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Facts
The assessee, engaged in construction, filed its return declaring a loss. The case was taken up for scrutiny due to international and specified domestic transactions and referred to the Transfer Pricing Officer (TPO). The TPO proposed significant adjustments totaling Rs.10,13,16,65,100/-, including for land development rights and interest. The AO passed a draft assessment order making this addition, which the assessee appealed to the CIT(A), who partly allowed it, leading to appeals by both the assessee and the Department of Revenue to the ITAT.
Held
The Tribunal held that no transfer pricing adjustment can be made on account of domestic transactions referred by the Assessing Officer after the omission of Clause (i) of Section 92BA of the Income Tax Act by the Finance Act 2017, effective 01/04/2017. Following the ratio of various High Court and ITAT decisions, it was concluded that a section omitted with retrospective effect is considered to have never existed in law. Consequently, the assessee's appeal was allowed, and the Department's appeal was dismissed.
Key Issues
Whether transfer pricing adjustments can be made on domestic transactions after the retrospective omission of clause (i) of Section 92BA of the Income Tax Act, 1961, by the Finance Act, 2017.
Sections Cited
92CA(3), 143(3), 144C, 92BA(i), 40A(2), 253(2A)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘I’: NEW DELHI
Date of Hearing 04/07/2024 Date of Pronouncement 06/09/2024 O R D E R
PER VIMAL KUMAR, JM:
The appeal by the assessee and application for condonation of delay of 464 days in filing appeal as well as appeal by Department of Revenue are against order dated 30/06/2022 passed by Learned Commissioner of Income Tax (Appeals)-44, New Delhi (hereinafter referred to as ‘the Ld. CIT(A)) arising out of Assessment Order dated 20/02/2020 of Learned Deputy Commissioner of Income Tax, Circle-2, Delhi (hereinafter referred as ‘the Ld. AO’) for the Assessment Year 2016-17.
Appellant Department of Revenue due to multiplicity of work in office of the Jurisdictional Assessing Officer (JAO) after restructuring of charges, the authorization in the case was misplaced in a deck of documents, could not file appeal within period of limitation. Learned Authorized Representative for the assessee had no objection to the condonation of delay of 646 days in filing of appeal. The Explanation on behalf of Appellant Department of Revenue does not smack of malafides as the appellant has not gained anything by not filing appeal within period of limitation. Therefore, delay of 646 days in filing the appeal is condoned.
Brief facts of case are that the assessee is engaged in business of construction, development and sale of integrated townships and residential houses and apartments. The assessee filed the return of income on 28/09/2016 declaring loss of Rs.3,97,74,805/- which was subsequently revised on 30/11/2016 at a loss of Rs.1,93,73,902/-. The case was taken up for scrutiny. In view of the international transactions and “specified domestic transactions” with the AEs the case was referred to the Transfer Pricing Officer (TPO) for determination of arm’s length price of such transactions.
The TPO passed the order u/s 92CA(3) of the Income Tax Act, 1961 on 31/10/2019 wherein adjustment u/s 92CA of the Income Tax Act, of Rs.10,13,16,65,100/- was proposed which included adjustment to purchase cost of land development rights of Rs.994,30,63,961/- and adjustment of interest paid to AEs on CCD/OCD of Rs.18,86,01,139/-.
The Learned AO passed Draft Assessment Order u/s 143(3) r.w.s. 144C of the Act, on 22/12/2019 wherein income of the appellant company was proposed to be assessed at a total income of Rs.1011,22,91,200/- as against returned loss of Rs.1,93,73,902/-, thereby proposing an addition of Rs.1013,16,65,100/-. The appellant informed the Learned AO that it was not filing objection against the draft order before the Dispute Resolution Panel (‘DRP’) and intends agitating same in an appeal before the Learned CIT(A). Accordingly, the assessment was completed vide assessment order dated 20/02/2020 u/s 143(3) r.w.s.144(3) at a total income of Rs.1011,322,91,200/-.
