THE DEPUTY COMMISSIONER OF INCOME TAX, CIRLCE-1(1),, GUNTUR vs. CCL PRODUCTS(INDIA) LIMITED, DUGGIRALA

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HON’BLE ACCOUNTANT MEMBER I.T.A. No. 433/VIZ/2019 (Asst. Year : 2015-16) DCIT, Circle-1(1), vs. M/s. CCL Products (India) Guntur. Ltd., Duggirala, Guntur Dist. PAN No. AAACC 9552 G (Appellant) (Respondent)

Assessee by : Shri K. Ramesh Babu, CA Department By : Shri D.K. Sonawal, CIT (DR)

Date of hearing : 18/12/2019. Date of pronouncement : 07/01/2020. O R D E R PER V. DURGA RAO, JUDICIAL MEMBER

This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-1, Guntur, dated 16/04/2019 for the Assessment Year 2015-16. 2. The Revenue has raised the following grounds of appeal:- “1. The order of the ld. CIT(A), Guntur is erroneous both in law and on facts of the case. 2. The ld. CIT(A) erred in holding that corporate guarantee provided by assessee company to its subsidiaries is not an international transaction even though various judicial authorities held that offering corporate guarantee to an AE amounts to a service as it improves the creditworthiness of the AE and results in

2 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) lower interest rate and therefore the corporate guarantee extended by the assessee to its AEs needs to be calculated at arm‟s length. 3. The ld. CIT(A) erred in holding that interest on receivables for extra credit period allowed is not an international transaction. 4. The ld. CIT(A) ought to have appreciated the fact that TPO had rightly made ALP adjustment on sale of instant coffee as the assessee company intentionally changed the method of adoption for TP study as the CUP method results in arm‟s length adjustment. 5. Any other grounds that may be urged at the time of hearing.” 3. Grounds No. 1 & 5 are general in nature, no adjudication is required, therefore, same are dismissed. The only grounds for adjudication before us are ground Nos.2 to 4. 4. Facts of the case in brief are that assessee-company is engaged in the business of manufacturing of instant/soluble coffee, filed its return of income by declaring total income of Rs.112,58,64,910/-. The return filed by the assessee was initially processed u/sec. 143(1) of the Income Tax Act, 1961 (hereinafter referred to as 'Act'). Subsequently, case of the assessee was selected for scrutiny and was transferred to TPO u/sec. 92CA of the Act. Thereafter, assessment was completed u/sec. 143(3) r.w.s. 144C(3) of the Act dated 28/12/2018. 5. Ground No.2 raised by the department relates to corporate guarantee. Ld.AR for the assessee has submitted that the issue involved in this appeal is covered by the decision of the coordinate

3 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) bench of the tribunal in assessee’s own case for the A.Ys. 2013-14 & 2014-15 and submitted that ld. CIT(A) by following the same, decided in favour of the assessee. 6 On the other hand, ld.DR strongly placed reliance on the order of the Assessing Officer. 7 In this case, the TPO has considered the corporate guarantee issued by the assessee to its Associated Enterprises (AEs) and worked out adjustment of Rs. 2.48 crores. According to the TPO, corporate guarantee is a service, hence, international transaction considering section 92B of the Act and also corporate guarantee fee chargeable to its AEs worked out adjustment which has been adopted by the Assessing Officer. Before the ld. CIT(A), it was submitted that the corporate guarantee given by the assessee to its AEs which is 100% subsidiary is not an international transaction for the purpose of TP adjustment. It was also contended that TPO adopted 1.80% per annum for the year under consideration as against 1.30% and 1.60% for the A.Ys. 2013-14 & 2014-15 which is against the principle of consistency. The ld.CIT(A) after examining the TPO’s order as well as assessment order and also by considering the assessee’s own case for the A.Y. 2014-15 in ITA No.348/VIZ/2018 by order dated 03/04/2019 deleted the addition made by the Assessing Officer. We find that

