, etc. The Ld. Counsel also submitted that the transactions undertaken by the assessee and in that transactions, the value difference between Page 5 of 11 method adopted by the assessing officer and method adopted by the assessee is less than 5%. For that Ld. Counsel for the assessee invited out attention on paper- book page no.72, of the chart, which shows that the additions made by the TPO/assessing officer, that is, price adopted by the assessing officer is less than 5%, in terms of value, therefore no adjustment is required.

On merit, the Ld. Counsel for the assessee further argued that the sale was made to the related party in the Month of February and March, 2016, however, the sale so was made by the assessee, was returned back in the next year, that is, in the next year, the transaction gets neutralised, therefore, there is no need to make any transfer pricing adjustment, as it is a tax naturalize matter, since goods have been returned in next year, hence, ALP (Arm’s Length Price) adjustment made by the assessing officer should be deleted.

Learned Counsel for the assessee, also argued, that domestic transfer pricing provisions have been omitted, with effect from 1st April, 2017. That is, from the assessment year 2017-18, the specified domestic transactions, (the transfer pricing provisions) have been omitted with effect from 1st April, 2017, therefore, it is to be treated, as if there were no provision for specified domestic transactions, in the Act, from the beginning and hence the entire transfer pricing adjustment made by the assessing officer should be deleted.

On the other hand, Learned CIT-DR for the revenue, on merit, submitted that the assessee failed to prove with the documentary evidences that the method adopted by the assessee is correct. Therefore, TNMM ( (Transactional Net Margin Method) is a correct method, as adopted by the assessing officer. Regarding the Page 6 of 11 omission of provision of domestic transfer pricing with effect to from 1st April, 2017, the Ld. CIT-DR for the revenue relied on the findings of the Ld.CIT(A).

The Ld. CIT-DR for the revenue also submitted that since the goods have been returned in the subsequent year, however, that does not mean that no transfer pricing adjustment should be made, in the current year under consideration, that is, in the current year, the transaction was existed in the books of accounts, therefore, transfer pricing adjustment needs to be done, in the hands of the assessee.

We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. We note that the purchases made by assessee were returned at the same price to associate enterprise (AE) on 02.04.2016, in subsequent year and hence there will be no profit impact in subsequent years as well. Under the Transfer Pricing Laws in India, there is a rebuttable presumption in law that transfer prices in international transactions or SDTs with the AEs are fixed at variance from Arm's Length Price. The onus is on the assessee to show that the transfer prices are close to or approximate what would have been the prices under the arm's length conditions and the same has been proved by the assessee under consideration by adopting the CUP method. The assessee had furnished four invoices of purchase of sesame seed by its AE, i.e. Dhaval Agri Export amounting to Rs.61 lakhs, as a sample, to demonstrate the arm`s length price. The ld. Counsel for the assessee has further submitted that both the assessee and AE are tax neutral entity, as none of them is enjoying any tax holiday or having any carried forward losses or claiming any deduction from total income. The assessee has also submitted that if the downward adjustment as calculated by the TPO for purchase from AE is Page 7 of 11 considered, then whole of such purchases was lying in the closing stock and accordingly closing stock has to be reduced and hence there is no impact on the profitability. The assessee has also submitted during appellate proceedings that the purchases under consideration were returned to AE on 02.04.2016 in subsequent year and hence there will be no profit impact on subsequent years` as well. Therefore, as per ld. Counsel for the assessee, the addition made by the assessing officer needs to be deleted.

We also note that the issue under consideration is squarely covered by the judgement of the ITAT, Raipur- Bench, in favour of assessee, in the case of Goldfricks Infrastructure (P.) Ltd. [2025] 170 taxmann.com 6, wherein the Hon’ble Tribunal held as follows: “14.1 At the outset, it was argued by Ld. AR that clause (i) of section 92BA has been omitted by the Finance Act, 2017 w.e.f. 01.04.2017, accordingly, the revenue was not empowered make any adjustment qua the impugned transaction carried out by assessee with related parties, as such transactions would no more qualify to be brought within the definition of "Specified Domestic Transactions" after the aforesaid amendment in section 92BA, therefore, no adjustment can be made under the said section. Ld. AR, to substantiate the aforesaid claim, placed his reliance on the judgment by Hon'ble Karnataka High Court in the case of Principal Commissioner of Income-tax - 7 v. Texport Overseas (P.) Ltd. [2020] 114 taxmann.com 568/271 Taxman 170 (Karnataka), wherein Hon'ble High Court has held as under: 5. Having heard learned Advocates appearing for parties and on perusal of records in general and order passed by tribunal in particular is clearly noticeable at Clause (i) of Section 92BA of the Act came to be omitted w.e.f. 01.04.2017 by Finance Act, 2017. 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 KOHLAPUR CANESUGAR WORKS LTD. v. UNION OF INDIA reported in 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 Page 8 of 11 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 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."

In fact, Coordinate 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 01.04.2017 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.

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 Coordinate 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 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. 14.2 Considering the aforesaid judgment of Hon'ble Karnataka High Court which is followed by various coordinate benches of this Tribunal refer to by the Ld. AR in his synopsis (supra), coming to the facts of present case that the order of TPO was passed on 31.10.2017 and the assessment order by the Ld. AO on 29.12.2017, being both the date falls after 01.04.2017, therefore, the issue in present case is expressly covered by the ratio of judgment rendered by the Hon'ble Karnataka High Court in the case of M/s Taxport (supra), hence the addition made on the basis of omitted provision of the law is unsustainable and have no standing in the eyes of law. Consequently, the addition of Rs.80,06,666/- made as an upward adjustment treating the transaction with related Page 9 of 11

We note that in the assessee`s case under consideration, the TPO passed the order on 28.10.2019 and the assessment order was passed by the assessing officer, on 19.12.2019, being both the date falls after 01.04.2017, therefore, the issue in present case is expressly covered by the ratio of judgment rendered by the Hon'ble Karnataka High Court in the case of M/s Taxport (supra).In view of the above discussions, facts and circumstances of the case and respectfully following the above referred decision, in the case of Goldfricks Infrastructure (P.) Ltd(supra), we find that Ld. TPO/AO was not justified in making the impugned adjustment at Rs.3,98,32,520/- in ALP on account of purchases made from the AE, hence, it should be deleted.

We note that the assessee has adopted CUP method (comparable uncontrolled price method) for bench marking its specified domestic transactions. The learned Counsel for the assessee submitted before us that the assessee has entered into purchase transaction with its associated enterprises, and the difference between the market price of the product and the contract price with associated enterprises, is 2.64% and 3.77% etc, which is below 5%, hence, it is a negligible difference between market price of the product and the contract price of the product, with its associated enterprise (AE). However, we note that the 5% is only a variation band for adjustment purposes, after ALP is determined. If the price charged by the assessee is within ±5% of the ALP, then, no transfer pricing adjustment is required.

As far as the application of CUP, as most appropriate method, is concerned, there was no difference of opinion between the assessee and the TPO during the Page 10 of 11 transfer pricing proceedings. Therefore, we note that the assessee has adopted CUP method (comparable uncontrolled price method) for bench marking its specified domestic transactions, which we have examined with reference to the documents and evidences submitted by the assessee, and noted that most appropriate method for the assessee is the CUP method (comparable uncontrolled price method), and taking into account this method, no transfer pricing adjustment is required in the hands of the assessee. Hence, we delete the transfer pricing adjustment made by the TPO/ assessing officer.

In the result, the appeal filed by the assessee is allowed. Order is pronounced in the open court on 15/12/2025.