Square Yards Consulting Pvt. Ltd. Vs ACIT (ITAT Delhi)
Delhi ITAT: Omission of Section 92BA(i) Invalidates Specified Domestic Transaction Transfer Pricing Proceedings
The Delhi ITAT held that after the omission of section 92BA(i) by the Finance Act, 2017, transfer pricing proceedings initiated in respect of specified domestic transactions covered by the omitted clause could not survive. Following the Karnataka High Court’s decision in Pr. CIT v. Texport Overseas Pvt. Ltd., the Tribunal allowed the assessee’s appeal.
The dispute related to transfer pricing adjustments in respect of specified domestic transactions for AY 2016-17. The assessee contended that clause (i) of section 92BA, which brought payments covered by section 40A(2)(b) within the ambit of specified domestic transactions, had been omitted with effect from 01.04.2017 and, in the absence of any saving clause, must be treated as if it had never existed. It therefore challenged the reference made by the Assessing Officer to the Transfer Pricing Officer under section 92CA.
The Revenue relied on the Explanatory Notes to the Finance Act, 2017, contending that the amendment applied only from AY 2017-18 onwards.
Rejecting the Revenue’s contention, the Tribunal relied on the Bangalore ITAT decision in Texport Overseas Pvt. Ltd., as affirmed by the Karnataka High Court, which held that once clause (i) of section 92BA was omitted without any saving provision, it would be deemed never to have formed part of the statute. Consequently, the Assessing Officer’s reference to the TPO under section 92CA, as well as the consequential orders of the TPO and the DRP, were unsustainable in law.
Respectfully following the binding precedent of the Karnataka High Court, the Tribunal allowed the assessee’s appeal and held that the transfer pricing proceedings founded on the omitted provision could not be sustained.
Cases Discussed
- Pr.CIT vs. M/s. Texport Overseas Pvt. Ltd. (Karnataka High Court), ITA No.392/2018 along with ITA No.170/2019, order dated 12.12.2019
- ACIT vs. M/s. Orient Green Power Company Ltd. (ITAT Chennai), ITA No.230/Chny/2025, order dated 15.05.2025
- M/s. Texport Overseas Private Limited Vs. The Deputy Commissioner of Income Tax (ITAT Bangalore), IT(TP)A No.2213/Bang/2018
- ITA No.881/Ahd/2019 (ITAT Ahmedabad), order dated 29.06.2020
- DP Jain Nagda Cogapur BOT Annuity Project Pvt. Ltd. (ITAT Nagpur), ITA No.13/NAG/2021, dated 28.01.2022
- GENERAL FINANCE CO. vs. ACIT
- Kolhapur Canesugar Works Ltd.
- M/s. GE Thermometrias India Private Ltd.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. This appeal filed by the assessee is directed against the assessment order dated 15.04.2021 passed by the ACIT, Circle 24 (1), New Delhi under section 143(3) read with section 144(C)(13) of the Income-tax Act, 1961 (for short ‘the Act”) for Assessment Year 2016-17 pursuant to the directions of the Dispute Resolution Panel u/s 144C (5) of the Act raising the following grounds of appeal :-
“a. The subject transaction in assessment order is not specified domestic transaction in the light of the binding order pronounced by Hon’ble ITAT Bangalore in M/s. Texport Overseas Private Limited Vs. The Deputy Commissioner of Income Tax.
The Hon’ble DRP-2 issued the direction on 09.03.2021 whereas, the objection no. 4 was rejected by stating the reasons as below:-
3.2. The submission of the assessee in regard to section 92BA(i) being omitted by Finance Act, 2017 and that the same has to be understood that it had never existed in the statute book does not have force in view of the fact that the said amendment to the Act made by the Finance Act 2017 is w.e.f. 01/04/2017, and clause 44 to 44.4 of the Explanatory Notes to the Finance Act (Circular no. 2/2018 dt. 15/02/2018) has very specifically mentioned that the said amendment in s. 92BA of the Act is applicable from assessment year 2017-18 and subsequent years. Hence, the provisions of the said section/ clause are duly applicable for assessments related to assessment years prior to assessment year 2017-18. This objection is therefore dismissed.
The Hon’ble DRP-2, New Delhi failed to observe the order issued by the Hon’ble ITA T Bangalore in M/s. Texport Overseas Private Limited Vs. The Deputy Commissioner of Income Tax whereas, the Hon’ble ITAT held:
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, IT(TP)A No. 2213/ Bang/2018 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.
The direction issued by the DRP states by quoting the Explanatory Notes to the Finance Act (Circular No. 2/2018 dt. 15/02/2018) that the amendment in section 92BA of the Act is applicable from the assessment year 2017-18 and. subsequent years. However, in Hon’ble ITAT Bangalore in its order, as stated above, held that 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, IT(TP)A No. 2213/Bang(2018 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.
Hence, Hon’ble DRP-2 New Delhi missed to observe the judgments pronounced by the Hon’ble ITAT Bangalore held that any proceedings initiated or action taken under that clause would not survive at all.
