AMOL DICALITE LIMITED,AHMEDABAD vs. THE DCIT, CIRCLE-1(1)(1),, AHMEDABAD

The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-1, Ahmedabad, dated 27/02/2018 (in short “Ld. CIT(A)”) arising in the matter of assessment order passed under s.143(3) r.w.s. 254 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dt.28/03/2016 relevant to the Assessment Year 2009-2010.

The 1st issue raised by the assessee is that the learned CIT (A) erred in confirming the addition made by the AO for Rs. 12,07,517/- on account of interest free advances made to the associated enterprises under the transfer pricing provision.

The facts in brief are that the assessee in the present case is a limited company and engaged in the business of manufacturing of Filteraid & Perlite Products & Activities and Manufacturing of Cotton Synthetics Cloths. The assessee in the year under consideration has advanced interest-free loan amounting to Rs. 2,02,19,750/- to the associated concern based in foreign countries. As per the AO the transaction for advancing the interest-free loan to the associated enterprises was the international transactions which was covered under section 92 of the Act. Accordingly the AO determined the arm length price of such transaction at the rate of 7.60% i.e. LIBOR +3% whereas the assessee claimed to determine the same at 5.09% i.e. LIBOR + 2%. However, the AO determined the arm length price at Rs. 12,07,517/- being 7.6% of interest free loan provided to the associated enterprises and added to the total income of the assessee.

Aggrieved assessee preferred an appeal to the learned CIT (A) who also confirmed the order of the AO.

The learned AR before us submitted that only applicable LIBOR rate should be applied on the amount of loan advanced to the associated enterprises for determining the arm length price under the transfer pricing provisions. The learned AR in support of his contention placed his reliance on the judgment of Hon’ble Rajasthan High Court in the case of CIT vs Vaibhav Gems Ltd. reported in 88 Taxmann.com 12 which was subsequently confirmed by the Hon’ble Supreme Court reported in 99 taxmann.com 2.

On the other and the learned DR vehemently supported the order of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. The issue before us arises what should be the rate of interest for determining the arm length price with respect to the interest-free loans provided by the assessee to the associated enterprises. In this regard we note that the Hon’ble Rajasthan High Court in the case of Vaibhav Gems Limitd (supra) after having reference to the judgment of Hon’ble Delhi High Court in the case of CIT versus Cotton Naturals (I) Private Ltd reported in 55 taxmann.com 523 has decided the issue in favour of the assessee. The relevant extract of the judgment of Hon’ble Delhi High Court reads as under: “14. We note that CUP method is the most appropriate method in order to ascertain arms length price of the international transaction as that of the assessee. We agree with the assessee's contention that where the transaction was of lending money in foreign currency to its foreign subsidiaries the comparable transactions, therefore, was of foreign currency Tended by unrelated parties. The financial position and credit rating of the subsidiaries will be broadly the same as the holding company. In such a situation,-domestic prime lending rate would have no applicability and the international Rate Mixed being LIBOR should be taken as the benchmark rate for international transactions.”

At the time of hearing, the learned DR did not controvert the arguments advanced by the learned AR for the assessee. In view of the above we direct the AO to determine the arm length price with respect to the interest free loan provided by the assessee at the applicable LIBOR rate. Hence the ground of appeal of the assessee is partly allowed.

The assessee during the year has written off the amounts of Rs. 1,20,000/- and claimed the deduction for the same under section 28 read with section 37(1) of the Act. The details of the amount written of stand as under:

Aggrieved assessee preferred an appeal to the learned CIT (A) who confirmed the order of the AO.

The learned AR before us submitted that aforesaid amounts were written off in the course of the business activities and therefore the same are eligible for deduction.

We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the present case is whether the assessee has written off the amounts as discussed above in the course of the business activities and therefore these are eligible for deduction. The onus lies on the assessee to justify based on the documentary evidence that the impugned amount were written off in the course of the business activities. But the learned AR before us has failed to justify the same. Thus in the absence of sufficient documentary evidence, we are not convinced with the arguments of the learned AR for the assessee. Accordingly we do not find any infirmity in the order of the authorities below. Hence the ground of appeal of the assessee is dismissed.

In the result the appeal of the assessee is partly allowed.