TP Adjustment for notional interest on delayed payments to Associated Enterprises denied where no interest charged to non-associated buyers

The issue concerns a transfer pricing adjustment seeking notional interest on delayed receipt of sale proceeds from Associated Enterprises. The tribunal found as a factual matter that the assessee did not charge interest to non-associated enterprises for comparable delayed payments, and therefore treating Associated Enterprises differently by adding notional interest was unwarranted; consequence: no notional interest adjustment was required. The tribunals factual finding of uniform commercial practice was not shown to be perverse and thus did not raise a substantial question of law.

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Issues:
Challenge to order of Income Tax Appellate Tribunal regarding Assessment Year 2007-08; Justification of deletion of addition by Transfer Pricing Officer for longer credit period to Associated Enterprises compared to Non-Associated Enterprises.

Analysis:
The appeal under Section 260A of the Income Tax Act, 1961 challenges the order of the Income Tax Appellate Tribunal (Tribunal) for Assessment Year 2007-08. The main question raised by the revenue concerns the justification of deleting the addition made by the Transfer Pricing Officer due to the longer credit period granted to Associated Enterprises compared to Non-Associated Enterprises. The grievance of the revenue is based on the argument that the respondent-assessee provided a longer credit period to Associated Enterprises on sales of goods, leading to the need to add notional interest on delayed collection of consideration to determine an arms length price.

The Tribunal, in its impugned order, found as a fact that the respondent-assessee did not charge any interest from Non-Associated Enterprises on delayed payments exceeding 300 to 400 days from the sale of goods. Consequently, the Tribunal concluded that since no interest was charged on delayed payments from third parties, adding notional interest to delayed payments by Associated Enterprises was unwarranted. The Tribunal relied on a previous order of the Court in a similar case to support its decision, emphasizing the uniformity in the assessee's practice of not charging interest from both Associated and Non-Associated Enterprises for delayed recovery of sale proceeds.

Moreover, the Tribunal's factual finding that interest was not charged in the case of sales to Non-Associated Enterprises for delayed payments, similar to the treatment of Associated Enterprises, was deemed non-perverse. Consequently, the proposed question of law was considered not to give rise to any substantial legal issue and was not entertained. Ultimately, the appeal was dismissed, and no costs were awarded.

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