Appellant/assessee preferred appeal before Learned CIT(A) which was partly allowed vide order dated 30/06/2022.
Being aggrieved appellant/assessee and Department of Revenue preferred separate above captioned appeals.
Learned Authorized Representative for appellant/assessee submitted that grounds of present appeals are similar to grounds of appeal in titled as DCIT vs. DLF Urban Pvt. Ltd. and ITA No.1962/Del/2022 titled as DLF Urban Pvt. Ltd. vs. DCIT decided vide order dated 08/04/2024 of the ITAT Bench Delhi. In order dated 08/04/2024 the issue that no transfer pricing adjustment can be made on account of domestic transaction which has been referred by the Learned Assessing Officer, after omission of Clause (i) of section 92BA of the Act by Finance Act 2017 has been decided in favour of assessee. The order dated 08/04/2024 has been followed in ITA No.807/Del/2021 titled as Panacea Boitec Ltd. vs. ACIT decided on 22/05/2024. Therefore, appeal of assessee may be allowed and appeal of the Department of Revenue be dismissed.
9. Learned Authorized Representative for Department of Revenue submitted that the ground of retrospective application/omission of clause (i) of section 92 BA and other grounds have been dealt by the Ld. CIT(A) by a speaking order. The Department relies on the decision of Ld. CIT(A). The amendment has been made in section 92BA by Finance Act, 2017 which is applicable with effect from 01/04/2017. Hon’ble Apex Court’s recent landmark decisions PCIT V/s Wipro Ltd. (2022) 140 taxmann.com 223, Commissioner V/s Dilip Kumar & Co. 2018 (9) SCC 1(SC) FB & CIT v/s GM Knitting Industries (P) Ltd. (2015) 376 ITR 456 (SC) have settled the law that the relevant provisions in the Act out to be put to stricter interpretation only. Hon’ble Supreme Court decision in the case of Fiber Boards Pvt. Ltd. vs. CIT Bangalore in 62 taxmann.com 135/376 ITR 596(SC). Hon’ble Supreme Court, after duly considering all the decision, came to a conclusion that the ratio of the decisions in Rayala Corporation, Kolhapur Canesugar etc cannot be said to be ratio decidendi at all and it is really in nature of obiter dicta. It has also been held by Hon'ble Apex Court that these decisions don't have binding effect. In Shree Bhagwati Steel Rolling Mills vs Commissioner of Central Excise in Civil Appeal No. 4280 of 2007 prayer was made to reconsider earlier decision in the case of Fibre Boards P. Ltd.(2015) 52 taxmann.com. In order of Hon'ble Mumbai Tribunal in the case of Firemenich Aromatics (India) Pvt. Ltd vs ACIT Circle 4(2), Mumbai in and ITA No.732/Mumbai/2014 analyzing decision of Hon'ble Supreme Court in the case of Kolhapur Cane Sugar Works Ltd. vs. Union of India (2000) 2SCC536 and held that the decision in the case of Texport overseas by Hon'ble Karnataka High Court lacks any binding value as it was rendered without considering the Hon'ble Supreme Court decision in the case of Fibre Boards and Shree Bhagwati Steel. The earlier decision of Hon'ble Apex Court in the case of Kolhapur Cane Sugar and Rayala Corporation are also not binding and their observation are in nature of obiter dicta after the decision of Hon'ble Supreme Court in the case of Fibre Board and Shree Bhagwati Steel. The decision rendered by Hon'ble Supreme Court in the case of Fibre Board and Shree Bhagwati Steel have binding precedent on all courts in India including this Tribunal. Thus in view of the above discussion, it is proved beyond doubt that the reigning decision on the issue of effect of omission of an Act/Rule are the decisions of Hon'ble Supreme Court in the case of Fibre Boards and Shree Bhagwati Steel wherein it is held that the omission of an Act/Rule would not invalidate or annul any proceedingsinstituted or continuing when the enactment was there in the statute books. Hon'ble Supreme Court decision in the case of Kolhapur Canesugar Works Ltd. on which the decision of Hon'ble Karnataka High Court in the case of Texport is based, has already been overruled by the Hon'ble Supreme Court in the case of Fiber Boards Pvt. Ltd, and Shree Bhagwati Steel Rolling Mills Ltd. Further this position of law with regard to omission/repeal of a particular section in law has been addressed at length by the Hon'ble Mumbai Tribunal in the case of Fire Menich Aeromatics India Ltd. in and ITA No. 1732/Mum/2014 for A.Y. 2009-10.
