Can a completely uncontrolled transaction be used for benchmarking when there are no limits identified in the I.T. Act, 1961?

This Income Tax Appellate Tribunal case examines whether completely uncontrolled transactions can be used for benchmarking under the Income Tax Act, 1961. The tribunal decided to remand the case to the Assessing Officer to verify the nature of expenditure and the applicability of Section 32(1) Explanation 1. Additionally, a ground of appeal concerning the disallowance of Rs. 25,72,235 under Section 14A was dismissed as not pressed by the Revenue.

IN THE INCOME TAX PUNE BENC AHP PELLATE TRIBUNAL “C” PUNE BEFORE SHRI INTURI RAMA RAO, AM AND SHRI PARTHA SAR ATHI CHAUDHURY, JM ITA No.938/PUN/2017

Assessment Year : 2011-12

The Asst. Commissioner of Income Tax,
Circle – 8, Pune

vs

Mumbai-Pune Road,
Dapodi, Pune-411012
PAN : AAACA4074D

Assessee by : Shri R. Muralidhar
Revenue by : Smt. Divya Bajpai

Date of Hearing : 28.10.2021
Date of Pronouncement : 01.11.2021

ORDER

This is an appeal filed by the Revenue directed against the order of the learned Commissioner of Income Tax (Appeals) – 13, Pune dated 27.01.2017 for the Assessment Year 2011-12.

2. The brief facts of the case are that the respondent / assessee is a Public Limited Company and a part of Swedish Multinational Group of Companies i.e., Atlas Copco AB. It is engaged in the business of manufacturing and sale of Air & Gas Compressors, Construction and Mining Equipment & Industrial Tools. The return of income for A.Y. 2011-12 was filed on 29.11.2011 disclosing total return of income of Rs.280,05,60,374/-. The same was revised on 29.03.2013 declaring total income of Rs.278,47,90,766/-. The said return of income was selected for scrutiny assessment. On noticing that the respondent / assessee had reported the international transactions in Form No.3CB, the Dy. Commissioner of Income Tax, Circle - 8, Pune  (hereinafter referred as the “Assessing Officer”) made a reference to the Addl.Commissioner of Income Tax, Pune, (hereinafter referred as the “Transfer Pricing Officer (TPO)”) u/s 92CA(3) of the Act for the purpose of determination of Arms Length Price (hereinafter referred as “ALP”) .

3. Similarly, on the parity of same reasoning, we are of the considered opinion that this is a fit case to remand to the file of Assessing Officer with a direction to verify the true nature of expenditure i.e. whether revenue or capital and also examine the applicability of Explanation (1) to section 32(1) of the Act, even in respect of expenditure incurred is revenue in nature. Thus, this ground of appeal is partly allowed for statistical purposes.

4. In ground No.7, the Revenue challenges the decision of ld.CIT(A) in deleting the disallowance of Rs.25,72,235/- made u/s 14(A) The ld. DR submitted that this ground of appeal is not being pressed. Therefore, we dismiss ground of appeal no.7 as not pressed.  In the result, the appeal of the Revenue is partly allowed for statistical purposes.

Please find attached the enclosed file for the full judgement