TaxTMI 
TaxTMI 
2021 (2) TMI 1016
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....y, ought to have held that- 2.1 Since the appellant enjoys the deduction U/s. 10A of the Act and shifting of profits is not possible, transfer pricing adjustment of Rs. 1,07,01,654/- on account of notional interest for delay in realization of debts from AEs is not required to be made by relying on the decision of the Hon. Income Tax Appellate Tribunal, Mumbai Bench "E" ITA No. 7513/M/2010 in case of Tata Consultancy Services Ltd. 2.2 Without prejudice to the above and in the alternate, if at all adjustment on account of notional interest for delay in realization of debts from AEs is required to be made, then- (a) Yearly average LIBOR plus 200 basis points (2.583%) should be applied instead of base rate of State Bank of India i.e. 10.81%. Accordingly, adjustment should be restricted to Rs. 25,57,111/- instead of Rs. 1,07,01,654/-; and (b) Adjustment of aforesaid interest should not be considered as an independent international transaction but should be imputed in computing operating margin. Accordingly, the revised margin ought to have been determined at 9.83% and since the same is higher than the average margin of the comparables (2.62%)....
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.... 143(2) of the Act. 3. Observing that the assessee had during the year in question entered into international transactions with its AE's for an amount exceeding Rs. 15 crores, the A.O made a reference under Sec. 92CA(1) of the Act to the Transfer Pricing Officer (for short 'TPO') for determining the Arm's Length Price (for short 'ALP') of the said transactions. TPO vide his order passed under Sec. 92CA(3), dated 29.01.2016 made an upward transfer pricing adjustment of Rs. 1,07,01,654/-. 4. After receiving the order passed by the TPO under Sec. 92CA(3), dated 29.01.2016, the A.O passed a draft assessment order under Sec. 143(3) r.w.s 144(1), dated 29.03.2016, wherein he inter alia proposed the following additions to the returned income of the assessee: Sr. No. Particulars Amount 1. TP Adjustment Rs. 1,07,01,654/- 2. Disallowance under Sec. 36(1)(va) r.w.s 2(24)(x) Rs. 8,65,227/- 3. Disallowance under Sec. 36(1)(iii) Rs. 2,39,126/- 4. Exclusion of interest income of Rs. 12,715/- while computing the eligible profit of the assessee's business for determining its entitlement for deduction under Sec. 10A of the Act - 5. Reduction o....
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....It was submitted by the ld. A.R that the TPO in the course of the transfer pricing proceedings had called upon the assessee to explain as to why an adjustment for the interest foregone by it on the delayed realisation of the export sale proceeds from its AEs may not be made in its hands. In reply, it was submitted by the assessee vide its letter dated 28th December, 2015 that the terms of export sales did not provide for charging of any interest and it had by adopting a uniform policy not charged any interest on the delayed realisation of trade debts from both the AEs and non-AEs. It was submitted by the ld. A.R that it was brought to the notice of the TPO that the weighted average delay in realisation of debts from AEs was 145 days while for that in case of non-AEs was 425 days. As such, the assessee had tried to impress upon the TPO that now when it had in the normal course of its business not charged any interest on the realisation of sale proceeds involving a weighted average delay of 425 days from its non- AEs no adverse inference as regards non-charging of interest on realisation of sale proceeds that involved a weighted average delay of 145 days from its AEs could feasibly b....
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....n Jewellery Ltd., dated 08.01.2013, had observed, that the average delay in realisation of the sale proceeds by the assessee from its AE was 132 days as in comparison to the average delay of 130 days in the case of non-AEs, and the assessee by adopting a uniform policy had not charged any interest either from the AEs or the non-AEs. It was submitted by the ld. A.R that the Tribunal in the backdrop of its aforesaid observations had justifiably vacated the addition of notional interest on the outstanding amount of export proceeds that were belatedly realised by the assessee from its AEs. The tribunal while concluding as hereinabove had observed as under: 7. We have considered the rival submissions of the parties and gone through the record carefully. We have seen that in appeal for AY 2008-09 on almost similar delay in realising the amount from the AEs the TPO made similar additions and on objections before DRP, the adjustment on account notional interest was deleted. On further appeal by revenue before the Tribunal the appeal of the revenue was dismissed vide order dated 29.07.2016. The relevant part of the order is extracted below; "6. We have heard the rival cont....
