Loading judgment…
Facts
The assessee, engaged in processing and trading food products, had two foreign subsidiaries. For the Assessment Year 2012-13, the assessee filed its return and was selected for scrutiny. Adjustments were made by the TPO/AO for notional interest on outstanding receivables, corporate guarantee charges, and notional interest on loans advanced to subsidiaries.
Held
The Tribunal held that for AY 2012-13, the amendment to Section 92B is not applicable, hence no adjustment for outstanding receivables. For AY 2014-15 and 2016-17, since no interest was charged from non-AEs on delayed payments, no notional interest can be added for AEs. For corporate guarantee, the Tribunal directed the AO to apply a 1% rate.
Key Issues
Whether notional interest on outstanding receivables from AEs can be added when no interest is charged from non-AEs? Whether the amendment to Section 92B is applicable retrospectively? Whether notional commission on corporate guarantee is justifiable and at what rate?
Sections Cited
92B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘H’: NEW DELHI
Before: SHRI PRAKASH CHAND YADAV & SHRI MANISH AGARWAL
Assessee by Ms. Ananya Kapoor, Adv. & Ms. Utkarsa Kumar Gupta, Adv. Department by Shri Mukesh Verma Sr. DR Date of Hearing 24/07/2025 Date of Pronouncement 31/07/2025 O R D E R PER PRAKASH CHAND YADAV, JM: All these appeals of the assessee are arising out from the order of Ld. CIT(A) dated 10th March, 2023 having DIN No. ITBA/APL/S/250/2022- 23/1050616281(1) and relates to Assessment Years 2012-13, 2014-15 and 2016-17.
/Del/2023 Kohinoor Foods Ltd. vs. ACIT 2. 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.
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.
-:Finding of the Bench:- 11. 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 Bench in the case of SIRO (supra) and KGK Enterprises vs. ACIT, reported in 88 /Del/2023 Kohinoor Foods Ltd. vs. ACIT taxmann.com 264. Therefore, we are of the firm view that for Assessment Year 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 PARTICULARS AMOUNT EXPORT SALES-A.E KFL INC. 29.17,03,834.00 INDO EUROPEAN 89,11,95,017.00 RICH RICE 92,95,10,598,00 2,11,24,09,449.00 EXPORT SALES-NON-A.E 3,50,51,48,916.00 TOTAL DOMESTIC SALES 5,61,75,58,365.00 3,98,16,68,371.47 TOTAL SALES AS PER Balance 9,59,92,26,736.47 Sheet
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 /Del/2023 Kohinoor Foods Ltd. vs. ACIT outstanding receivables with AEs. There are so many judgments on this aspect wherein it has been held that when no interest has been charged from the non AEs on delayed payments then the Department cannot attribute any notional addition towards the outstanding with its AEs. This ground of appeal of the assessee for all the three years is allowed
15. The last issue is addition on account of notional commission on corporate guarantee given by the assessee. At the outset, Ld. Counsel for the assessee pointed out this issue has already been decided by the Co-ordinate Bench in assessee’s own case for Assessment Year 2009-10 wherein 1% notional addition has been held to be justifiable on account of corporate guarantee commission.
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 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.