10. Learned representative for department submitted that the assessee has also relied on the order of ITAT Delhi in the case of Yorkn Tech Pvt. Ltd. vs. DCIT in wherein the Hon'ble Bench has considered the decisions of the Hon'ble Supreme Court in the case of Shree Bhagwati Steel Rolling Mills Ltd. and Fiber Boards Pvt. Ltd. Bangalore vs. CIT and came to the conclusion that no TP adjustment can be made on a domestic transaction which has been referred to by the AO after the omission of the said clause by Finance Act 2017 even though transaction has undertaken in the A.Y. 2016-17. It is also fairly considered that this issue has again raised in the case of DLF Urban Pvt. Ltd. vs. DCIT in ITA No. 1962 & 2078/Del/2022 for A.Y. 2016-17. The issue of effect of omission of a particular section in the Act ha been decided by the Hon'ble Mumbai ITAT in the case of Firemenich Aeromatic India Pvt. Ltd. (Supra) and other Tribunals in different/conflicting ways. The decisions of Hon'ble ITAT Mumbai in the case of Firemenich Aeromatic India Pvt. And Hon’ble ITAT Delhi decisions in the case of Yorkn Tech Pvt. Ltd. it is seen that both the Tribunals have discussed Hon’ble Supreme Court decision in the cases of Shree Bhagwati Steel and Fiber Boards (cited supra) but interpreted the ratio of the decisions in totally different way and also came to a totally different conclusion.
11. Learned Authorized Representative for Revenue submitted that the case of DLF Urban Pvt. Ltd. vs. DCIT, Circle-7(1), in ITA No.2078/Del/2022 for A.Y. 2016-17. The case was heard on technical ground of omission of Section 92B(i) and it was reserved for orders. However, after that, the Hon’ble Bench refixed the matter for hearing on merits. Though the conflicting decisions of Firemenich Aeromatic India Pvt. of Mumbai, ITAT was cited and also the decisions of Hon’ble Apex Court in the case of Fiber Boards and Shree Bhagwati Steel Rolling Mills was discussed in detail but no request for reference to a special bench was made. So, as no request for reference to a President ITAT was made in the case of DLF Urban Pvt. Ltd. Accordingly, to that extent, it is submitted with respect, the decision of Hon’ble Bench in the case of Panacea Biotec is erroneous. And as no other reason was cited for declining of reference to President ITAT, except the decision of DLF Urban Ltd. accordingly, it is humbly submitted that the request for reference to a President ITAT has not been considered on merits in the case of Panacea Biotec. Thus, the reliance by the assessee’s counsel on that decision is misplaced. Without prejudice to the above, it is submitted that, if the Hon’ble Bench does not deem it fit to refer the matter to a special bench, then in line with the decision in the Texport Overseas and also in other cases like M/s Sobha City vs. ACIT, Circle 1(2)(2) Bangalore in the matter may kindly be remitted back to the file of AO/TPO with the directions to examine the claim of expenditure in accordance with the provision of section 40A(2) of the IT Act or the matter be referred to the Hon’ble President ITAT to constitute Special Bench or the case be fixed for hearing on merits.
12. From examination of record in light of aforesaid rival contention, it is crystal clear that for the Asst. Year 2016-17, the Assessing Officer made addition on account of Transfer Pricing Adjustment u/s 92CA(3) of Income Tax Act, 1961. As per ratio of judgment in Principle of Commissioner of Income Tax vs. Taxport Overseas (P.) Ltd. [2002] 114 taxmann.com 568 (Karnataka)’s case it is well settled principle of law that once this section is omitted w.e.f 01/04/2017 the resultant effect is that it had never been passed to be considered as a law and never been existed.