4 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) facts of the present case are mutatis mutandis similar to the facts involved in A.Y. 2014-15 wherein the coordinate bench of the tribunal has already considered the issue and upheld the order of the ld. CIT(A). For the sake of convenience, the relevant portion of the order in assessee’s own case for the A.Y. 2014-15 is extracted as under :- “10. We have heard both the parties and perused the material placed on record. The issue involved in these appeals is with regard to corporate guarantee. On identical facts, in assessee‟s own case, this Tribunal deleted the addition made by the AO and upheld the order of the Ld.CIT(A) in I.T.A. No.191/Viz/2018 dated 28.09.2018. For the sake of clarity and convenience, we extract relevant part of the order of this Tribunal in para No.5 to 5.2 which reads as under: “5. We have heard both the parties and perused the material placed on record. During the appeal hearing, the Ld.AR argued that providing corporate guarantee to its AE would not constitute an international transaction as held by various tribunals and hence no adjustment is required. The ld.AR further submitted that the AE is 100% subsidiary of the assessee company, hence it is the obligation of the assessee to extend it‟s support to improve the business and smooth running of the company without any financial impediment. Therefore the Ld.AR submitted that the corporate guarantee is given to it‟s AE in the commercial interest and no expenditure was incurred, thus there is no case of any adjustment and no addition is warranted in the assessee‟s case. The Ld.AR invited our attention to the decision of ITAT Kolkata, „C‟ Bench in the case of DCIT, Circle-8(1), Kolkata Vs. M/s EIH Ltd., [2018] 89 taxmann.com 417 (Kolkata – Trib) wherein Hon‟ble ITAT held as under : “12.12. Thus, we hold that when a parent company extends an assistance to the subsidiary, being associated enterprise, such as corporate guarantee to a financial institution for lending money to the subsidiary, which does not cost anything to the parent company, and which does not have any bearing on its profits, income, losses or assets, it will be outside the

5 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) ambit of international transaction under section 9213(1) of the Act. In this regard, we would like to hold that issuance of corporate guarantee by the assessee to its AE would have influence on the profits, incomes, losses or assets of enterprise 'but not necessarily have any impact on the profits, incomes, losses or assets' as admittedly no consideration was received by the assessee in respect of this corporate guarantee from its AE. We find that the Ahmedabad Tribunal in the ease of Micro Ink Ltd. (supra) had observed that if a subsidiary (AE in the instant case) could not borrow money from third party sources on its own standing and the guarantee provided by the parent (assessee in the instant se) enables it to make such borrowing, then the guarantee could be said to be a shareholder function, not warranting a guarantee fee. This ratio would squarely be applicable to the facts of the instant case before us.” 5.1. Similarly in the case Dr.Reddy Laboratories Limited Vs Additional Commissioner of Income tax,Circle- 1(2),Hyderabad reported in 81 Taxman 398, the Coordinate Bench of ITAT Hyderabad „A‟ held that where the assessee had not incurred any corporate guarantee charges on behalf of its AE it would not constitute international transaction within the meaning of 292B of the Act. For ready reference, we extract para No.29 of the order of the ITAT which reads as under: “29. We have carefully considered the rival contentions and perused the record. The ITAT, Delhi Bench in the case of Bharati Airtel Ltd., (supra) has considered an identical issue which was re-affirmed in the case of Siro Clinpharma (P.) Ltd. v. Dy. CIT [IT Appeal No. 2618 (Mum.) of 2014, dated 31-3-2016). The Bench observed that transfer pricing is a legislation seeking the tax-payers to organise their affairs in a manner compliant with the norms set-out. In short, it is an anti abuse legislation which tells you as to what is the acceptable behaviour but it does not trigger levy of tax in a retrospective manner because no party can be asked to do an impossibility. Analysing further the Bench observed that though Explanation to Section 92B is stated to be clarificatory, it has to be necessarily treated as effective from the A.Y. 2013-2014 and in this regard, relied upon the observations of the Hon'ble Delhi High Court in the case of Skies Satellite. We have also analysed the case law relied upon by the Ld. D.R. and also the provisions of the Act. In our considered opinion, the view taken by the Delhi Bench of ITAT in the case of Bharati Airtel Ltd., (supra) is one of the possible views on the matter and so long as there is no binding decision of any other Higher Forum taking a contrary view, the one which is favourable

