The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that provisions of Section 40A (2) of the IT act governs the allowability of expenditure, thus the assessment of AO unsustainable.
The assessee made the appeal on the grounds that: –
1.Disallowance / transfer pricing adjustment of purchase of guar gum (split) amounting to Rs. 1,00,82,50,230.
2. Disallowance / transfer pricing adjustment of high seas purchases of Crude Palm Oil amounting to Rs. 1,22,70.68,280
3. Disallowance / transfer pricing adjustment of purchase of guar gum (split) amounting to Rs. 1,00,82,50,230
After hearing both the sides, the tribunal found that the Co-ordinate Bench of the Tribunal in Mahindra Two Wheelers Ltd. v/s DCIT, ITA no.519/Mum./2018, vide order dated 28/04/2022, for the assessment year 2013-14, while dealing with the similar issue, observed that the adjustment on account of examination of the arm’s-length price of the specified domestic transactions is not valid because of deletion of the provisions of Section 92BA (1) of the Income Tax Act with effect from 1/4/2017 without any saving clause, but it he that provisions of Section 40A (2) of the act governs the allowability of those expenditure and therefore coordinate bench set-aside the matter back to the file of the learned assessing officer.
The two member bench consisting of Prashant Maharishi (Accountant member) and Sandeep Singh Karhail (Judicial member) held that as a similar issue is arising in the present appeal there is no reason to deviate from the view so taken by the Co-ordinate Bench of the Tribunal in the aforesaid decision. Accordingly, respectfully following the aforesaid decision the transfer pricing adjustment of Rs.245,45,18,050/-, made by the AO/TPO in respect of specified domestic transactions is not sustainable.
However, the AO was directed to examine the allowability of the expenditure in terms of provisions of Section 40A(2) of the Income Tax Act. Thus the appeal was partly allowed.
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