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Income Tax Appellate Tribunal, “K” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI RAM LAL NEGI, JM
O R D E R Per Shamim Yahya, A. M.: This appeal by the assessee is directed against the order of the Dispute Resolution Panel-2, Mumbai (‘DRP' for short) dated 14.12.2015 and pertains to the assessment year (A.Y.) 2011-12.
The grounds of appeal as read:
The learned DRP erred on facts & in the circumstances of the case and in law in affirming the order of the A.O. on the following ground and appeal is being preferred against the same. The learned A.O. has erred in determining the ALP of interest paid by the assessee to its AE as NIL on the ground that no such interest was charged from Customers/Debtors.
Brief facts of the case are that the assessee company is engaged in manufacturing and trading of Biotechnology products and chemicals. The AE, namely Orochem
Orochem (I) Pvt. Ltd. Technologies Inc., USA has supplied raw material and technology for the same. The facts in this regard are that during the assessment year under consideration, the assessee has paid interest on late payment for purchases made from AE amounting to Rs.7,52,725/- for payments made beyond 90 days. The assessee company has stated that the interest paid is @ 5%, which is lower than that charged by nationalized bank @ 9.50% and hence transaction is at arm's length price. The Transfer Pricing Officer (‘TPO' for short) has noted that for similar late payments received from third party creditors, the assessee is not paying any such interest or late fees, Thus, on the basis of the internal CUP available, the Arm's length Price of the transaction of payment of late fees / interest to the AE was held to be 'NIL’ as against Rs. 7,52,7257- claimed by assessee.
Upon the assessee’s objection, the DRP confirmed the action of the TPO by observing as under:
In view of the fact that there is an internal Cup available for benchmarking the international transaction, the DRP has no reason to disagree with the findings of the TPO. The material on record clearly reveals that there are various debtors (Non-AH), who have availed credit period beyond 90 days, however no interest has been paid to them. In these circumstances, the interest payment to the AE for the credit period beyond 90 days has been correctly benchmarkcd by the TPO. The DRP has also noted that the AE is supplying chemicals and Bio-tech products at fair market value, as has been the other non-AF parties and hence there was no occasion to treat the AEs in a preferential manner by paying them interest on outstanding amounts. Hence, the adjustment made by the AO/ TPO is confirmed and no directions are being issued on this only ground of objection.
Against the above direction, the assessee is in appeal before us.
We have heard both the counsel and perused the records. The ld. Counsel of the assessee submitted that there is a proper agreement with the AE in this regard. Thus comparing with lending rate obtained from Bench is quite reasonable.
Orochem (I) Pvt. Ltd. 7. Per contra, the ld. Departmental Representative (‘ld. DR' for short) relied upon the order of the authorities below.
Upon careful consideration we find that there is an agreement in existence with the AE wherein the payment of interest is duly incorporated. The assessee has paid interest for late payment beyond 90 days at the rate of 5%. The assessee’s plea is that it is quite comparable with the rate of 9.50% charged by nationalized bank. Hence, it has been urged that the transaction should be treated at arms length. In our considered opinion, the plea of the assessee is cogent and deserves to be upheld. Accordingly, we set aside the direction of the DRP in this issue and decide the issue in favour of the assessee.
In the result, this appeal by the assessee stands allowed. Order pronounced in the open court on 05.09.2018