6 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) to the assessee has to be adopted even though other Benches have taken a different view. We, therefore, hold that the Explanation to Section 92B cannot be applied retrospectively and for the years under consideration the assessee having not incurred any costs in providing corporate guarantee it would not constitute "International Transaction" within the meaning of Section 92B of the Act and consequently, ALP adjustment is not warranted on this aspect.” 5.2. Similar view was taken up by the Coordinate Bench of ITAT, Hyderabad in the case of Batronics India Ltd. (supra). In the instant case, the facts are identical. The assessee had given corporate guarantee to its 100% subsidiary and the AE for the purpose of business. The assessee had not incurred any expenditure towards the corporate guarantee. The revenue could not bring any evidence to establish that the assessee had incurred any expenditure for extending the corporate guarantee. As stated by the Ld.AR it is the obligation on the part of the assessee to extend the support and assistance to its subsidiaries for business development. Since the facts are identical, respectfully following the view taken by coordinate benches in the case laws cited, we hold that the corporate guarantee given by the assessee on behalf of its AE would not constitute an international transaction within the meaning of 92B of the Act. Accordingly, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue.” The Ld.DR did not bring any other case law to controvert the submissions made by the assessee. Therefore, respectfully following the view taken by this Tribunal in the assessee‟s own case for the A.Y. 2013-14, we do not see any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. The appeal of the revenue on this ground is dismissed.”

Therefore, respectfully following the decision of the coordinate bench of the tribunal in assessee’s own case for the A.Y. 2014-15, we find no reason to interfere with the order passed by the ld. CIT(A). Thus, this ground of appeal raised by the Revenue is dismissed. 8 Ground No.3 relates to interest on receivables.

7 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) 9 Facts of this issue in brief are that there is an outstanding receivables balance of Rs. 10,21,81,783/- as on 31/03/2014 from the assessee 100% step down subsidiary i.e. M/s. Grandsaugree S.A. Switzerland in respect of some invoices raised on them by the assessee for supply of instant coffee. The TPO vide show- cause notice dated 10/10/2018 requested the assessee to furnish invoice-wise ageing details of outstanding receivables from the assessee’s above AE in respect of all invoices raised during the F.Y. 2014-15 as well as the invoices which are raised in previous financial year, but remained unpaid on the opening day of current F.Y. 2014-15. The TPO has suggested an adjustment of Rs.91,96,360/- being @ 9% on the opening balance of Rs.10,21,81,783/-. Accordingly, by considering the same, the Assessing Officer has made the addition. On appeal ld.CIT(A) deleted the same by following the assessee’s own case in the A.Y. 2014-15. 10 At the outset, Ld.AR has submitted that the issue involved in this case is squarely covered by the decision of the coordinate bench of the tribunal in assessee’s own case for the A.Y. 2014-15 and submitted that same may be followed. 11. Ld.DR relied on the order of the Assessing Officer.

8 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) 12. We have heard both the sides, perused the material available on record and orders of the authorities below. 13. In this case, the TPO suggested the adjustment of Rs.91,96,360/- being @9% on the opening balance of Rs.10,21,81,783/- on the ground that assessee has to receive outstanding receivables balance of Rs.10,21,81,783/- as on 31/03/2014. The case of the assessee before the ld. CIT(A) was that most of the payments were received within 120 days and the details were furnished with the TPO in tabular form which has not considered by the TPO. The ld. CIT(A) by folwoing the assessee’s own case for the A.Y. 2014-15 directed the Assessing Officer to delete the addition. We find that facts for the year under consideration are mutatis mutandis similar to the facrts involved in A.Y. 2014-15 in ITA No. 348/VIZ/2018 dated 03/04/2019 wherein the ITAT upheld the order of the ld. CIT(A). For the sake of convenience, the relevant portion of the order is extracted as under:- “7. We have considered the arguments of both the parties. The issue is similar to the facts of the case of this Tribunal relied upon by the Ld.AR. in the case of Mahati Software Pvt. Ltd supra., wherein the Coordinate Bench held that no separate benchmark is required on receivables when PLI is comparable. For the sake of clarity and convenience, we extract para No.17 and 17.1 of the said order which reads as under : “17. We have heard both the parties and perused the material placed on record. In this case, there were receivables outstanding for both the assessment years