13. A Co-ordinate Bench of Hon’ble ITAT Delhi in titled as “DCIT vs. DLF Urban Pvt. Ltd.” decided on 08/04/2024 has observed as under:- “27. Coming to merits of the additional ground, having given a thoughtful consideration to the matter on record and the submissions we observed that the ld. DR could not dispute the fact that the Hon’ble Karnataka High Court in case of Texport Overseas Pvt. Ltd. (supra) and the coordinate Benches of this Tribunal in several cases, as referred by the ld. AR has held that once this section is omitted w.e.f. 01.04.2017, the resultant effect is that it had never been passed to be considered as a law and never existed. However, in the light of the Explanatory Notes to the Finance Act, 2017 relied by the ld. DR along with the judgement of the Hon’ble Supreme Court in the case of Fiber Boards Pvt. Ltd. (supra) and Shree Bhagwati Steel Rolling Mills (supra) which have been considered by the Mumbai Bench in the case of Firemenich Aromatics (India) Pvt. Ltd. (supra) we need to decide the impact of the judgement of the Hon’ble non- jurisdictional High Court in a situation in which these decisions canvassed a view contrary to what has been decided by another non- jurisdictional High Court.
In this context, without much indulgence on our part, we would like to rely on the order of the Mumbai Bench of the Tribunal in the Siro Slimpharma Pvt. Ltd. vs. ITO in order dated 09/09/2021 wherein while dealing with somewhat similar question of law, the Mumbai Tribunal has indicated that in the absence of judgment of Jurisdictional High Court, the non-jurisdictional High Court judgment has persuasive value and should be generally followed. The relevant part of the decision in paras 7 and 8 is as follows: “7. While on this issue, we may usefully take note of the observations of Hon’ble Supreme Court in the case of ACCE v. Dunlop India Ltd. [(1985) 154 ITR 172 (SC)], wherein the Their Lordships quoted, with approval, from the decision of House of Lords to the effect that "We desire to add and as was said in Cassell & Co. Ltd. v. Broome [1972] AC 1027 (HL), we hope it will never be necessary for us to say so again that "in the hierarchical system of courts" which exists in our country, "it is necessary for each lower tier", including the High Court, "to accept loyally the decision of the higher tiers". "It is inevitable in hierarchical system of courts that there are decisions of the Supreme appellate Tribunal which do not attract the unanimous approval of all members of the judiciary... But the judicial system only works if someone is allowed to have the last word, and that last word, once spoken, is loyally accepted" and observed that. . . “the better wisdom of the Court below must yield to the higher wisdom of the Court above. That is the strength of the hierarchical judicial system." The principle is thus unambiguous. As a rule, therefore, judicial discipline warrants that the wisdom of a lower tier in the judiciary has to make way for higher wisdom of the tiers above. Unlike the decisions of Hon’ble jurisdictional High Court, which bind us in letter and in spirit on account of the binding force of law, the decisions of Hon’ble non jurisdictional High Court are followed by the lower authorities on account of the persuasive effect of these decisions and on account of the concept of judicial propriety. In the case of CIT Vs Godavari Devi Saraf [(1979) 113 ITR 589 (Bom)], Hon’ble jurisdictional High Court took note of a non jurisdictional High Court and held that the Tribunal, outside the jurisdiction of that Hon’ble High Court and in the absence of a jurisdictional High Court decision to the contrary, could not be faulted for following the same. Their Lordships observed that, “It should not be overlooked that the Income-tax Act is an All-India statute Until a contrary decision is given by any other competent High Court, which is binding on a Tribunal in the State of Bombay, it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of the land”. Of course, these observations were in the context of a provision being held to be unconstitutional, an issue on which the Tribunal could not have adjudicated anyway, as evident from the observation “Actually, the question of authoritative or persuasive decision does not arise in the present case because a Tribunal constituted under the Act has no jurisdiction to go into the question of constitutionality of the provisions of that statute” but nevertheless the respect for the higher judicial forum was unambiguous. In Tej International Pvt Ltd Vs DCIT [(2000) 69 TTJ 650 (Del)], a coordinate bench has, on this issue, observed that “In the hierarchical judicial system that we have, better wisdom of the Court below has to yield to higher wisdom of the Court above and, therefore, one a authority higher than this Tribunal has expressed an opinion on that issue, we are no longer at liberty to rely upon earlier decisions of this Tribunal even if we were a party to them. Such a High Court being a non-jurisdictional High Court does not alter the position...”