HITECH ARAI PRIVATE LIMITED,MADURAI vs. DCIT, CORP. CIRCLE-2(2), CHENNAI

ITTPA 49/CHNY/2021Status: DisposedITAT Chennai04 January 2023AY 2016-173 pages

AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the appeal should be partly allowed. While acknowledging the assessee's submission that credit periods ranging from 60 to 120 days were negotiated and mentioned on invoices, the Tribunal did not fully accept the assessee's claim for a 120-day credit period. Instead, the Tribunal directed the Ld. TPO to allow a credit period of 60 days and re-compute the impugned adjustment. The reasoning was that the assessee's plea for a 120-day credit period was not fully substantiated, but the TPO's adoption of a 30-day credit period was also not considered appropriate. The ratio decidendi is that in the absence of a clear contractual agreement, a reasonable credit period, considering past practices and invoice mentions, should be allowed for transfer pricing adjustments on overdue balances. The operative direction is to re-compute the adjustment by allowing a 60-day credit period.

What were the facts?

The assessee, M/s. Hi-Tech Arai Pvt. Ltd., filed an appeal against the order of the DCIT for Assessment Year 2016-17. The dispute pertains to a Transfer Pricing Adjustment on account of interest on overdue Associated Enterprises (AE) balances outstanding at the year-end. The Transfer Pricing Officer (TPO) initially proposed an adjustment of Rs. 70.16 Lacs on AE trade receivables, benchmarked at 14.05%. The Dispute Resolution Panel (DRP) directed the TPO to re-compute the interest by allowing a credit period of 30 days from the invoice date, which reduced the adjustment to Rs. 10.98 Lacs. The assessee is in further appeal against this reduced adjustment.

What were the issues?

1. Whether the Tribunal had to decide on the appropriate credit period to be allowed for computing interest on overdue Associated Enterprises (AE) balances, and consequently, the quantum of Transfer Pricing Adjustment. Assessee's Contentions: The assessee argued that there was no separate agreement for a credit period with the AE, but the credit period was specifically mentioned on each invoice. The assessee claimed to allow credit periods ranging between 60 to 120 days, which were negotiated beforehand and stated on the invoices. Revenue's Contentions: The Ld. CIT-DR drew attention to the order of the Ld. TPO, stating that interest was computed day-wise as directed by the Ld. DRP after allowing a credit period of 30 days. The Ld. DRP had rejected the assessee's plea for a 120-day credit period, stating it was without basis, and directed the TPO to adopt a 30-day credit period.

Which sections of the Income-tax Act were involved?

None explicitly mentioned in the provided text, but the context relates to transfer pricing provisions.

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI

Before: HON’BLE SHRI V. DURGA RAO & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM

Manoj Kumar Aggarwal (Accountant Member)

The sole substantive issue that fall for our consideration in the captioned appeal is Transfer Pricing Adjustment on account of interest on overdue Associated Enterprises (AE) balances outstanding at year end. The assessee has filed written submissions in support of his case. The Ld. CIT-DR, drew attention to the order of Ld. Transfer Pricing Officer (TPO) dated 29.03.2021 to submit that interest has been computed day-wise as directed by Ld. DRP after allowing credit period of 30 days. Having considered case records, the appeal is disposed-off as under.

The Ld. Transfer Pricing Officer-2(1), Chennai (TPO), in its order dated 01.11.2019, proposed adjustment against AE Trade receivables outstanding at year end. The same was benchmarked at 14.05% and an adjustment of Rs.70.16 Lacs was proposed. However, Ld. DRP directed Ld. TPO to compute the overdue period of the trade receivable taking the credit period as 30 days from the invoice date and re-compute the interest. The aforesaid direction reduced the impugned adjustment to Rs.10.98 Lacs against which the assessee is in further appeal before us. Before Ld. DRP, the assessee sought credit period of 120 days which was stated to be without any basis and accordingly, Ld. DRP directed Ld. TPO to adopt credit period of 30 days.

The assessee, in the written submission, has stated that there was no separate agreement with the AE with respect to credit period but the credit period was mentioned specifically on each of the invoices. It has been submitted that the assessee allows credit period ranging between 60 to 120 days which is negotiated before-hand and mentioned on each of the invoices. Partly accepting this plea, we direct Ld. TPO to provide credit period of 60 days and re-compute the impugned adjustment.

The appeal stands partly allowed. Order pronounced on 04th January, 2023. (V. DURGA RAO) (MANOJ KUMAR AGGARWAL) "ाियक सद4 /JUDICIAL MEMBER लेखा सद4 /ACCOUNTANT MEMBER चे6ई / Chennai; िदनांक / Dated : 04.01.2023 DS आदेश की Vितिलिप अ9ेिषत/Copy of the Order forwarded to : 1. अपीलाथ"/Appellant 2. ""यथ"/Respondent 3. आयकर आयु" (अपील)/CIT(A) 4. आयकर आयु"/CIT 5. िवभागीय "ितिनिध/DR 6. गाड" फाईल/GF

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