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12-04-2019, Apollo International, Section 92CA(1), 92C(2), Tribunal Delhi

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5 days 21 hours ago #9160 by amit
Section - 92CA(1), 92C(2),14A, 92B, 57(iii)
Order Date - 12-04-2019
Favouring - Assessee Partly
Court - Tribunal Delhi
Appellant - Apollo International Ltd.
Respondent - DCIT
Justice - H.S. SIDHU JM & O.P. KANT AM
Citation - 419Taxpundit195
Appeal No. - ITA No.9/Del/2015
Asstt. Year - 2010-11



This appeal by the assessee is directed against the final assessment order dated 07.11.2015 passed by the Dy. Commissioner of Income Tax, Circle-2(1), New Delhi (hereinafter referred to as ‘the Assessing Officer’) for assessment year 2010- 11, pursuant to the direction of the learned Dispute Resolution Panel (in short ‘DRP’) dated 17.10.2014. The grounds raised by the assessee in appeal are reproduced as under:

1. The assessment order passed in pursuance of the directions issued by the Hon’ble Dispute Resolution Panel (DRP) is vitiate order as the Hon’ble DRP erred both on facts and in law in partially confirming the arbitrary adjustment made by the learned Transfer Pricing Officer ( Ld. TPO) relating to the delayed payments received by the appellant from its Associated Enterprise.

2. The reference made by the Ld. Assessing Officer (AO) suffers from jurisdictional error as he has not recorded reasons in the draft assessment order based on which he reached the conclusion that it was necessary or expedient to refer the matter to the Ld TPO for computation of Arm’s Length Price (ALP) as required under section 92CA(1) of the Income tax Act (the Act).

3. The Ld. AO / Ld. TPO erred in proposing to enhance, the returned income of the appellant by Rs. 5,95,999/-/- by treating the delayed receipts of export proceeds as deemed loan advanced to Associated Enterprise (AE) and charging notional interest for the period of delay @ 14.75% p.a. and in doing so have grossly erred in:

i) disregarding the ALP determined by the appellant in the transfer pricing documents maintained by it;

ii) completely disregarding the detailed and proper comparability analysis submitted by the appellant;

iii) disregarding various judicial pronouncements in undertaking the TP adjustment;

iv) not granting the benefit of the +/- 5% range as allowed in the proviso to section 92C(2) of the Income tax Act.

4. The Ld. Assessing Officer has erred in disallowing an amount of Rs. 16,11,000/- under section 14A of the Act read with rule 8D of the rules and in doing so have grossly erred in:

i) holding that the appellant is under an obligation to compute disallowance as per provisions of rule 8D of the rules;

ii) making addition under section 14A of the Act without recording his dissatisfaction having regard to the tax audit report and accounts of the appellant that expenditure of Rs. 8,17,000 has been incurred by the appellant for earning exempt income.

2. Briefly stated facts of the case are that the assessee was engaged in the business of trading of tyres. For the year under consideration, the assessee filed return of income on 29.09.2010, declaring income of Rs.13,10,61,035/-. The case was selected for scrutiny and notice under Section 143(2) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) was issued and complied with. The Assessing Officer noted the international transactions of export/import of tyres, reimbursement of expenses paid etc. In view of the international transactions carried out by the assessee with its Associated Enterprises (AEs), the learned Assessing Officer referred the matter of determination of arm’s length price of the international transaction to the learned Transfer Pricing Officer (TPO). The TPO though accepted the international transactions reported by the assessee, however, held that export proceeds were received after substantial delay and, therefore, he proceeded to make the adjustment for interests on delayed receivables from the AEs. The Ld. TPO made adjustment of Rs.5,59,999/- in respect of the outstanding receivables from the AEs beyond the credit period of 90 days at the rate of interest of 14.75% based on PLR of State Bank of India. The Ld. Assessing Officer passed draft assessment order on 27.01.2014, including the proposed transfer pricing adjustment of Rs.5,95,999/- and also disallowance under Section 14A of the Act.

2.1 Aggrieved, the assessee filed objections before the learned DRP, who upheld the disallowance proposed by the Assessing Officer. Pursuant to the direction of the Ld. DRP, the Assessing Officer passed final assessment order. Against the impugned final assessment order, the assessee is in appeal before the Tribunal raising the grounds as reproduced above.

3. Grounds no. 1 to 3 of the appeal relate to the transfer pricing adjustment of Rs.5,95,999/-.

3.1 Before us, Ld. counsel for the assessee submitted that interest on overdue receivables is as a result of sale of goods and when the main transaction has been considered to be at Arm’s Length Price (ALP) then there is no reason to treat the receivables as a separate international transaction. According to him, the Explanation to Section 92B only relates to lending or borrowing of the funds and not in case of commercial over-dues which are already subjected to transfer pricing. He submitted that trade receivables have a different business perspective altogether and interest on overdue is only an incidental activity to the main
activity of sale. He further submitted that working capital adjusted margins of the assessee have already factored into account for the impact of delay in receivables and thus, any separate adjustment on this account was not warranted in view of the judgment of the Hon’ble Delhi High Court in the case of Principal CIT Vs. Kusum Health Care Pvt. Ltd , reported in (2017) 398 ITR 66 Delhi HC. Learned counsel further made an alternative prayer that if the international transactions of interest on overdue trade receivables is benchmarked applying the LIBOR rate instead of SBI PLR rate, the assessee will not press the main ground.

3.2 On the other hand, Ld. DR relied on the order of the lower authorites.

3.3 We have heard the rival submissions and perused the relevant material on record. Hon’ble Jurisdictional High Court in the case of CIT Vs. Cotton Naturals (I) Pvt. Ltd. reported in 276 CTR 445 (Del) has clearly held that while benchmarking the interests on the loans, the LIBOR rate of currency in which the loan has been raised, should be applied. The relevant finding Hon’ble High Court is reproduced as under:

“39. The question whether the interest rate prevailing in India should be applied, for the lender was an Indian company/assessee, or the lending rate prevalent in the United States should be applied, for the borrower was a resident and an assessee of the said country, in our considered opinion, must be answered by adopting and applying a

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