iPolicy Network Pvt Ltd vs. ITO (ITAT Delhi)

Transfer Pricing: CBDT’s view that +/-5% variation amendment applies to pending proceedings incorrect

In respect of AY 2006-07, the assessee entered into international transaction with its associate enterprises for a sum of Rs. 14.33 crores. The TPO applied the TNMM and determined the ALP at Rs. 15.08 crores and made an adjustment of Rs. 75 lakhs. The assessee claimed that as the said adjustment was within +/-5% of the ALP, no adjustment could be made under the proviso to s. 92C(2) as it stood pre-amendment by the F (No. 2) Act, 2009. The Department relied on Circular No.F.142/13/2010-SO (TPL) dated 30.9.2010 (Corrigendum) where the view was expressed that as the amendment came into effect from 1.10.2009, it would apply in relation to all cases in which proceedings are pending before the Transfer Pricing Officer on or after such date. HELD disagreeing with the Department’s contention:

While the Finance (No.2) Act, 2009 provides that the substituted Proviso shall come into effect on 1.10.2009 and applies in respect of AY 2009-10 & subsequent years, the Explanatory Notes to the Finance (No.2) Act, 2009 issued vide Circular No.5/2010 dated 3.6.2010 incorrectly states that the amendment comes into effect on 1.4.2009. In the Corrigendum, it is stated that the amendment shall apply to proceedings pending before the TPO on or after 1.10.2009. It is difficult to accept the argument of the Department that retrospective or prospective applicability of a provision should be decided in the manner explained by the CBDT. A procedural provision resulting in creating a new disability or which imposes a new duty in respect of transactions already completed cannot be applied retrospectively. As the amended Proviso brings about a substantial change in the relief available to an assessee, it cannot be treated as being retrospective in nature. Kuber Tobacco Products 117 ITD 273 (Del) (SB) & Ekta Promoters 113 ITD 719 (Del) (SB) followed