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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
PER PRASHANT MAHARISHI, AM:
This appeal in 05.03.2021 but by order dated 15.09.2021 in MA No. 132/Mum/2021 it was recalled for limited purposes of adjudicating ground Nos. 6 to 11 of the appeal.
The co-ordinate Bench recalled the above order for the reason that learned Authorised Representative of the assessee though filed a circular issued by the parent company of the assessee but did not place any reliance on that. Thus, the grounds No. 6 to 11 of the above appeal are required to be adjudicated.
“Adjustment on account of payment of interest on trade credits of INR 29,79,359/- On facts and circumstances of the case, the learned CIT(A):
6. erred in confirming the action of TPO/AO in making transfer pricing adjustment on the international transaction of payment of interest on trade credits to its AE and computing the ALP at NIL by adopting Internal CUP method;
7. erred in ignoring the contractual terms of the Appellant with its AE in respect of charge of interest post availing interest period of 90 days;
failed to appreciate the fact that the credit period allowed by non-AE (30 days) is less than the credit period allowed by AE (90 days);
9. failed to appreciate the commercial and business realities of the industry in which the Appellant operates and business decision of the appellant of not charging interest from customers;
10. Without prejudice to above, erred in not relying on external comparable data for determining the arm's length interest rate for the said transaction:
failed to appreciate that payment of interest on trade credits is linked to the transaction of import of
Brief fact of the issue shows that assessee is purchasing goods from AE as well as Non AE. On the outstanding of AE beyond a trade credit period of 90 days, assessee pays interest @ 5.50 % P.a. to its AE. To Non AEs, generally, credit period is of 30 days and even if payment is made beyond 30 days to those parties, no interest is paid. Assessee submits it to be an international transaction but has aggregated with other transactions, adopted TNMM as Most Appropriate method and as its margins were comparable with other comparable companies, Stated this transitions also at arms’ length. It is claim of the assessee that neither the assessee nor the Associated Enterprises performed any significance function or carried any significance risk. Before LD TPO, assessee explained that benchmarking as stated above. The learned Transfer Pricing Officer noted that assessee has paid interest to Associated Enterprises but has not paid any interest to non Associated Enterprises on outstanding balances. The assessee could not submit any document in support of the claim that the credit allowed to non Associated Enterprises was less than the credit period
The assessee preferred the appeal before the learned CIT (A), who upheld the above addition. Therefore, assessee has challenged the same before us.
The learned Authorised Representative after referring to the order of the learned Transfer Pricing Officer and learned CIT (A) referred to page No. 156 of the original paper book that is the submission made before the learned Transfer Pricing Officer. He also referred to the chart, wherein the interest amount working is given. He
8. The learned DR vehemently supported the orders of the lower authorities and submitted that in the present case when non Associated Enterprises are not paid any interest the payment of interest to Associated Enterprises has been correctly disallowed in the hands of the assessee. He submitted that different credit period by AE or NON AE can be a matter of consideration for benchmarking purchase transactions but once when the amount becomes outstanding whether at the end of 30 days or 90 days, it becomes a separate international transaction and ld TPO has correctly held that there is an internal CUP available, which the best method, so order of ld TPO and CIT (A) deserves to be upheld.
We have carefully considered the rival contentions and perused the orders of the lower authorities. The facts stated above clearly shows assessee purchases material from its AE and Non AE. NON-AEs allow payment credit to assessee of 30 days whereas the credit period allowed by AE is 90 days. Assessee pays interest @ 5.50 % p.a. that assessee is paying interest to its Associated Enterprises for payment beyond 90 days of the invoices value at the rate of 5.5% p.a. The above international transaction
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 21.03.2022.