9 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) which was not received in time. It was also observed that the receivables were not received during the entire year. The Ld.TPO has not furnished the delay in recovery of receivables and period of outstanding. As per the order of the TPO, the PLI margin in the assessee‟s case is 37.26% which is higher than the average margin of comparable case. The interest on receivables is bench marked to equate the PLI of the tax payer company with that of comparable company. The TPO has accepted that there is no arm length adjustment is required in this case on account of margin. The AO has not brought on record to show that the assessee has extended undue credit to the AE for the period beyond the time specified in the master service agreement. The AO has also not made out a case that there was any undue advantage by extending credit on receivables by the assessee. Though there was financial impact on giving loans from the funds of the assessee such impact cannot be imparted in the case of receivables when the PLI is comparable. Hon‟ble ITAT Hyderabad in the case of Cura Logistics relied upon by the assessee held that on trade advance, no interest is leviable, relying on the decision of GSS Infotech Ltd. Vs. ACIT (supra).In the case of Bartronics India Ltd., ITAT Hyderabad has held that if the work contract is within the ALP, there is no separate requirement for bench marking the interest on trade advances. The assessee relied on the decision of this tribunal in GVK Power & Infrastructure Ltd. vs ACIT Circle-2(1) dated 18/05/2018 where in ITAT held that no notional interest is chargeable on delayed payments. For ready reference we extract the relevant para of the ITAT‟s order in GVK Power & Infrastructure Ltd which reads as under: 12. Even otherwise as observed from the order of the TPO on three occasions, there was a delay of receivables and pointed out by the Ld. A.R. the assessee is not indulged in any systematic or organized activity of allowing the undue credit to the AEs. The assessee relied on the decision of Motherson SumiInfotech & Designs Limited Vs. DCIT reported In (2018) 52 CCH 0122 Delhi, and Hon'ble ITAT Delhi held as under: 5. We have considered the rival submissions and perused the material available on record. The assessee has given several reasons to explain that it being a business transaction, commercial consideration should have been considered by the authorities below. It was explained that the long term business relation with the customer and A.E. predicate waiver of this right. The interest is only associated

10 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) with the loans and not services. It was explained that payments are received only after satisfaction of the customer and therefore, there was delay in receiving the payments. The assessee also explained before T.P. authorities below that average outstanding days for recovering sales dues was 57 days in the case of A.Es, whereas, in the case of non-A.E. it was 66 days. It was also explained that non-charging of interest from A.Es. as well as non-A.E. on interest receivables was that it being pre- dominantly involved in the provision of services to it's A.Es. as well as third parties. The contention of the assessee have not been disputed by the authorities below. It may also be noted here that all international transactions were accepted by the TPO to be at arm's length, except, payment of interest on loan. The authorities below have treated the delayed payment beyond 30 days as loans. In fact, no loan have been extended by the assessee. It was the amount „due' against the A.Es. as well as non-A.E. on which interest have been charged by considering the deemed loans. Therefore, the decision of ITAT, Delhi Bench in the case of M/s. Kusum Healthcare Pvt. Ltd., (supra), squarely apply in the case of the assessee, since the assessee earned significantly higher margin than the comparable companies, which have been accepted by the TPO, therefore, there was no justification to charge interest on outstandings. The decision of Hon'ble jurisdictional Delhi High Court in the case of Pr. CIT vs. Kusum Healthcare Pvt. Ltd.,(supra), squarely apply to the facts and circumstances of the case. The assessee also explained that there are similar delays in collection of outstanding receivables from both A.Es and non-A.Es which is due to business and commercial reasons. Therefore, there is uniformity in act of assessee in not charging interest from A.Es and non-A.Es. Therefore, the decision of the Hon'ble Bombay High Court in the case of CIT vs. Indo American Jewellery Ltd., (supra), squarely apply to the facts of the case. 5.1. Considering the nature of business of assessee and the facts explained above, we are of the view that there was no justification for the authorities below to make adjustment to the income declared by assessee. Recently, the ITAT, I-2 Bench in the case of Terradata India Pvt. Ltd., vs. ACIT in ITA.No.7885/Del./2017 vide order dated 21st February, 2018, following the order in the case of same assessee, in which the decision of Hon'ble jurisdictional Delhi High Court in the case of Pr. CIT vs. M/s. Kusum Healthcare Pvt. Ltd., (supra), have been relied upon, allowed the appeal of assessee on the similar ground. In view of the above

