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Income Tax Appellate Tribunal, DELHI BENCH ‘I-1’ : NEW DELHI
Before: SHRI B.P. JAIN & SHRI KULDIP SINGH
per detail of invoices raised on unrelated parties qua AY 2012-13, available at page 236 of the paper book.
This issue has been dealt with by Hon’ble Bombay High Court in case cited as CIT-9 vs. M/s. Indo American Jewellery Ltd. in ITA (L) No.1053 of 2012 order dated 08.01.2013 wherein following question was framed :-
“B. Whether on the facts and in the circumstances of the case and in law the ITAT was justified in deleting the addition of Rs.87,66,641/- being internet receivable on outstanding amount due to the Assessee Company from the Associated Enterprises?
Aforesaid question was decided in favour of the taxpayer by upholding the order rendered by the Tribunal by making following observations :-
16 “5. On appeal filed by the Revenue, the ITAT upheld the order of CIT (A). While, upholding the order of CIT (A), the ITAT held that interest income is associated only with the lending or borrowing of money and not in case of sale. We express no opinion on the above reasoning of the ITAT and keep that reasoning open for debate in an appropriate case. However, in the facts of the present case, the specific finding of the ITAT is that there is complete uniformity in the act of the assessee in not charging interest from both the Associated Enterprises and Non Associated Enterprises- debtors and the delay in realization of the export proceeds in both the cases is same. In these circumstances, the decision of the Tribunal in deleting the notional interest on outstanding amount of export proceeds realized belatedly cannot be faulted.”
So, when the taxpayer has not been making any distinction between AE and non-AE in charging any interest on outstanding receivables, the adjustment made by the TPO/DRP/AO on account of arm’s length interest is not sustainable. Moreover the interest can be charged only on loaning or borrowing of money and not in case of sale. Particularly when there is no penal clause in the agreement entered into between the taxpayer and its AE/non-AE to charge the interest on delayed receivables. Even otherwise, a transaction cannot be recharacterized merely on ground of delay in payment of receivables.
Identical issue has also been examined by coordinate Bench of the Tribunal in Kadimi Tool Manufacturing Co. Pvt. Ltd. vs. DCIT in order dated 25.09.2017 and has Healthcare Pvt. Ltd. vs. ACIT – 170 TTJ 411 and Bechtel India Pvt. Ltd. (supra) wherein SLP filed in the Hon’ble Supreme Court has been dismissed.
In view of what has been discussed above, TPO/DRP/AO have erred in making adjustment on account of arm’s length interest which is not sustainable in the eyes of law, hence no adjustment on account of interest on receivables can be made. So, Grounds No.2 to 2.9 are determined in favour of the taxpayer.
GROUNDS NO.4 & 5 (AY 2010-11) AND GROUNDS NO.3, 4 & (AY 2012-13)
AO has not allowed credit of advance tax, TDS, foreign tax and tax paid under MAT provision while computing the tax liability on assessed income.
We are of the considered view that while calculating the tax paid under MAT provision, it is required to be deducted from gross tax payable. Similarly, while calculating the tax credit of advance tax, TDS and foreign tax is also required to be set off first in computing the overall tax liability by the taxpayer. Particularly when tax liability of the taxpayer is higher as per peak profit recomptue the tax liability by considering the credit of advance tax, the TDS, the foreign tax and tax paid on MAT provision in the light of the decision rendered by Hon’ble Allahabad High Court in the case of CIT vs. Vacment India - 369 ITR 304 (All.). So, Grounds No.4 & 5 in (AY 2010-11) and Grounds No.3, 4 & 5 in (AY 2012-13) are determined in favour of the taxpayer.
GROUND NO.6 in (AY 2010-11) AND
The aforesaid grounds qua levy of interest u/s 234B and 234C needs no specific finding being consequential in nature. Order pronounced in open court on this 12th day of December, 2017.