Various issues in domestic transfer pricing have come up recently on which various judgments have been passed.
i. Specified domestic transactions to exclude payments made u/s 40A(2)(b)
Section 92BA(i) of the Income Tax Act was deleted w.e.f. 1.7.2017 and before deletion required that "specified domestic transaction" includes "any expenditure in respect of which payment has been made or is to be made to a person referred to in Section 40A(2)(b).".
The omission of a particular provision in a statute would not save the acts done earlier, and therefore the normal effect of repealing a statute or deleting a provision is to obliterate it from the statute book as completely as if it had never been passed, and the statute must be considered as a law that never existed. The issue is no more res-integra in the light of the authoritative pronouncement of the Hon'ble Apex Court in the matter of KOHL4PUR CANESUGAR WORKS LTD. v. UNION OF INDIA reported in AIR 2000 SC 811, whereunder the Apex Court has examined the effect of the repeal of a statute vis-à-vis the deletion/addition of a provision in an enactment and its effect thereof.
Thus, when the clause (i) of Section 92BA having been omitted by the Finance Act, 2017, with effect from 01.04.2017 from the Statute, the resultant effect is that it had never been passed and to be considered as a law never been existed. Therefore, it was held accordingly in the case of GOLDBRICKS INFRASTRUCTURE PVT LTD Vs ASST. COMMISSIONER OF INCOME TX [2024-VIL-1794-ITAT-RPR].
ii. Addition due to difference in profitability of different units
In the current age of GST, where the trial balance is maintained state-wise, can the same be used by income tax authorities for domestic transfer pricing purposes, adding expenses of certain units that show a lower net profit? In such matters, it has been held in a plethora of judgments that merely low profit by itself is not a valid criterion for not accepting profit shown in books of account. There may be various reasons for it, like -
A. Higher depreciation due to newer technologies installed
B. Higher labor, fuel, power, etc. expenses
For substantiating such an allegation, the AO has to -
A. Either point out any discrepancy in the books of account
B. Or reject the books of account u/s 145 of the I.T. Act
C. Or has to bring on record a specific instance of underreporting or overreporting of revenue
D. Or has to point out an instance of bogus or excessive claim of any expenses or underreporting of expenditure.
This was upheld in the cases of CIT Vs Poonam Rani 5 Taxmann.com 76 (Del), CIT Vs. Mohd Umer 101 ITR 525 (Patna), and now was again upheld in the case of A.C.I.T. Vs M/s PRAG INDUSTRIES (INDIA) PVT LTD [2024-VIL-1788-ITATLCK].
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