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....f Non-AEs in realization of the export proceeds. Thus there is uniformity in the act of the assessee in not charging interest from both AE and Non-AE debtors for delayed realization of export proceeds. 7. Respectfully following the judgment of Hon'ble Bombay High Court in the case of Indo American Jewellery Ltd. the appeal filed by the Revenue is dismissed." 8. Further we have noted that in AY 2010-11, similar adjustment was suggested by TPO due to delay in realization of debts. The assessee filed objection before DRP, wherein the assessee was allowed partial relief. However on further appeal to the Tribunal, the entire adjustment/ addition on account notional interests for delay in realization of sales was deleted vide order dated 03.01.2018 in ITA No. 7635/Mum/2014. In appeal for AY 2010-11, the Tribunal followed the order for AY 2009-10. 9. 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. ....
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....A.O, observing that the assessee had delayed the payments made in respect of the employees contributions to PF of Rs. 6,87,565/- and ESIC of Rs. 1,77,662/- by failing to deposit the same within the due dates (including the grace period), had therein disallowed the same under Sec. 36(1)(va) of the Act and treated the same as the deemed income of the assessee. On objection filed by the assessee, the DRP-1, Mumbai, upheld the aforesaid disallowance made by the A.O under Sec. 2(24)(x) r.w.s Sec. 36(1)(va) of the Act. 15. Before us, the ld. A.R submitted that the A.O/DRP had erred in making/ confirming the disallowance of Rs. 8,65,227/- under Sec. 2(24)(x) r.w.s 36(1)(va) of the Act w.r.t the delay involved on the part of the assessee in depositing the amount of the employees contribution to the Provident Fund and the Employees State Insurance Scheme. In support of his aforesaid contention the ld. A.R had relied on the judgment of the Hon'ble High Court of Bombay in the case of CIT Vs. Ghatge Patil Transports Limited (2015) 53 taxman.com 141 (Bom) and Geekay Security Services (P) Ltd. Vs. DCIT (2019) 101 taxman.com 192 (Bom). It was submitted by the ld. A.R that as the assessee had d....
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....r the loan to Shri Pramod Goenka was given during the financial year 2009-10, the loan to Shri Sanjay Ghosh was advanced way back in the financial year 2005-06. On being queried as to why the correlating interest expenditure w.r.t the aforesaid loans may not be disallowed under Sec. 36(1)(iii), it was the claim of the assessee that as it had sufficient interest free funds available with at the relevant point of time of advancing the respective loans thus, no disallowance under the aforesaid statutory provision was called for in its hands. In order to fortify its aforesaid claim it was pointed out by the assessee that its interest free funds as on March 31, 2011 was Rs. 23.14 crores and the same on March 31, 2012 stood at Rs. 27 crores. Apart from that, it was the claim of the assessee that the entire interest bearing funds as on the aforesaid two balance sheet dates aggregating to an amount of Rs. 30 crores approximately were invested in the business assets whose value exceeded Rs. 50 crores on the corresponding dates. However, the A.O did not find favour with the aforesaid claim of the assessee and vide his draft assessment order under Sec.143(3) r.w.s 144C(1), dated 29.03.2016....
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....bunal has also followed its own order for Assessment Year 2002-03. 8. In view of the above findings, we find no reason to interfere with the judgment of the High Court in regard to the first question. Accordingly, the appeals are dismissed in regard to the first question." In the backdrop of the aforesaid settled position of law, we concur with the claim of the ld. A.R that in case the interest free funds available with the assessee were sufficient to justify the loans advanced to the directors, it could safely be presumed that the same were made by the assessee from the interest free funds available with it. At the same time, we find that the claim of the assessee that it had sufficient self owned funds to justify the loans advanced to the aforesaid directors need to be verified on the part of the assessing officer, and if the said claim is found to be in order then no disallowance under Sec. 36(1)(iii) would be called for in its hands. Accordingly, in terms of our aforesaid observations we herein restore the issue to the file of the A.O for the limited purpose of giving effect to our aforesaid observations. The Ground of appeal No. 2.5 is allowed for statistical pu....
