ACIT Vs Atlas Copco (India) Ltd. (ITAT Pune)
Admittedly, the appellant had filed the primary details such as name, address, invoice, payment made, etc. However, the assessee could not furnish the confirmations from payees and for want of the confirmations, Assessing Officer made disallowance. The ld.CIT(A) following the decision of his order in the assessee’s own case in earlier years has deleted the addition. From the material on record, it is clear that the respondent/assessee had discharged the onus cast upon it by filing the primary details. Mere inability to furnish the confirmation letters from the recipients cannot be the reason to disallow the commission expenditure without causing any further inquiries by the Assessing Officer as to the genuineness or otherwise of the expenditure.
FULL TEXT OF THE ORDER OF ITAT PUNE
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 Revenue has raised the following grounds of appeal :
“1. Whether the Ld.CIT(A)-IT/TP, Pune correct in fact and law, in holding that only a completely uncontrolled transaction can be used for the benchmarking when there are no limits identified in the I.T.Act, 1961 for such a categorization of the International Transaction and further the OECD guidelines in para 1.70 clearly suggests that ‘an attempt should be made to reach a reasonable accommodation keeping in mind the imprecision of the various methods and the preference for higher degrees of comparability and a more direct and closer relationship to the transaction?
2. Whether, the Ld.CIT(A)-IT/TP, Pune has erred on facts and in law, while allowing the adjustment made on account of Sales Commission, when perfectly comparable internal segment was available and disregarding the fact that all International Transactions should have been separately benchmarked by ACIL?
3. Whether on the facts and circumstances of the case, the Ld.CIT(A) was justified in holding that discount of Rs.23,88,025/- received on pre-payment of liability under the ‘Sales Tax Deferral Scheme, as not a remission or cessation of liability u/s 41(1)?
4. Whether on the facts and circumstances of the case, the CIT(A) was justified in allowing expenditure of Rs.37,38,703/- incurred on interior work in Bangalore office which is capital in nature & not allowable u/s 30(i) of the IT Act & also the Ld. CIT(A) failed to apply the case of Laxmi Sugar & Oil Mills to this case.
5. Whether on the facts and circumstances of the case, the CIT(A) was justified in restricting the addition made out of miscellaneous expenditure of Rs.2,00,000/- to Rs. 1 lac on adhoc basis, when the onus to prove the genuineness of the expenses was not discharged by the assessee inspite of opportunity allowed by the A.O and also when no finding on the genuineness of the claim has been brought out by the CIT(A)?
6. Whether on the facts and circumstances of the case, the CIT(A) was justified in allowing commission expenses of Rs.42,53,300/- when onus to prove the genuineness of the expenses was not discharged by the assessee inspite of opportunity allowed by the A.O and also when assessee can prove genuineness of remaining commission expenses of Rs.19,08,66,583/- out of total commission expenses of Rs.19,51,19,883/- and when assessee failed to discharge its onus in submitting evidences called for by the AO when the law specifically requires such onus to be discharged before allowing such expenses & also when in fact the CIT(A) has not given a finding on the genuineness of the claim?
7. Whether on the facts and circumstances of the case the Ld. CIT(A) erred in deleting the disallowance of Rs.25,72,235/- u/s 14(A) ignoring that AO has clearly recorded in his order that he is not satisfied with the quantum of expenses allocated by the assessee against exempt income?
3. The Revenue has filed the following revised grounds in substitution of ground No.1.
“1. The CIT(A) erred in holding that the comparison of two controlled transactions cannot be made for benchmarking of the royalty paid by the assessee to its Associated Enterprise by comparing it with the rate of royalty agreed between two Associated Enterprises when no such limits of categorization of international transactions are specified in the I.T.Act, 1961.
2. The CIT(A) erred in allowing the adjustment made on account of receipt of sales commission by holding that the profit earned in independent marketing function cannot be compared with the integrated marketing function of a fully integrated manufacturer and by rejecting the approach of the TPO using internal segment, though it is an acceptable method of benchmarking the international transaction.”
4. 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”) in relation to the following international transactions :