11 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) discussion and in the light of various decisions above and facts of the case, we are of the view that the adjustment to the income of the assessee is wholly unjustified on account of interest on receivables. We, accordingly, set aside the orders of the authorities below and delete the entire addition. 6. In the result, appeal of the assessee is allowed. The department has not made out case of systematic planning of allowing the undue credit to the AE. Further Ld.AR relied on the decision of Pr.CIT vs B.C.Management Services (P) Ltd, (2018) 164 DTR (Del)299 where in Hon‟ble Delhi High court held that delayed payment made by AE cannot be treated as part of income. For ready reference we extract the relevant part of the order of the Hon'ble DeIhi High court which reads as under: 9. With respect to the treatment of notional interest by the TPO/AO, the Court is of the opinion that no question of law arises. In an identical situation, in Principal Commissioner of Income Tax Vs. Bechtel India Pvt. Ltd. ITA 379/2016, decided on 21.07.2016, the Court had held that such notional income on account of delayed payment made by the AO cannot be treated as part of the income and made the subject matter of the adjustments. While rendering the judgement the Hon'ble High court has considered the decision in the case of Bechtel India (P) ltd. Therefore, placing reliance on the decision of Motherson SumiJnfotech& Designs Limited Vs. DCIT (supra) and the decision in the case of B.C.Managemerit services (P) Ltd we hold that the revenue has not made out case of disallowance of notional interest on delayed payments and accordingly, we set aside the orders of the authorities below and delete the addition. The appeal of the assessee on this ground is allowed. 17.1. In the instant case the PLI is higher than comparable cases and the TPO held that no ALP adjustment is required with regard to profit margin. The assessee contended that having accepted that the PLI is higher than the comparable cases the potential loss of interest is taken care and embedded in the sale price. The department has not given the specific details such as what was the period of recovery, what was the delay, what was the reasonable delay etc., thus the department has not made

12 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) out a case for charging the interest on delay. The revenue also did not controvert the submission of the assessee that due to higher margins and the long term relations and business considerations the right of interest is waived. In the case of M/s Cura Technologies supra Hon‟ble ITAT , Hyderabad bench has held that no interest required to be charged on trade advances. Similar view was taken by the ITAT, Hyderabad in the case of M/s Bartronics supra. Therefore respectfully following the decisions cited supra, we hold that there is no justification for charging the interest on receivables in the case of the assessee, accordingly, we delete the interest levied on receivables and allow the appeals of the assessee for the assessment year 2011- 12 and 2012-13.” 7.1 The Ld.AR also relied on the decision of GVK Power & Infrastructure Ltd. Vs. ACIT, 94 taxmann.com 415 of this bench on similar issue. For ready reference we extract para No.12 of the said order which reads as under: 12. Even otherwise as observed from the order of the TPO on three occasions, there was a delay of receivables and pointed out by the Ld. A.R. the assessee is not indulged in any systematic or organized activity of allowing the undue credit to the AEs. The assessee relied on the decision of Motherson SumiInfotech& Designs Ltd. (supra), and Hon'ble ITAT Delhi held as under: "We have considered the rival submission and perused the material available on record. The assessee has given several reasons to explain that it being a business transaction, commercial consideration should have been considered by the authorities below. It was explained that the long term business relation with the customer and A.E. predicate waiver of this right. The interest is only associated with the loans and not services. It was explained that payments are received only after satisfaction of the customer and therefore, there was delay in receiving the payments. The assessee also explained before T.P. authorities below that average outstanding days for recovering sales dues was 57 days in the case of A.Es, whereas, in the case of non A.E., it was 66 days. It was also explained that non charging of interest from A.E.s as well as non A.E. on interest receivables was that it being predominantly involved in the

13 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) provision of services to it's A.Es as we l as third parties. The contention of the assessee have not been disputed by the authorities below. It may also be noted here that all international transactions were accepted by the TPO to be at arm's length, except, payment of interest on loan. The authorities below have treated the delayed payment beyond 30 days as loans. In fact, no loan have been extended by the assessee. It was the amount 'due' against the A.Es as well as non A.E on which interest have been charged by considering the deemed loans. Therefore, the decision of ITAT, Delhi Bench in the case of M/s. Kusum Healthcare Pvt. Ltd., (supra) squarely apply in the case of the assessee, since the assessee earned significantly higher margin than the comparable companies, which have been accepted by the TPO, therefore, there was no justification to charge interest on outstanding. The decision of Hon'ble jurisdictional Delhi High Court in the case of Pr. CIT v. Kusum Healthcare Pvt. Ltd. (supra) squarely apply to the facts and circumstances of the case. The assessee also explained that there are similar delays in collection of outstanding receivables from both A.Es and non AEs which is due to business and commercial reasons. Therefore, there is uniformity in act of assessee in not charging interest from AEs and non AEs. Therefore, the decision of the Hon'ble Bombay High court in the case of CIT v. Indo American Jewellery Ltd. (supra) squarely apply to the facts of the case. 5.1 Considering the nature of business of assessee and the facts explained above, we are of the view that there was non- justification for the authorities below to make adjustment to the income declared by assessee. Recently, the ITAT, I-2 Bench in the case of Terradata India Pvt. Ltd. v. ACIT in ITA No.7855/Del/2017 vide order dated 21st February, 2018, following the order in the case of same assessee, in which the decision of Hon'ble jurisdictional Delhi High Court in the case of Pr. CIT v. M/s. Kusum Healthcare Pvt. Ltd. (supra) have been relied upon, allowed the appeal of assessee on the similar ground. In view of the above discussion and in the light of various decisions above and facts of the case, we are of the view that the adjustment to the income of the assessee is wholly unjustified on account of interest on receivables. We,

