TaxTMI 
TaxTMI 
2016 (11) TMI 975
X X X X Extracts X X X X
X X X X Extracts X X X X
....assed by the Assessing Officer dated 30.12.2011 under section 143(3) of the Income Tax Act, 1961 (in short 'the Act'). 2. The Grounds of appeal raised by the assessee and Revenue in their respective appeals are as under :- ITA No. 1145/Mum/2014 (Assessee's appeal) "GROUND I: ADDITION ON ACCOUNT OF ARM'S LENGTH ADJUSTMENT Rs. 15,82,891/- 1. On the facts and in circumstances of the case and in law, the ld. CIT(A) erred in confirming the action of Income-tax officer - 9(2)(3) *"the AO"+ by treating the outstanding debtors balance as at the year end as an 'international transaction' u/s 92B and thereby computed arms length price u/s 92C(3) by making addition of notional interest. 2. The ld. CIT(A) failed to appr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der of the CIT(A) on the grounds be set aside and that of the Assessing Officer be restored." 3. As the aforesaid respective Grounds of appeal show, the singular dispute arises from an addition of Rs. 15,82,891/- made by the Assessing Officer on account of notional interest on the outstanding debit balances with associated enterprises by treating the same as an 'international transaction' in terms of Sec. 92B of the Act. In other words, grievance of the assessee is that income-tax authorities have erred in treating the outstanding debtor balances as at the end of year as an 'international transaction' u/s 92B of the Act and thereby computing arm's length price adjustment u/s 92C(3) of the Act by making an addition of notional interest th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....average margin of the comparables selected, the margins of assessee were found to be favourable and thus, assessee pointed out that the stated value of its international transaction of Provision of software development services to the associated enterprises was at an arm's length price. Notably, the average margin of the comparable concerns was computed at 3.53%. The aforesaid position canvassed by the assessee has not been disputed by the Assessing Officer. So however, the Assessing Officer noted that assessee was having continuing debit balances of associated enterprises on which no interest was charged. The Assessing Officer notes that similar situation had prevailed in the earlier Assessment Year of 200809 wherein an addition of Rs. 46,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... addition worked out by the Assessing Officer by applying 7% rate of interest, being the short term deposit rate of State Bank of India, was wrong and instead, he directed that the adjustment be worked out by applying rate of interest of LIBOR + 200 basis points on the amount of delayed recovery of receivables from the associated enterprises. In this background, assessee as well as the Revenue are in appeal before us. The assessee, in its Grounds of appeal, has challenged the sustenance of part addition by CIT(A), whereas Revenue is in appeal challenging the action of CIT(A) in scaling down the addition. Since the cross-disputes relate to the same issue, they are being taken up together. 5. Insofar as appeal of Revenue is concerned, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....raised is to the effect that even if the overdue receivables from associated enterprises constitute an 'international transaction' within the meaning of Sec. 92B of the Act, if the margin of the assessee is calculated after reducing the notional interest, the resultant margin still compares favourably with the average margin of the comparables and no further addition is called for u/s 92C(3) of the Act. 7. The learned representative also brought out that in Assessment Year 2008-09 the Tribunal vide ITA No. 7755/Mum/2012 dated 8.10.2014 has deleted a similar addition on the ground that where there is a uniform policy of not charging interest to both associated enterprises and non-associated enterprises, no adjustment on account of notiona....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., it is pointed out that in both the situations, the margin of assessee-company is much higher than the comparable concerns, i.e., 3.53% and, therefore, the transaction can be said to be at arm's length and no separate adjustment is required to be made on this count. We find that such a plea of assessee was very much before the Assessing Officer also, as is evident from a copy of communication dated 21.12.2011 addressed to the Assessing Officer, a copy whereof is placed at pages 43 to 46 of the Paper Book. At pages 47 to 49 of Paper Book, the working of notional interest on delayed payment from associated enterprises and also the working of operating profit to operating income of the assessee and the comparable concerns have been placed. Th....