KOHINOOR FOODS LTD,FARIDABAD vs. ACIT CIRCLE-14(2), NEW DELHI

Since, common issues are involved in these appeals, we deciding these appeals by way of this consolidated order. We are taking Asst. Year 2012-13 as a lead year and discussing the facts of this case.

The assessee is a company and engaged in the business of processing and trading of rice and pulses and food products. The assessee has two subsidiary companies, one in USA and one in UK. For the year under consideration, the assessee has filed its return of income declaring an income of Rs.1,64,48,495/- on 30th November, 2012. The case of the assessee was thereafter selected for scrutiny and the matter was referred to the TPO on account of international transaction entered into between the assesse and its AE abroad. Thereafter, the Ld. TPO made certain adjustments with respect to the international transactions and sent back the matter to the file of AO. Thereafter, the Assessing Officer vide its order dated 9th May, 2019 framed the assessment. The TPO/AO has made adjustment with respect to following item: (a) Notional Interest on outstanding receivables to the tune of Rs.60,53,260/-. (b) Corporate guarantee charges to the tune of Rs.1,09,38,843/-. (c) Notional interest on loan advanced to the subsidies abord.

Aggrieved with the order of AO, the assessee preferred an appeal before Ld. CIT(A) and contested both international as well as domestic additions made by the AO. The Ld. CIT(A) after a detailed discussion partly allowed the appeal of the assessee in as much as the Ld. CIT(A) had deleted the addition made by the AO in respect of domestic transactions and the CIT(A) has sustained the additions of international transactions.

Still aggrieved with the order of the Ld. CIT(A), the assessee has come up in appeal before us and has raised three basic issues: (a) addition of notional interest in respect of the loans advanced by the assessee to its AE. (b) International interest on outstanding receivables and (c ) Notional commission on corporate guarantee. 6. Ld. Counsel for the assessee appearing on behalf of the assessee contended that so far as the issue related to the addition of notional interest vis- à-vis loan advance to the AEs. The CIT(A) is justified in directing the AO to apply LIBOR rate and hence, assessee does not want to agitate further about this ground.

Ld. DR relied upon the orders of authorities below.

After considering the submissions, we observed that Ld. CIT(A) has noted that during the year under consideration, the assessee has advanced the loan of Rs.1570.29 lacs to its AE. While computing the arm’s length price of this transaction, the TPO had applied LIBOR+ 500 basis point for computing notional interest of attributable to this transaction. The Ld. CIT(A), however, restricted the adjustment only to the LIBOR rate. We do not find any infirmity in the order of Ld. CIT(A), therefore, these grounds of appeal are deciding as such.

It is the contention of the Ld. Counsel for the assessee that so far as the Assessment Year 2012-13 is concern, the transaction of interest of receivable is not at all and international transaction and, hence, no notional attribution can be made for Assessment Year 2012-13. Counsel for the assessee has also relied upon the judgment of SIRO Clinpharm vs. DCIT reported in [2017] 88 taxamann.com for the proposition that provisions of 92B are prospective and applicable from AY 2013-14 onwards.

Ld. DR relied on the orders of authorities below.

We have heard the rival submissions and perused the materials available on record. So far as Assessment Year 2012-13 is concern the transaction of notional interest on delayed receivables was out of the purview of section 92B explanation. This issue has been thread barely examined by the Co-ordinate 2012-13 amendment brought into the statute with effect from 2013-14 is not applicable to AY 2012-13. Therefore, there is no question of any adjustment for the impugned year towards outstanding receivables.

Without prejudice to the above. Counsel for the assessee has drawn the attention to the Bench towards position of transactions entered into with NON AEs, the same chart reproduced herein for the sake of convenience. DETAIL OF SALES UPTO 31.03.2012

Perusal of the above chart would show that the assessee had made substantial sales to Non- AE’s also from which the assessee has not charged any interest on receivables. It is settled position of law that if no interest has been charged from Non AEs then no adjustment qua outstanding receivables with AE can be made. Therefore, on this ground also no adjustment is called for.

Similarly for Assessment Year 2014-15 and 2016-17, we observe that the assessee has made substantial sale to the Non-Associated Enterprises and has also not charged any interest on the delayed payments. We observe that in Assessment Year 2014-15 there was substantial sale to the tune of Rs.,788.13 Cr. to Non-AEs and sale to non AEs in Assessment Year 2016-17 is Rs.691.52 Cr. From these parties, the assessee has not charged any interest on the delayed outstanding. Therefore, we are of the firm opinion that the TPO as well as CIT(A) are not justified in sustaining the addition of notional interest vis-à-vis PARTICULARS AMOUNT EXPORT SALES-A.E

Ld. DR relied upon the orders of authorities below.

After considering the rival submissions, we observe that similar issue has come up for consideration before the Co-ordinate Bench in assessee’s own case in ITA No.3688 to 3691/Del/2012 dated 21st July, 2014 wherein it has been held that 1% rate of interest is appropriate for making adjustment towards commission attributable to the guarantee fee. Respectfully following the verdict of the Co-ordinate Bench, we direct the AO to apply the rate of 1% vis-à-vis transaction of guarantee commission. This issue is restored to the file of AO only for computing interest @1% towards corporate guarantee.

In the result, all the appeals of the assessee are allowed as indicated above. Order pronounced in the open court on 31/07/2025. (MANISH AGARWAL) (PRAKASH CHAND YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER