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PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee is directed against the assessment order dated 30.09.2019 passed in pursuance of directions of dispute resolution penal (DRP) dated 12.07.2016 for assessment year (AY) 2012-13. The assessee has raised following grounds of appeal:
1. On the facts and circumstances of the case and in law, the Learned Assessing Officer (AO) and the Hon'ble Members of Dispute Resolution Panel (DRP) respectively, erred in passing the impugned assessment order U/s. 143(3) r.w.s. 92CA and 144C(5) of the Income Tax Act, 1961 (the Act), which is illegal and bad in law.
2. On the facts and circumstances of the case and in law, the Ld. AO and DRP respectively, ought to have held that- IT (TP) A No. 7002 Mum 2016-Dania Oro Jewellery Pvt. Ltd.
2.1 adjustment of Rs. 39,75,839/- U/s. 92CA of the Act being notional interest on account of delay in realization of debts from Associated Enterprises (AEs), should be imputed in computing the operating margin of the appellant and not as an independent international transaction. Consequent to which, since the margin (9.03%) earned by the appellant even after reducing such notional interest is much higher than the margin of 3.82% earned by the comparable companies, the transfer pricing adjustment of Rs. 39,75,839/- should not have been made. Therefore, the adjustment of Rs. 39,75,839/- made U/s. 92CA of the Act should be deleted. 2.1.1 without prejudice to the above and in the alternate, since the appellant enjoys the deduction U/s. 10AA of the Act and shifting of profits is not possible, transfer pricing adjustment should not have been made.
3. The above grounds of appeal
are distinct and separate and without prejudice to each other.
4. It is humbly prayed that the reliefs as prayed for hereinabove and/or such other reliefs as may be justified by the facts and circumstances of the case and as may meet the ends of justice should be granted.
2. The assessee vide application dated 10.06.2020, raised following additional grounds of appeal;
Brief facts of the case are that the assessee-company is and engaged in the business of manufacturing of Gold and Silver and also export of studded jewellery, filed its return of income for AY 2012-13 on 23.11.0212. The assessee while filing return of income reported international transaction with IT (TP) A No. 7002 Mum 2016-Dania Oro Jewellery Pvt. Ltd. its associated enterprises (AE) and furnished report under Form 3CED. The assessee reported the following international transactions with its AEs;
Sr No. Nature of transaction Amount ( Rs.) 1 Sale of studded jewelry to Jewel America Inc 37,70,79,824/- USA 2 Sale of studded jewelry to Barjon Jewellery 11,45,801/- Inc USA 3 Purchase of jewelry for remaking from Jewel 2,68,494/- America Inc USA 37,84,94,119/- 4. Consequent upon reporting of international transaction, the assessing officer (AO) made reference to the transfer pricing officer (TPO) for computation of arms length price (ALP). The TPO while determining the APL suggested APL of Rs. 38,23,702/- on account of notional interest for delay in the export realization from AEs in its order dated 15.01.2016 passed under section 92CA(3) of the Income –tax Act. On receipt of report of TPO, the AO passed draft assessment order and made additions of Rs. 38,23,702/- on account of notional interest for delay in realising the debts from AEs as suggested by TPO. The assessee exercised its option for filing objections before dispute resolution penal (DRP). The DPR after hearing the objections of the assessee directed the AO to apply LIBOR rate plus 3% as APL for interest on loan borrowed by AEs. The TPO while giving effect to the direction of DRP re-computed the working of TP adjustment and revised the adjustment on account of notional interest to Rs. 39,75,839/- as against Rs. 38,23,702/- as suggested initially by TPO in its directions dated 15.01.2016. On receipt of directions of the DRP, the AO passed the final 3 IT (TP) A No. 7002 Mum 2016-Dania Oro Jewellery Pvt. Ltd. assessment order by making the additions of Rs, Rs. 39,75,839/- on account of notional interest for delay in realising the debts from AEs. Thus, further aggrieved the assessee has filed this appeal before this Tribunal.
We have heard the submissions of the learned authorised representative (ld AR) for the assessee and the learned Senior Departmental Representative (ld. DR) for the revenue and perused the order of the lower authorities. At the outset of hearing the ld. AR for the assessee submits that the grounds of appeal
raised by the assessee are covered in favour of the decision of Tribunal in assessee’s own case for AY 2009-10 in dated 29.07.2016 and again for AY 2010-11 in ITA No. 7635/Mum/2014 dated 03.01.2018. The ld. AR for the assessee further submits that there was average delay of 138 days for recovery money of sales from AEs during the years. Similarly there was delay in recovery of similar receivable from non AEs of 146 days. The assessee has adopted uniformity in not charging interest for AEs or non AEs for delay in realization of money of sales. As the assessee has not charges any interest from non AEs, thus, no notional interest adjustment was warranted against the assessee. The ld. AR for the assessee also furnished the working of average credit period for AE and non AEs. As per working the delay from AEs is 138 days, however for non AEs is 146 days.
