Transactions cannot be classified as 'specified domestic transactions' under Section 92BA simply by voluntary reporting in Form No. 3CEB if the underlying statutory conditions (e.g., claiming profit-linked deductions) are not met, and no TDS liability exists under Section 194C(6) for transporters providing required declarations.

आदेश / ORDER

PER MAKARAND VASANT MAHADEOKAR, AM:

1. This appeal by the assessee is directed against the final assessment order passed by the Assessing Officer pursuant to the directions of the Dispute Resolution Panel(hereinafter referred to as “DRP”) under section 144C of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2022–23.

2. Brief background and chronology of events is such that the assessee is engaged in the business of trading, wholesale and export of mobile phones and accessories. The assessee filed its return of income for the Assessment Year 2022–23 on 05.10.2022 declaring total income at Rs. 49,05,690/-. The return was processed under section 143(1) of the Act on 20.10.2022. The case was selected for scrutiny under CASS on account of the issues relating to large specified domestic transactions (Transfer Pricing risk parameter) and large squared up loans during the year. Notice under section 143(2) of the Act was issued on 02.06.2023 and subsequently notices under section 142(1) were issued from time to time. The assessment proceedings were carried out under the faceless assessment scheme in terms of section 144B of the Act.

3. During the year under consideration, the assessee entered into specified domestic transactions with related parties, the details of which were reported in Form No. 3CEB. The Assessing Officer, referring the matter to the TPO, noted that the arm’s length price of such transactions required determination under Chapter X of the Act. The TPO, in his order under section 92CA(3), rejected the benchmarking adopted by the assessee and proposed an adjustment of Rs. 7,27,84,187/- in respect of trading transactions. Further, the Assessing Officer observed that the assessee had claimed freight expenses amounting to Rs. 32,19,560/- in its Profit and Loss account without deduction of tax at source under section 194C of the Act. Accordingly, a disallowance of Rs. 9,65,868/- being 30% of such expenditure was proposed under section 40(a)(ia) of the Act.

4. Based on the TPO’s order and other issues, the Assessing Officer passed a draft assessment order under section 144C(1) of the Act on 12.03.2025, proposing the following variations:

i. Transfer pricing adjustment: Rs. 7,27,84,187/-

ii. Disallowance under section 40(a)(ia): Rs. 9,65,868/-

5. Aggrieved by the draft order, the assessee filed objections before the DRP under section 144C(2) of the Act on 09.04.2025.The objections raised by the assessee before the DRP primarily challenged the transfer pricing adjustment of Rs. 7,27,84,187/- made pursuant to the order of the TPO under section 92CA(3) and the disallowance of Rs. 9,65,868/- under section 40(a)(ia) on account of alleged non-deduction of tax at source on freight expenses. In support of its objections, the assessee reiterated that the impugned transactions were not covered within the scope of “Specified Domestic Transactions” under section 92BA of the Act and that the benchmarking carried out by the Transfer Pricing Officer was erroneous both on facts and in law. It was further contended that the CUP method adopted by the assessee was the most appropriate method and that the application of TNMM by the TPO was unjustified. With regard to the disallowance under section 40(a)(ia), the assessee submitted that the freight payments were either in the nature of reimbursements or covered by the exemption under section 194C(6), and