The subject transaction was initiated after 01.04.2017 by way of making reference to learned TPO for the transfer pricing assessment whereas learned TPO has issued its initial order on 29.10.2019 i.e. the day after the pronouncement of order passed by Hon’ble ITAT Bangalore, which was 12.09.2018. Hence, learned TPO also erred to observe the binding order issued by Hon’ble ITAT Bangalore before proceeding for transfer pricing assessment based on the reference made by learned AO.
With regards precedents passed by Hon’ble ITAT Bangalore, without prejudice to the above, the reference to the TPO under section 92CA (1) by the Learned Assessing Officer has failed to appreciate that the reference under section 92CA (1) of the IT Act should not be made as it is bad in law.”
2. At the time of hearing, ld. AR of the assessee submitted that the issue under consideration is under section 92BA (i) of the Income-tax Act, 1961 (for short ‘the Act’), the legislature has omitted clause (i) w.e.f. 01.04.2017. He submitted that since the abovesaid clause is omitted, it would be deemed that the above clause (i) was never been in the statute. In this regard, he heavily relied on the decision of Hon’ble Karnataka High Court in the case of Pr.CIT vs. M/s. Texport Overseas Pvt. Ltd. in ITA No.392/2018 along with ITA No.170/2019 vide order dated 12.12.2019 wherein it was held that the findings of ITAT in the abovesaid assessee was justified. He submitted that he relied on the abvoesaid detailed findings. Since the assessment year under consideration is AY 2016-17, he relied on the detailed findings of the ITAT, Bangalore in the case of M/s. Texport Overseas Pvt. Ltd. which is relating to AY 2013-14. He prayed that the appeal of the assessee may be allowed and he further submitted that the abovesaid decision was relied by the other ITAT Benches viz. ITAT, Chennai Bench in ACIT vs. M/s. Orient Green Power Company Ltd. in ITA No.230/Chny/2025 order dated 15.05.2025, ITAT, Ahmedabad Bench in ITA No.881/Ahd/2019 order dated 29.06.2020 and ITAT, Nagpur Bench in the case of DP Jain Nagda Cogapur BOT Annuity Project Pvt. Ltd. in ITA No.13/NAG/2021 dated 28.01.2022.
3. On the other hand, ld. DR of the Revenue submitted Notes to Finance Act, 2017 which is applicable from AY 2017-18. He filed a copy of the above amendment. For the sake of brevity, the same is reproduced below :-
“44. Scope of section 92BA of the Income-tax Act relating to Specified Domestic Transactions (SDTs).
44.1 Before amendment by the Act, the provisions of section 92BA of the Income-tax Act provided inter alia that any expenditure in respect of which payment has been made by the assessee to certain “specified persons” under section 40A(2)(b) of the Income-tax Act were covered with in the ambit of SDTs.
44.2 As a matter of compliance and reporting, taxpayers needed to obtain the chartered accountant’s certificate in Form 3CEB providing the details such as list of related parties, nature and value of SDTs, method used to determine the arm’s length price for SDTs, positions taken with regard to certain transactions not considered as SDTs, etc. This had considerably increased the compliance burden of the taxpayers.
44.3 In order to reduce the compliance burden of taxpayers, section 92BA of the Income-tax Act has been amended so as to provide that expenditure in respect of which payment has been made by the assessee to a person referred to in under section 40A(2)(b) are to be excluded from the scope of section 92BA of the Income-tax Act. Consequential amendment has also been made to section 40(A)(2)(a) of the Income-tax Act.
44.4 Applicability : These amendments take effect from 1st April, 2017 and will, accordingly, apply from assessment year 2017-18 and subsequent assessment years.”
4. Considered the rival submissions and material placed on record. We noticed that the provisions of section 92CA (1) was amended by Finance Act, 2017. The relevant impact of such amendment was held by the ITAT, Bangalore Bench in the case of Texport Overseas Private Ltd. (supra) on the exact similar facts on record held as under :-
“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 the other issues on merit. Accordingly, appeal of the assessee stand allowed for statistical purposes.”
5. The above decision was upheld by the Hon’ble Karnataka High Court and held as under :-
“6. 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. vs. 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- TOP 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 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.
8. Insofar as question No.2 is concerned, we find from the order of the Tribunal that issue relating to the deletion of disallowance made by the Assessing Officer has been remitted back to the Assessing Officer which finding is based on factual aspects which would not call for interference by us, that too, by formulating substantial question of law. The Assessing Officer has to undertake the exercise of factual determination. As such, without expressing any opinion on merits with regard to question No.2 formulated by the revenue in the respective appeals, we proceed to pass the following:
ORDER
i) Both the appeals i.e., ITA No.392/2018 and ITA No.170/2019 are dismissed.
ii) Order dated 22.12.2017 passed by the Income Tax Appellate Tribunal, Bangalore in IT(TP)A No. 1722/Bang/20 17 is affirmed.”
6. Respectfully following the above decision, we are inclined to allow the grounds raised by the assessee.
7. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on this 5th day of August, 2026.