14 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) accordingly, set aside the orders of the authorities below and delete the entire addition." The department has not made out case of systematic planning of allowing the undue credit to the AE. Further Ld.AR relied on the decision of Pr.CIT v. B.C. Management Services (P.) Ltd. [2018] 89 taxmann.com 68/253 Taxman 138/403 ITR 45 (Delhi) where in Hon'ble Delhi High court held that delayed payment made by AE cannot be treated as part of income. For ready reference we extract the relevant part of the order of the Hon'ble Delhi High court which reads as under: "9. With respect to the treatment of notional interest by the TPO/AO, the Court is of the opinion that no question of law arises. In an identical situation, in Bechtel India (P.) Ltd. (supra), the Court had held that such notional income on account of delayed payment made by the AO cannot be treated as part of the income and made the subject matter of the adjustments. The question no. 2 and 3 therefore does not arise for consideration." While rendering the judgment the Hon'ble High court has considered the decision in the case of Bechtel India (P.) Ltd. (supra) Therefore, placing reliance on the decision of Motherson SumiInfotech & Designs Ltd. (supra) and the decision in the case of B.C. Management services (P.) Ltd. (supra) we hold that the revenue has not made out case of disallowance of notional interest on delayed payments and accordingly, we set aside the orders of the authorities below and delete the addition. The appeal of the assessee on this ground is allowed. 7.2 The facts of the assessee‟s case are similar. In the instant case also it is established that the transactions with the AEs are at arms length price. All the AEs are 100% subsidiary companies and the assessee is debt free company having large amount of reserves. The department has not made out a case of undue advantage of allowing credit. The Ld.CIT(A) has given finding that the receivables were received in reasonable period and there was no delay. The department did not place any evidence to controvert the finding given by the Ld.CIT(A). Therefore, we hold that there is no case for making adjustment of interest on receivables in the assessee‟s case. Ld.DR did not place any other decision of the Apex Court to controvert the

15 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) case laws relied upon by the assessee. Accordingly, we uphold the order of the Ld.CIT(A) and appeal of the revenue on this ground is dismissed.” 14. We therefore respectfully following the decision of the coordinate bench of the tribunal in assessee’s own case for the A.Y. 2014-15, we find no reason to interfere with the order passed by the ld. CIT(A). Thus, this ground of appeal raised by the Revenue is dismissed. 15. Ground No.4 relates to ALP adjustment suggested by the TPO in respect of difference in price charged to assessee’s AE when compared sale to non-AE. 16. Facts of this issue in brief are that during the Financial Year 2014-15, the assessee sold its single product i.e. instant coffee (1143.65MT) to the tune of Rs. 53.50 crores to assessee’s 100% subsidiary M/s. Grandsaugree SA, Switzerland in various packing sizes ranging from 45 grams to 500 grams and also in bulk sizes. The TPO’s auditor has adopted CUP method and held the same to be at arm’s length and did not suggest any adjustment. However, the TPO adopted the same CUP method and made size-wise/ packing size wise comparison of prices and issued a show-cause notice dated 10/10/2018 proposing to adjust/addition of an amount of Rs. 1,09,42,509/- towards the difference in price charges to assessee’s above AE when compared with sales to non-

16 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) AEs. In response to the show-cause notice, the assessee filed a letter dated 18/10/2018 objected for the above proposed adjustment on the ground that the weighted average price of all sized to be compared and not individual size-wife/packing size- wise comparison as done by the Assessing Officer as the sale consists of single product i.e. instant coffee and the material in all sizes of packing are of the same quality. In fact, out of the 11 sizes, only in 2 sizes i.e. 100 grams packing and 200 grams packing, price charged to assessee’s AE was lower. In fact, in 6 out of 11 sizes, assessee charged to AE more than non-AE, therefore adjustment suggested by the TPO is not correct. He further submitted before the TPO that to consider the weighted average price of all sizes in which case, no adjustment will be required as the difference in such case will be 1.49% as against the permissible difference of 3%. However, the TPO only suggested two sizes adjustment less prices charged to AE is lower compared to non-AE. The TPO has considered CUP method analyzed the sale price for each SKU charged to AE and non-AE. 17. Before the ld. CIT(A), the assessee has contended that the entire product is the same supplied to the AE and the non-AE and finding given by the Assessing Officer taken into consideration SKU is a basis is not correct and further submitted that though the

