Transfer pricing regulations have always been a cornerstone of ensuring fair taxation in transactions between related parties. With the omission of Clause (i) of Section 92BA by the Finance Act, 2017, questions arose regarding its applicability to ongoing and pending assessments involving specified domestic transactions (SDTs). The recent ruling in the case of Goldbricks Infrastructure Pvt. Ltd. vs. ACIT provides significant clarity on this matter, particularly on whether adjustments based on an omitted provision can be sustained.
This case is crucial for businesses as it addresses the core issue of whether omitted provisions can form the basis of assessments or adjustments, especially when there is no saving clause to preserve their applicability. The judgment reiterates fundamental principles of law and their application in taxation.
Legal Provisions and Background
Section 92BA was introduced by the Finance Act, 2012, to govern SDTs, ensuring that transactions between related parties adhered to the arm’s length principle. Among other transactions, Clause (i) of Section 92BA specifically brought under its ambit transactions covered under Section 40A(2)(b) of the Income Tax Act, which deals with payments made to related parties.
However, the Finance Act, 2017, omitted Clause (i) of Section 92BA, effective April 1, 2017, removing payments to related parties from the scope of SDTs. Notably, this omission was not accompanied by a saving clause, leaving questions about the validity of adjustments in assessments conducted after this date.
Under established legal principles, when a statutory provision is omitted without a saving clause, it is treated as if the provision never existed. This doctrine, supported by the Supreme Court ruling in Kolhapur Canesugar Works Ltd. vs. Union of India, asserts that omitted provisions cannot sustain pending or new proceedings unless explicitly preserved.
Facts of the Case
Goldbricks Infrastructure Pvt. Ltd. had engaged in specified domestic transactions involving interest payments to a related party at an interest rate of 18%. During the assessment, the Transfer Pricing Officer (TPO) benchmarked the interest rate at 15%, resulting in an upward adjustment of ₹80.07 lakh.
The assessment order was issued after April 1, 2017, by which time Clause (i) of Section 92BA had already been omitted. Goldbricks challenged the adjustment, arguing that the omission of Clause (i) rendered the adjustment invalid, as the provision no longer existed in the statute.
The Revenue, however, contended that the omission did not nullify ongoing assessments and that the adjustment was valid for transactions conducted when Clause (i) was in force.
ITAT’s Analysis and Judgment
The Income Tax Appellate Tribunal (ITAT), Raipur, examined the legal principles surrounding omitted provisions and their implications on pending proceedings. In delivering its judgment, the ITAT focused on the following key aspects:
1. Effect of Omission of Clause (i) of Section 92BA
The Tribunal relied on the Supreme Court’s judgment in Kolhapur Canesugar Works Ltd., which established that when a statutory provision is omitted without a saving clause, it is treated as if it never existed. The ITAT emphasized that this principle applies to Clause (i) of Section 92BA, rendering it inapplicable for any assessments or adjustments conducted after its omission. Thus, the TPO’s adjustment lacked legal standing.
2. Precedents Supporting the Principle
The ITAT referred to the Karnataka High Court’s ruling in PCIT vs. Texport Overseas Pvt. Ltd., which held that an omitted provision could not sustain ongoing or future proceedings. By aligning with this precedent, the ITAT reinforced the principle that legislative changes must be respected in their entirety.
3. Jurisdictional Lapse by the Revenue
The Tribunal observed that the TPO and Assessing Officer (AO) acted beyond their jurisdiction by making adjustments under an omitted provision. Since Clause (i) was no longer part of the statute, it could not form the basis for any adjustment.
4. Invalidation of the Adjustment
The ITAT concluded that the upward adjustment of ₹80.07 lakh was invalid and deleted it, ruling in favor of Goldbricks Infrastructure Pvt. Ltd.
Practical Implications of the Ruling
The judgment in Goldbricks Infrastructure Pvt. Ltd. has far-reaching implications for taxpayers and tax authorities. It underscores the importance of adhering to legislative changes and respecting the non-retrospective effect of omitted provisions unless explicitly preserved.
For taxpayers, the ruling provides clarity and relief. Businesses engaging in domestic transactions
previously classified as SDTs under Section 92BA(i) are no longer required to benchmark such transactions under transfer pricing regulations. This reduces compliance burdens and eliminates the risk of arbitrary adjustments.
For tax authorities, the judgment serves as a reminder of the limitations of their jurisdiction. Adjustments must be based on existing legal provisions, and reliance on omitted sections can lead to unnecessary litigation and reversals.
Additionally, the judgment reinforces the principle of jurisprudential consistency, aligning with earlier decisions from various high courts and tribunals. This consistency ensures predictability and fairness in tax administration, fostering confidence among taxpayers.
Conclusion
The ruling in Goldbricks Infrastructure Pvt. Ltd. vs. ACIT highlights the critical impact of legislative changes on tax assessments and transfer pricing adjustments. By reaffirming the principle that omitted provisions cannot sustain ongoing or future proceedings, the ITAT has provided much-needed clarity for taxpayers and professionals navigating complex tax regulations.
This judgment serves as a guiding precedent for businesses and tax practitioners, emphasizing the importance of keeping track of legislative amendments and leveraging established legal principles to challenge unjust assessments. As transfer pricing continues to evolve, this case underscores the need for a balanced approach that respects both legislative intent and practical business realities.