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....2, in Lily Jewellery Pvt. Ltd. Vs. DCIT-10(2)(1), Mumbai, dated 19.03.2019, ITA No. 1533/Mum/2018 (copy placed on record). It was submitted by the ld. A.R that the Tribunal relying on its earlier order that was passed in the assessee's own case for A.Y. 2009-10 in ITA No. 4206/Mum/2014, dated 13.04.2018, had after drawing support from the judgment of the Hon'ble High Court of Karnataka in the case of M/s Hewellet Packard Global Soft Ltd, ITA No.812, 2007, dated 30.10.2017, had held, that the interest income earned on the deposits that placed in the banks was entitled for being considered for computing the assessee's claim for deduction under Sec. 10A of the Act. Also, it was submitted by the ld. A.R that the Tribunal while disposing off the appeal in the assessee's own case for A.Y. 2009-10 in ITA No. 4206/Mum/2014, dated 13.04.2018 had after relying on the order passed by a coordinate bench in the case of M/s Dania Oro Jewellery Pvt. ltd. Vs. ITO, ITA No. 7635/Mum/2014, dated 30.01.2018, had held that the interest income earned on the Electricity Security Deposit was eligible for the benefit of Sec. 10A of the Act. On a perusal of the aforesaid orders of the Tribunal, we find the ....
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.... the A.O/DRP had erred in not considering its claim that the unrealised export turnover of Rs. 2,00,75,675/- as and when realised should be considered as forming part of its export turnover for the purpose of computing its deduction under Sec. 10A of the Act. 23. The genesis of the aforesaid controversy lies in a narrow compass. As is discernible from the orders of the lower authorities, we find that out of the assessee's total export sales of Rs. 46,19,02,366/- for the year in question a sum of Rs. 2,00,75,675/- was unrealised. On being queried as to why the aforesaid unrealised export turnover may not be excluded while computing the deduction under Sec. 10A of the Act, the assessee concurred with the aforesaid objection of the A.O. Accordingly, the A.O vide his draft assessment order passed under Sec. 143(3) r.w.s 144C(1) dated 29.03.2016 as per the provision of Sec. 10A)(3) of the Act proposed to exclude the unrealised export sale proceeds of Rs. 2,00,75,675/- from the export turnover of the assessee for the purpose of computing its deduction under Sec. 10A of the Act. Objection was filed by the assessee with the DRP, wherein it was claimed that though the AO had rightly e....
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....said order of the Tribunal, it was submitted by the ld. A.R that the Tribunal by relying on its earlier orders passed in the case of Neru Jewellers Pvt. ltd. Vs. DCIT (OSD)-(1) (ITA No. 1468/Mum/2014 dated 27.04.2016) AND ACIT Vs. Tara Jewells Exports Pvt. Ltd., ITA No. 662/Mum/2012, dated 29.01.2014, had after taking note of the fact that Reserve Bank of India had not stipulated any period for realisation of sale proceeds for SEZ units had therein found favour with the aforesaid claim of the assessee and had directed the A.O to consider the unrealised export sale proceeds as a part of the export turnover for the purpose of computing the deduction under Sec. 10A as and when the same was received by the assesseee as per the guidelines of the Reserve Bank of India. 26. We have given a thoughtful consideration to the aforesaid contention of the authorized representatives for both the parties in the backdrop of the orders of the lower authorities and the material available on record, and have also considered the judicial pronouncements relied upon by them. We have also perused the order of the Tribunal in the assessee's own case for A.Y. 2010-11 in ITA No. 5756/Mum/2014, dated 13.04....