2013 (1) TMI 804 - HC - Income Tax

Appeal dismissed: transfer-pricing adjustments barred where identical issue previously raised; interest not taxable absent lending

Commissioner of Income Tax-9 Versus Indo American Jewellery Ltd.

HC dismissed the Revenue's appeal. The court held that transfer-pricing adjustments to the arm's-length price could not be entertained because the ... Additions on account of adjustment made to arms length price in respect of international transactions - Held that:- similar question raised by the Revenue in the Assessee's own case being Income Tax Appeal No. 6869 of 2010 - thus adjustment made to arms length price cannot be entertained Deletion of addition being interest receivable on outstanding amount - Held that:- interest income is associated only with the lending or borrowing of money and not in case of sale - the specific finding of the ITAT is that there is complete uniformity in the act of the assessee in not charging interest from both the Associated Enterprises and Non Associated Enterprises debtors and the delay in realisation of the export proceeds in both the cases is same - hence there is no reason to entertain the matter - Appeal is accordingly dismissed with no order Issues:1. Addition of adjustment made to arm's length price in international transactions.2. Deletion of interest receivable on outstanding amount due to the Assessee Company from Associated Enterprises.Analysis:1. The first issue pertains to the addition of adjustment made to the arm's length price in international transactions. The court noted that a similar question raised by the Revenue in the Assessee's own case had been rejected previously. Therefore, the court held that the first question could not be entertained based on the previous decision.2. Moving on to the second issue regarding the deletion of interest receivable on the outstanding amount due to the Assessee Company from Associated Enterprises, the Transfer Pricing Officer initially added interest receivable based on the outstanding balance from Associated Enterprises. However, the CIT(A) later determined that the outstanding amount was lower and relied on a Board Circular to support the decision to delete the interest charged on late realization of export proceeds.3. The ITAT upheld the CIT(A)'s decision, emphasizing that interest income is typically associated with lending or borrowing of money, not sales. The ITAT also highlighted the uniformity in the Assessee's practice of not charging interest from both Associated and Non-Associated Enterprises debtors, leading to the conclusion that the decision to delete notional interest on outstanding export proceeds was justified.4. Ultimately, the court dismissed the appeal, stating that there was no reason to entertain the second question raised by the Revenue. The judgment concluded with the dismissal of the appeal and no order as to costs.In summary, the judgment addressed the issues of adjustment to arm's length price in international transactions and the deletion of interest receivable on outstanding amounts due to the Assessee Company. The court relied on previous decisions, interpretations of relevant laws and circulars, and the specific circumstances of the case to reach a conclusion in favor of the Assessee.