17 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) assessee has supplied 11 sizes to the AE and non-AE, but product remained same. The TPO has compared the price of SKU instead of taking the entire product sold to AE in the year under consideration as the product is the same. It was further submitted that the TPO failed to establish that the assessee has shifted profits to AE for the reason that the entire sale is considered during the year, there is only difference of 1.49% which is permissible limit as per provisions of law. The ld. CIT(A) after considering the submissions of the assessee has given a finding that the entire product supplied to the AEs and the non- AEs is the same comparison made by the TPO on the basis of SKU is not correct. The ld. CIT(A) also further gave a finding that TPO erred in comparing the price on the basis of SKU instead of taking the entire product sold to AE in the year under consideration as the product is the same. The ld. CIT(A) further gave a finding that the entire sales made to the AE and non-AE is considered irrespective of size of packaging, there is a difference of 1.49% which is within the permissible limit as per provisions of law. Hence, the adjustment suggested by the TPO and which was adopted by the Assessing Officer for making addition is not correct and directed the Assessing Officer to delete the same.

18 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) 18. On appeal, ld. counsel for the assessee has submitted that the assessee has supplied the instant coffee in 11 sizes to AEs and non-AEs, however, the product is the same in all sizes. The assessee has supplied the entire product of instant coffee in 11 sizes out of 6 sizes, the price charged to AE is higher, therefore submitted that TPO out to have been followed weighted average method and if that is followed the difference is only between the sale made to AE and non-AE is 1.49% which is permissible as per proviso to sub-section (2) of section 92C of the Act. 19. On the other hand, ld.DR strongly supported the orders passed by that TPO as well as Assessing Officer. 20. We have heard both the sides, perused the material available on record and orders of the authorities below. 21. The assessee has sold instant coffee of 11,43,651 kgs to the AEs to the extent of Rs. 53,50,16,854/- which was in various Store Keeping Units (SKU) ranging from 45 grams to 500 grams including bulk sales in 25 kgs, 250 kgs & 275 kgs. The assessee has reported the sale transaction in both Form 3CEB and in TP study report. The assessee has adopted CUP as the most appropriate method for benchmarking the transaction of sale of instant coffee to AE. The TPO has treated that the data used by the assessee on sample basis in computation of arms’s length

19 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) price is not correct and rejected the CUP analysis. From the details furnished by the assessee, the TPO has observed that there are differences in terms and conditions of sales made to AEs and non-AEs which materially affects the price in the open market. In view of the Rule 10(B)(1)(a)(ii) as the sale price should be adjusted to account to arrive at arms’ length price. After considering the submissions and data, the TPO has suggested and worked out the adjustments on sale of instant coffee to the AE and computed the same at Rs. 1,09,42,509/- which is charged less to the AE compared to the non-AE and called explanation from the assessee. The assessee has submitted that TPO has taken only two sizes out of 11 sizes i.e. 100 grams and 200 grams and suggested adjustment which is not correct. Out of 11 sizes in 6 cases, the assessee has charged higher price. It was further contended before the TPO that comparing the product size-wise is unfair and incorrect and also unscientific and requested the TPO to adopt weighted average method and find out the ALP and submitted that weighted average method is applied difference is only less than 3% which is permissible according to law. The TPO rejected the request of the assessee and suggested the adjustment of Rs. 1,09,42,509/- u/sec. 92CA(3) of the Act. On appeal, ld. CIT(A) directed the Assessing Officer to delete the

