Mismatch in amount paid to related persons u/s. 40A(2)(b) reported in Audit Report and ITR

The Income Tax Appellate Tribunal (ITAT) in Bangalore has allowed an appeal filed by M/s. Origami Cellulo Pvt. Ltd. The Principal Commissioner of Income-tax (PCIT) had passed a revisionary order based on a perceived mismatch in reported related party transactions (Section 40A(2)(b)) between the audit report and the Income Tax Return (ITR). However, the ITAT found that the assessee had indeed provided all necessary details during the assessment proceedings and that the PCIT's conclusion about international transactions was incorrect. Consequently, the tribunal quashed the PCIT's order.

IN THE INCOME TAX APPELLATE TRIBUNAL
“C” BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT
AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
ITA No. 394/Bang/2020
Assessment year : 2015-16

M/s. Origami Cellulo Pvt. Ltd.,
# 126A, Sriranga Complex,
Aswathnagar,
Above Canara Bank,
Bengaluru – 560 094.
PAN: AABCO 6103C

vs

The Principal Commissioner of
Income-tax – 5,
Bengaluru.

Appellant by : Shri V. Srinivasan, Advocate
Respondent by : Shri Pradeep Kumar, CIT(DR-III)(ITAT), Bengaluru.
Date of hearing : 02.09.2021
Date of Pronouncement : 15.09.2021
O R D E R

Notice u/s. 142(1) was also issued on 9.6.2017 calling for details of Large Specified Domestic Transactions (Form 3CEB) for limited scrutiny proceedings and the details and explanations were provided by the assessee vide letters dated 9.10.2017 & 12.10.2017. Assessment was completed u/s. 143(3) on 30.10.2017.

2. The ld. AR submitted that the AO had conducted enquiries and called for various information by issue of notice u/s. 143(2) and 142(1) along with complete details of the Large Specified Domestic Transactions (Form 3CEB) and all the details were provided during the course of assessment proceedings. After considering these details, the AO concluded the assessment proceedings by order dated 30.10.2017. There were no further proceedings taken by the assessee and the order of AO had become final.

3. The ld. AR for the assessee submitted that in Form 3CEB under Part B (International Transactions) the form has been left blank pertaining to international transactions entered by the assessee. However in Form 3CEB the details relating to Large Specified Domestic Transactions entered into during the year was duly filled in. Thus, the PCIT erred in concluding that assessee had entered into international transactions. There was no justification to hold that assessee’s case was selected for limited scrutiny on the basis of transfer pricing risk based parameters. It is submitted that all the specified domestic transactions have been reported by the assessee are transactions entered by the assessee with related persons u/s. 40A(2) within the ambit of section 92BA(i) which were amended by the Finance Act, 2017 w.e.f. 1.4.2017 wherein clause (i) of section 92BA relating to expenditure in respect of which payment made or is to be made to a person referred to in clause (b) of sub-section (2) of section 40A has been omitted.

4. In our opinion, the facts of the present case are similar to the case considered by the Kolkata Bench of the Tribunal cited supra. We are therefore inclined to quash the impugned revisionary order passed by the PCIT u/s. 263 of the Act.

5. In the result, the appeal of the assessee is allowed.
Pronounced in the open court on this 15th day of September, 2021.

Please find attached the enclosed file for the full judgement