Omission Of Specified Domestic Transactions From Transfer Pricing Regime Prospective: ITAT New Delhi
The Delhi Income Tax Appellate Tribunal (ITAT) on 2 September held that the omission of specified domestic transactions from the transfer pricing regime cannot operate retrospectively where the legislature has expressly provided that the amendment will apply prospectively.
A Bench comprising Judicial Member Satbeer Singh Godara and Accountant Member Manish Agarwal upheld the transfer pricing proceedings against Dixon Technologies (India) Ltd. for Assessment Year 2013-14 involving an adjustment of Rs. 5.12 crore. The Tribunal observed:
“We are of the considered view that contrary to the facts therein, the legislature has made it explicitly clear that its omission carries prospective effect only. That being the case, we find merit in the Revenue's arguments that the aforesaid conditional and prospective omission could not be held as applicable with retrospective effect.”
Dixon Technologies had challenged the transfer pricing proceedings on the ground that Clause (i) of Section 92BA of the Income Tax Act, which covered specified domestic transactions under the transfer pricing regime, was omitted by the Finance Act, 2017.
It relied on the Karnataka High Court's decision in PCIT v. Texport Overseas Pvt. Ltd. and the Supreme Court's judgment in Kolhapur Canesugar Works Ltd. v. Union of India, contending that the omission removed the relevant transactions from the specified domestic transaction regime.
The Revenue opposed the challenge, relying on the Explanatory Memorandum to the Finance Act, which stated that the amendment would take effect from 1 April 2017 and apply from Assessment Year 2017-18 onwards.
The Tribunal accepted the Revenue's contention, noting that the legislature had expressly provided for prospective operation of the amendment. It therefore declined to invalidate the transfer pricing proceedings for Assessment Year 2013-14 on the basis of the subsequent omission.
On the comparables, the Bench directed the inclusion of Asia Electronics Ltd. and Blue Star Ltd. after finding the reasons for their rejection unsustainable. It directed the exclusion of Mold-Tek Packaging Ltd. and National Plastic Technologies Ltd. after finding them functionally different. It held:
“We thus conclude in this factual backdrop that the Revenue's vehement stands supporting inclusion of these twin comparables entities does not carry any merit. We thus direct the learned TPO to exclude both of them in his consequential computation therefore.”
The Tribunal also directed a fresh computation of the Section 14A disallowance, observing that it was unclear whether the lower authorities had considered only investments that had yielded exempt income.
It further deleted the Rs. 34.61 lakh disallowance towards preliminary expenditure incurred while exploring a proposed LED-light manufacturing and marketing venture. It also held that the expenditure was allowable even though the proposed business ultimately did not materialise.
Accordingly, the ITAT partly allowed Dixon Technologies (India) Ltd.'s appeal, upholding the transfer pricing proceedings while granting relief on the comparable selection, Section 14A computation and preliminary expenditure.
Counsel for the Assessee: Neeraj Jain, Advocate; Ramit Katyal, AR; Dhruv Seth, Advocate
Counsel for the Revenue: Mahesh Kumar, CIT(DR)