20 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) addition. For the sake of convenience, the relevant portion of the order of the ld. CIT(A) is extracted as under:- “I have carefully considered the order of TPO, assessment order and submissions of the appellant. The appellant contended that during the year under consideration the appellant company sold its single product i.e. instant coffee (1143.65 metric tons) to the tune of Rs. 53.50 cr to its 100% subsidiaries M/s. Grandsaugreen SA, Switzerland in various packing sizes ranging from 45 gms to 500gms and also in bulk sizes. By following CUP method, the appellant contended, that no TP adjustment was suggested in its TP study report. However, the appellant stated that by following CUP method, the TPO compared the price on the basis of size/packaging and suggested adjustment which is unfair. The appellant contended that the TPO should have considered weighted average price of all sizes instead of individual price size- wise/packaging size-wise. It was contended that the product is the same i.e. instant coffee and the quality is the same though the packaging is done in different sizes as per the request of the AE. The appellant contended that there is no product difference as considered by the TPO. In view of this, weighted average method is best suited to see any profit shifting from appellant company to AE. The appellant argued that difference works out to 1.49% considering the weighted average method for all the sizes put together which is within the permissible limits hence requested to delete the addition. It was contended that the department adopted TNMM as MAM for the earlier asst. year and not considering the alternative plea to work out ALP on TNMM method by the TPO is unjust. In view of these the appellant requested to delete the addition made by the AO as suggested by the TPO. The undisputed facts emanate from the record are as under: The appellant sold instant coffee to the AE and Non-AE. The appellant sold the same product in different sizes. The price charged to AE varied depending on size of the packaging. The appellant followed CUP method for internal TP report and not suggested any adjustment. Out of 11 sizes of the same product, the TPO compared prices between AE and Non-AE and found in 6 cases the appellant charged higher price to AE when compared to Non-AEs. In three cases, the price charged to AE as noted by TPO, is less than 3%. Only in case of two sizes, the TPO suggested adjustment as the price charged to AE is lower when compared to Non-AE. The TPO considered each SK is a different and hence compared the same with price charged by the appellant to AE and

21 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) Non-AE. For the earlier asst. years the Department negating the CUP method followed by the appellant in its internal TP study adopted TNMM as MAM and the same was not considered by the TPO for the year under consideration as CUP method results in ALP adjustment. The appellant contends that as the entire product is the same comparison of price on SKU basis is incorrect. It was also contended that weighted average method is best suited in the facts of the case. Considering the above facts and also the submissions of the appellant, it is felt that the TPO erred in comparing the price on the basis of SKU instead of taking the entire product sold to AE in the year under consideration as the product is the same. Ultimately, one has to see whether there is any profit shifting from the appellant to the AE by charging lesser price of the goods sold during the year. In this case considering the entire sale irrespective of size of packaging, there is difference of 1.49% which is within the permissible limit as per provisions of law. Hence the adjustment suggested by the TPO and which was adopted by the AO for making addition appears to be incorrect. Hence, the addition is hereby deleted and grounds raised by the appellant are allowed.”

22 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) out of 11 items suggested adjustment for the purpose of arriving at ALP. He further gave a finding that if the entire sales is considered the irrespective of size of packaging difference is only 1.49% which is permissible limit as per provisions of law. As per proviso to sub-section (2) of section 92C, the difference to the extent of 3% is permissible. We further find that the assessee by submitting all the details explained before the TPO that the assessee has charged for AE as well as non-AE similar prices for the supply of instant coffee and no profit has been shifted to AE, however, the TPO not accepted the explanation given by the assessee and suggested TP adjustment without giving any reasons. The TPO has not given what is the reason for choosing only two sizes 100 grams and 200 grams, when the assessee specifically submitted before the TPO that out of 11 sizes, 6 sizes the assessee has charged high price and submitted that average has to be taken. Without considering the same, the TPO simply suggested adjustment by taking only two sizes, in our opinion, the assessee has discharged the burden casted upon him to show that it has not shifted profits to AE, therefore it is the duty of the TPO to establish that the assessee has shifted profits to AE. In this case, without giving any reason simply suggested TP adjustment by the TPO. We find that TPO is not correct. Thus, we find that

23 ITA No. 433/VIZ/2019 (M/s. CCL Products (India) Ltd.) the ld.CIT(A) has considered the facts and directed the Assessing Officer to delete the addition. We find no reason to interfere with the order passed by the ld. CIT(A). Thus, this ground of appeal raised by the Revenue is dismissed. 23. In the result, appeal filed by the Revenue is dismissed. Order Pronounced in open Court on this 07th day of Feb., 2020.

Sd/- sd/- (D.S. SUNDER SINGH) (V. DURGA RAO) Accountant Member Judicial Member Dated: 07th February, 2020. vr/- Copy to: 1. The Assessee - M/s. CCL Products (India) Ltd., Duggirala, Guntur Dist. 2. The Revenue – DCIT, Circle-1(1), Guntur. 3. The Pr.CIT, Guntur. 4. The CIT(A)-1, Guntur. 5. The D.R., Visakhapatnam. 6. Guard file. By order

(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Visakhapatnam.