2020 (7) TMI 495 - AT - Income Tax

Tribunal rules in favor of appellant, deletes transfer pricing adjustment for notional interest.

Dania Oro Jewellery Pvt. Ltd. Versus The DCIT-9 (3) (1), Mumbai

The Tribunal partially allowed the appeal, deleting the transfer pricing adjustment concerning notional interest for delays in realizing debts from ... TP Adjustment - notional interest adjustment - delay in realising the amount from the AEs - HELD THAT:- From the details furnished by ld. AR for the assessee about the delay in realizing the money of sales from AEs and non AEs, we have observed that on the working of delay of credit period for AE and non AEs as138 days and for non AEs are 146 days; the ld. has not disputed the factual matrix. Considering the decision of Tribunal in assessee’s own case for AY 2009-10 and 2010-11 . [2016 (7) TMI 1402 - ITAT MUMBAI] and [2018 (1) TMI 240 - ITAT MUMBAI] we find merit in the submissions of the assessee that no notional interest adjustment was warranted against the assessee - Decided in favour of assessee. Issues Involved:1. Transfer pricing adjustment on account of notional interest for delay in realization of debts from Associated Enterprises (AEs).2. Application of LIBOR rate plus 3% as APL for interest on loan borrowed by AEs.3. Delay in realization of sales from AEs compared to Non-AEs.4. Uniformity in not charging interest from AEs and Non-AEs for delayed realization of export proceeds.Issue 1: Transfer pricing adjustment on account of notional interest for delay in realization of debts from Associated Enterprises (AEs):The appeal was directed against the assessment order for the assessment year 2012-13, challenging the transfer pricing adjustment of Rs. 39,75,839 made under section 92CA of the Income Tax Act. The appellant argued that the adjustment should not have been made as the operating margin was higher than comparable companies even after reducing the notional interest. The appellant also contended that since profits were not shifted due to deduction under section 10AA, the transfer pricing adjustment was unwarranted. The Tribunal analyzed previous cases and ruled in favor of the appellant, allowing the appeal and deleting the transfer pricing adjustment.Issue 2: Application of LIBOR rate plus 3% as APL for interest on loan borrowed by AEs:The Dispute Resolution Panel directed the Assessing Officer to apply LIBOR rate plus 3% as the Arm's Length Price (ALP) for interest on loan borrowed by AEs. This direction was given after the Transfer Pricing Officer revised the adjustment on account of notional interest. The Tribunal did not delve into this issue as it primarily focused on the transfer pricing adjustment related to notional interest, which was allowed in favor of the appellant.Issue 3: Delay in realization of sales from AEs compared to Non-AEs:The appellant highlighted that there was an average delay of 138 days for recovering money from sales made to AEs, whereas the delay for Non-AEs was 146 days. The appellant argued that since no interest was charged to Non-AEs for delays, the adjustment on account of notional interest for delay in realization of sales from AEs was not warranted. The Tribunal considered the factual matrix presented by the appellant and agreed that no notional interest adjustment was warranted, ultimately allowing this ground of appeal.Issue 4: Uniformity in not charging interest from AEs and Non-AEs for delayed realization of export proceeds:The Tribunal referred to past cases where similar adjustments were suggested by the Transfer Pricing Officer but later deleted on appeal. The Tribunal emphasized the uniformity in the appellant's practice of not charging interest from both AEs and Non-AEs for delayed realization of export proceeds. Citing previous judgments and the factual working of credit period delays, the Tribunal ruled in favor of the appellant, dismissing the appeal filed by the Revenue.In conclusion, the Tribunal allowed the appeal partly, deleting the transfer pricing adjustment related to notional interest for delay in realization of debts from AEs. The Tribunal found merit in the appellant's arguments based on past decisions and uniformity in not charging interest from AEs and Non-AEs, ultimately ruling in favor of the appellant.