. . There can, however, be exceptions to this situation on account of a variety of reasons, and these exceptions come into play only when the views are of non-jurisdictional High Court which, do not, legally speaking, bind the lower tiers of judiciary. In our considered view, so far as the precedence value of a non-jurisdictional High Court’s judgment is concerned, the position has been very well summed up by a coordinate bench decision, in the case of Bank of India (supra), wherein, speaking through one of us (i.e. the Vice President), the coordinate bench has observed as follows: While dealing with judicial precedents from non- jurisdictional High Courts, we may usefully take of observations of Hon’ble jurisdictional High Court in the case of CIT Vs Thana Electricity Co Ltd [(1994) 206 ITR 727 (Bom)], to the effect “The decision of one High Court is neither binding precedent for another High Court nor for the courts or the Tribunals outside its own territorial jurisdiction. It is well-settled that the decision of a High Court will have the force of binding precedent only in the State or territories on which the court has jurisdiction. In other States or outside the territorial jurisdiction of that High Court it may, at best, have only persuasive effect”. Unlike the decisions of Hon’ble jurisdictional High Court, which bind us in letter and in spirit on account of the binding force of law, the decisions of Hon’ble non-jurisdictional High Court are followed by the lower authorities on account of the persuasive effect of these decisions and on account of the concept of judicial proprietyfactors which are inherently subjective in nature. Quite clearly, therefore, the applicability of the non-jurisdictional High Court is never absolute, without exceptions and as a matter of course. That is the principle implicit in Hon’ble Supreme Court’s judgment in the case of ACIT Vs Saurashtra Kutch Stock Exchange Ltd [(2008) 305 ITR 227 (SC)] wherein Their Lordships have upheld the plea that “non-consideration of a decision of Jurisdictional Court or of the Supreme Court can be said to be a mistake apparent from the record”. The decisions of Hon’ble non-jurisdictional High Courts are thus placed at a level certainly below the Hon’ble High Court, and it’s a conscious call that is required to be taken with respect to the question whether, on the facts of a particular situation, the non- jurisdictional High Court is required to be followed. The decisions of non- jurisdictional High Courts do not, therefore, constitute a binding a judicial precedent in all situations. To a forum like us, following jurisdictional High Court decision is a compulsion of law and absolutely sacrosanct that way, but following a non- jurisdictional High Court is a call of judicial propriety which is never absolute, as it is inherently required to be blended with many other important considerations within the framework of law, or something which cannot be, in deserving cases, deviated from. [Emphasis, by underlining, supplied by us] 8 At one place, this decision, inter alia, states that “To a forum like us, following a jurisdictional High Court decision is a compulsion of law and absolutely sacrosanct that way, but following a non-jurisdictional High Court is a call of judicial propriety -which can...be, in deserving cases, deviated from”. Implicit in this observation is the fact that not following non- jurisdictional High Court decision is more of an exception than the rule. There have to be very strong and good reasons not to follow even non jurisdictional High Court decisions....”
On the basis of the aforesaid principles of law of precedents and taking into consideration the fact that in a coordinate bench decision dated 20.07.2023 here in Delhi, in the case of Relaxo Footwear Ltd., Versus Assessing Officer, National e-Assessment Centre, New Delhi, TTA No. 590/Del/2021, wherein one of us (the Judicial member) was on the Bench we had followed the decision of the Hon’ble Karnataka High Court in the case of Texport Overseas Pvt. Ltd (supra), we are of the considered view that the indulgence sought by Id. DR to accept the view of Mumbai Tribunal in Firemenich Aromatics (India) Pvt. Ltd., is not sustainable.
