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Facts
The assessee, engaged in manufacturing paracetamol, filed its return for AY 2015-16. Its case was selected for scrutiny, leading to a TPO adjustment of Rs. 8,93,76,234/- for the purchase of paracetamol and an AO addition of Rs. 58,20,000/- for bogus commission. The CIT(A) partly allowed the assessee's appeal, deleting the transfer pricing adjustment based on the jurisdictional ground that Section 92BA(i) was omitted.
Held
The Tribunal affirmed the CIT(A)'s decision, holding that Section 92BA(i) was omitted with effect from 01-04-2017 without a saving clause, meaning the provision was non-existent for the relevant assessment year (2015-16). Consequently, the reference to the TPO for determining ALP of specified domestic transactions was without jurisdiction and invalid, rendering the consequential adjustment also invalid. The appeal of the Revenue was thus dismissed.
Key Issues
{"Whether the CIT(A) was justified in deleting the transfer pricing adjustment by holding that the omission of Section 92BA(i) rendered the provision non-existent ab initio for AY 2015-16.","Whether the reference to the TPO for specified domestic transactions was invalid on jurisdictional grounds, without examining the merits of ALP determination."}
Sections Cited
92BA(i), 92E, 92CA(3), 115JB, 144(1), 37
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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: Dr. BRR Kumar & Ms. Suchitra Kamble
आदेश/ORDER Per Suchitra Kamble, Judicial Member:
This is an appeal filed against the order dated 17-07- 2025 passed by CIT(A), Ahmedabad-13 for assessment year 2015-16.
The grounds of appeal are as under:- “(1) Whether on the facts and in circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the transfer pricing adjustment by holding that the omission of section 92BA(i) of the Act, 1961 rendered the provision non-existent ab initio, without appreciating that the omission takes effect only from 01.04.2017 and applies prospectively to AY 2017-18 and subsequent years?
Farmson Pharmaceutical Gujarat Pvt. Ltd., A.Y. 2015-16 (ii) Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in holding the reference to the TPO as invalid when the assessee has itself disclosed the impugned purchases as specified transaction in Form 3CEB under section 92E?
(iii) Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in granting relief solely on jurisdictional grounds, without examining the merits of the ALP determination made by the TPO in accordance with the provision applicable for the relevant year? (iv) The appellant craves leaves to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal.”
3. The assessee is engaged in the business of manufacturing of sale of parecetamoal. The return of income was filed on 28- 11-2016 declaring total income of Rs. 13,41,14,490/- and book profit u/s. 115JB of the Act at Rs. 12,97,69,573/-. The assessee’s case was selected for complete scrutiny. Various statutory notices were issued and served upon the assessee. The assessee’s case was referred to the transfer pricing officer in the order u/s. 92CA(3) of the Act was passed by the TPO on 31-10- 2018 thereby making total adjustment of Rs. 8,93,76,234/- on account of purchase of parecetamoal. The A.O. passed draft assessment order u/s. 144(1) on 26-11-2018. On the basis of the findings of the draft assessment order, the A.O. observed that during the assessment proceedings, details of commission payment from Reynolds Petro-Chems Ltd. was furnished by the assessee and it clearly states that the assessee paid sales commission to Reynolds Petro-Chems Ltd. During the survey action at Mumbai and Surat Premises of M/s. R.P. Chems Ltd., it was found that the assessee company paid commission of Rs. 58,20,000/- instead of Rs. 31,01,136/- mentioned in the show cause notice. Thus, the contention of the assessee that the Farmson Pharmaceutical Gujarat Pvt. Ltd., A.Y. 2015-16 expenditure to that extent is allowable u/s. 37 as the TDS has been deducted on the commission payments was rejected by the A.O. The A.O. made the addition of Rs. 58,20,000/- for bogus commission. The A.O. also made addition of Rs. 8,93,76,234/- thereby making upward adjustment made by the Transfer Pricing Officer.
Being Aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
The ld. D.R. submitted that the reference to the TPO was validly made by the A.O. and the CIT(A) was not right in holding that the reference to the TPO was in-valid when the assessee itself discloses the purchases as specified transaction in the form of 3CEB u/s. 92E of the Act. The ld. D.R. further submitted that the CIT(A) was not justified in deleting transfer pricing adjustment by holding that the omission of section 92BA(1) of the Act, 1961 rendered the provision as non-existent ab initio without appreciating that the omission takes effect only from 01- 04-2017 and applies prospectively to assessment year 2017-18 and subsequent years. The ld. D.R. further submitted that the CIT(A) was not justified in granting the relief solely without examining the merits of the ALP determination made by the TPO in accordance with the provisions applicable for the relevant year.
The ld. A.R. relied upon the assessment order and the order of the CIT(A).
Farmson Pharmaceutical Gujarat Pvt. Ltd., A.Y. 2015-16 We have heard both the parties and perused all the 7. relevant material available on record. It is pertinent to note that section 92BA(i) was omitted w.e.f. 01-04-2017 and there was no saving clause. Thus, the CIT(A) while taking cognizance of the same has categorically held that the provisions never existing in the statute book and hence the reference to TPO was bad in law and the consequential order passed by the TPO is also invalid. The Hon’ble Karnatka High Court in case of PCIT vs. Texport Overseas Pvt. Ltd. 114 taxmann.com 568 held that since the effect of omission of the provision tantamount to non-existent of such provision in the Act, the action of the A.O. in referring the case to TPO for determining the ALP of specified domestic transaction is without jurisdiction and therefore not valid. Thus, the CIT(A) has rightly deleted the addition. Hence, the appeal of the Revenue is dismissed.
In the result, the appeal of the Revenue is dismissed.