6. On the other hand the ld. DR for the revenue supported the order of the lower authorities. 4 IT (TP) A No. 7002 Mum 2016-Dania Oro Jewellery Pvt. Ltd.
7. We have considered the rival submissions of the parties and gone through the record carefully. We have seen that in appeal for AY 2008-09 on almost similar delay in realising the amount from the AEs the TPO made similar additions and on objections before DRP, the adjustment on account notional interest was deleted. On further appeal by revenue before the Tribunal the appeal of the revenue was dismissed vide order dated 29.07.2016. The relevant part of the order is extracted below;
“6. We have heard the rival contentions, perused the findings of the authorities below as well as material available on record. The ld. Counsel for the assessee has placed reliance on the judgment of the Hon'ble Bombay High Court in the case of CIT-9 vs. Indo American Jewellery Ltd.. The said head note is extracted below: "Section 92C of the Income-tax Act, 1961- Transfer Pricing- Computation of arm's length price [Comparables and adjustments] - In transfer pricing proceedings, TPO while determining ALP of international transactions, noticed that outstanding balance from Associated Enterprises was amounting to Rs.8.76 crores - said amount was outstanding for more than year and, thus, taking rate of interest at 10 per cent, Transfer Pricing Officer determined interest receivable at Rs.87.66 lakhs and added same to international transaction cost - Tribunal noted that there was complete uniformity in act of assessee in not charging interest from both Associated Enterprises and non- Associated Enterprises debtors for delay in realization of export proceeds - Tribunal thus deleted addition of notional interest on outstanding amount of export proceeds realized belatedly whether on facts, no substantial question of law arose from Tribunal's order - Held, yes [Para5] [ In favour of assessee]
6.1 The above decision squarely applies to the present case. This is the only decision of a High Court applicable to the case at hand which has been cited before us. In the case of Dr. T.P. Kapadia vs. CIT[1973] 87 ITR 511 (Mys.) it has been held that a decision of a High Court would have binding force in the State in which it has jurisdiction. 5 IT (TP) A No. 7002 Mum 2016-Dania Oro Jewellery Pvt. Ltd.
6.2 Even in the case of the assessee for the assessment year 2008-09 (Dania Oro Jewellery Pvt. Ltd. vs. ITO) relied on by the ld. DR, we find that in some of the cases the terms of credit has been extended beyond 700 days and in some of the cases, it has gone beyond 1200 days whereas in the case of Non-AE, the maximum delay is of 203 days. In view of the above, the order of the Tribunal in the case of the assessee for the A.Y. 2008-09 is not applicable to the issue at hand for the A.Y. 2009-10. 6.3 Let us now examine the facts in the present case. In a case like this the proper method is to take a simple average. If we take a simple average then there has been a delay of 132 days in the case of AE and 130 days in the case of Non- AEs in realization of the export proceeds. Thus there is uniformity in the act of the assessee in not charging interest from both AE and Non-AE debtors for delayed realization of export proceeds.
Respectfully following the judgment of Hon'ble Bombay High Court in the case of Indo American Jewellery Ltd. the appeal filed by the Revenue is dismissed."
Further we have noted that in AY 2010-11, similar adjustment was suggested by TPO due to delay in realization of debts. The assessee filed objection before DRP, wherein the assessee was allowed partial relief.
However on further appeal to the Tribunal, the entire adjustment/ addition on account notional interests for delay in realization of sales was deleted vide order dated 03.01.2018 in ITA No. 7635/Mum/2014. In appeal for AY 2010-11, the Tribunal followed the order for AY 2009-10.
From the details furnished by ld. AR for the assessee about the delay in realizing the money of sales from AEs and non AEs, we have observed that on the working of delay of credit period for AE and non AEs as138 days and for non AEs are 146 days; the ld. has not disputed the factual matrix.
Considering the decision of Tribunal in assessee’s own case for AY 2009-10 IT (TP) A No. 7002 Mum 2016-Dania Oro Jewellery Pvt. Ltd. and 2010-11, we find merit in the submissions of the assessee that no notional interest adjustment was warranted against the assessee. In the result the ground No. 2.1 of the appeal is allowed. 10. As we have allowed the primary contention of the ld. AR for the assessee, therefore, the discussions on the alternative ground of appeal have become academic. Even otherwise at the time of making submissions the l d. AR for the assessee submits that he is not pressing Ground No. 2.1.1 which relates to alternate ground for deduction under section 10AA of the Act. Thus, this ground of appeal is dismissed as not pressed
11. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 29/06/2020.