We have also taken into consideration the order relied by Id. DR of Mumbai Tribunbal in the case of Firemenich Aromatics (India) Pvt. Ltd. (supra) and the order of coordinate Bench of Delhi in the case of Yorkn Tech Pvt, Ltd. (supra) relied by Id. AR and there is no doubt the coordinate Bench at Delhi has distinguished the Mumbai Bench order in the case of Firemenich Aromatics (India) Pvt. Ltd. (supra) and held that even after the judgement of the Hon’ble Supreme Court in the case of Shree Bhagwati Steel Rolling Mills (supra) and Fiber Boards Pvt. Ltd. (supra) clause (i) of section 92BA which has been omitted from 01.04.2017 has to be considered to have never been part of the statute and, accordingly, no transfer pricing adjustment can be made on a domestic transaction 31. We will also like to distinguish the Mumbai Tribunal order in Firemenich Aromatics (India) Put. Ltd. (supra) by observing that in that case the issue was with regard to omission of sub-section (2A) of section 253 of the Act which was initially inserted by Finance Act, 2014 with retrospective effect from 01.06.2013 and which was then omitted by Finance Act, 2016 from 01.06.2016. The said provisions related to right to file appeal and in that case, the AO had filed the appeal during the currency of section 253(2A) of the Act and for that reason, the Mumbai Bench had considered the issue of repeal/omission made in a statute and the consequences thereof. Since right to appeal is a substantive and, certainly, if it was there in the statute when the appeal was filed and, subsequently, if the statute had omitted the provision, the substantive right of appeal vested in a party would not be taken away by holding the repeal to be retrospective. However, in the case in hand, a substantive provision, being infact a charging provision, has been omitted/deleted and consequently benefit of the same has to be given to the assessee. Thus, we are inclined to follow the Hon’ble Karnataka High Court judgement and, on that basis, the additional ground raised by the assessee deserves to be allowed and consequently the whole exercise done by Id. AO to bench mark the transaction of purchase of development right, stands being void. ”
Above said para No.27 to 31 of order dated 08/04/2024 were relied on in titled as Panacea Boitec Ltd. vs. ACIT decided on 22/05/2024 and it was further held that:-
“11. From above observation, it is evident that the request/submission of learned departmental representative for reference to the President, ITAT to constitute Special Bench because ITAT Mumbai and Delhi Benches of equal strength have given conflicting judgments has been considered and not granted. Therefore the request of Learned departmental representative for reference to the President, ITAT is declined.
In view of above material facts and well settled principle of law, no transfer pricing adjustment can be made on account of domestic transaction which has been referred by the Learned Assessing Officer, after omission of Clause (i) of section 92BA of the Act by Finance Act 2017. Therefore, the impugned order is not legal and deserves to be set aside.”
In light of the above material facts and circumstances, it is apparent on record that the grounds of present appeals are similar to grounds of appeal in titled as DCIT Vs. DLF Urban Pvt. Ltd. and ITA No.1962/Del/2022 titled as DLF Urban Vs. DCIT decided on 08/04/2024. By following judgment of Hon’ble High Court of Karnataka in the case of Taxport Overseas (P.) Ltd.’s case (supra), a Co-ordinate Bench of ITAT Delhi in order dated 08/04/2024 declined request for reference to President ITAT to constitute Special Bench. As such the request of Learned Departmental Representative for reference to the President ITAT for constitution of Special Bench is hereby declined. In view of the above material facts and well settled principle of law no transfer of adjustment on account of domestic transaction after omission of clause (i) of Section 92BA of the Act could be made. Therefore, the impugned order is not legal and deserves to be set aside.
16. In the result, the appeal of the appellant assessee is allowed and appeal of Department of Revenue is dismissed.
Order pronounced on 06th September, 2024.