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Income Tax Appellate Tribunal, “K”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI AMIT SHUKLA, JM
O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the revenue against the order of CIT(A), dated 25-2-2015, for the assessment year 2009-2010 & 2010-2011, in the matter of order passed u/s.143(3) r.w.s.144C of the IT Act. 2. The revenue for the assessment year 2009-2010, has raised the following grounds :-
1. "The Ld. CIT(A) has erred in allowing relief to assessee in respect of interest charged on outstanding amount/debt received from Associated Enterprise ignoring the fact that TPO has charged interest only on the amount outstanding against the AE by considering the amount outstanding for greater than 365 days with Associated Enterprise for benchmarking the transaction.
2. "The Ld. CIT(A) has erred in allowing relief to assessee without appreciating the fact that the facts in the instant case are distinguishable from the one's in the case of M/s.lndo American Jewellery Ltd."
"On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the assessee's claim that profit u/s.10A is not liable to be included in book profit computed u/s.115JB of the Act and ignoring the amendment by Finance Act, 2007 w.e.f. 01/04/2008 whereby the words 10A and 10B have been omitted from Explanation 1.(f) and (ii) of Section 115JB of the Act, thereby bringing the profit/loss of 10A and 10B units within the purview of MAT,"· 4. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in holding that in spite of omission of words 10A and 10B in Explanation 1(f) and (ii) of Section 115JB by the Finance Act, 2007 w.e.f. 01/04/2008, assessee will not be liable for tax u/s. 115JB of the Act as it's unit is in the Special Economic Zone and hence covered within the exemption provided in clause (6) of Section 115JB of the Act." 5.. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in holding that the assessee's 10A profit is not liable for tax u/s. 115JB of the Act, in view of clause (6) thereof without appreciating that clause (6) has been inserted by the Special Economic Zones Act 2005 w.e.f. 10/02/2006 concurrently with the insertion of Section 10AA, also by the Special Economic Zone Act 2005 w.e.f. 10/02/2006. Hence clause (6) of Sec. 115JB is applicable only to 10AA units and not to 10A units, as due to amendment to clauses (f) and (ii) of Explanation 1 of Section 115JB by the Finance Act 2007, profit/loss of 10A and 10B units have been expressly brought within the purview of MAT effective from A.Y. 2008-09,” 6. “On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred is not considering the clarification given in para 44 of the Board’s Circular 3/2008 regarding amendment in Sec. 115JB by the Finance Act, 2007 which is applicable to the assessee’s case in the Assessment Year under consideration,” 3. The revenue for the assessment year 2010-2011, has raised the following grounds :- 1. “The Ld.CIT(A) has erred in allowing relief to ssessee in respect of interest charged on outstanding amount/debt received from Associated Enterprise ignoring the fact that TPO has charged interest only on the amount outstanding against the AE by considering the amount outstanding for greater than 365 days with Associated Enterprises for bench marking the transaction. 2. “The Ld.CIT(A) has erred in allowing relief to assessee without appreciating the fact that the facts in the instant case are distinguishable from the one’s in the case of M/s. Indo American Jewellery Ltd.
Rival contentions have been heard and record perused. Facts in brief are that assessee company is engaged in manufacturing, trading and export of diamonds, located in SEEPZ as a unit notified as SEZ. During the year under consideration assessee had an export to its AE. The TPO made adjustment with regard to the interest for delay in realisation of outstanding dues against the AE. The AO also held that profit earned by 10A unit of assessee is also liable to be included u/s.115JB of the Act while computing book profit.
At the outset, ld. AR placed on record order of the Tribunal in assessee’s own case in ITA Nos.5875&6221/M/2013, for the assessment year 2008-09, order dated 8-8-2014. Ld. AR drew our attention to the grounds raised
by revenue in the present appeals as well as ground raised in the assessment year 2008-09 decided by the Tribunal in assessee’s own case vide above order and contended that all the grounds so raised by revenue in both the appeals under consideration are covered by the order of the Tribunal in immediately preceding assessment year.
6. We have gone through the orders of authorities below as well as order of the Tribunal in assessee’s own case. The ground raised by the revenue with regard to deletion of addition made on account of interest for delayed realisation of revceivables from AE, the CIT(A) has deleted the addition after observing as under :- “5. I have considered the AO’s order as well as appellant AR’s submission. Having taken to the relevant provisions of the Act wherein the TPO has made adjustment on the outstanding balance receivable from Associated Enterprises as on 31.03.2009 vide order 4 u/s.92CA dated 22.01.2013 as well as the decision of the jurisdictional Bombay ITAT in the case of Tata Autocomp Systems Ltd vs. ACIT (ITA.No.7354/Mum/2011) dated 30.04.2012, I find that the TPO was not justified in his action in making the aforesaid adjustment. Besides this, I find that similar issue was decided by the Jurisdictional ITAT, Mumbai Benches 'K' Mumbai vide ITA No.5875/MUM/2013 and ITA.No.6221/MUM/2013 wherein the Hon'ble ITAT after taking note of the appellant's case wherein the appellant has adopted the uniformity in not charging interest from both the AE and non-AEs has categorically held that the appellant's case is covered by the decision of the Hon'ble Bombay High Court in the case of CIT vs. lndo American Jewellery Ltd. (2014) 44 Taxman.com 310(Bom). The relevant portion of the ITAT's order is extracted herein below: "In view of the above discussion we hold that no addition on account of TP adjustment in the present case is called for and the addition confirmed by Ld.CIT(A) is deleted and the appeal filed by the assessee is allowed". Respectfully following the decision of the jurisdictional Bombay ITAT, the appellant's this ground of appeal is allowed in favour of the appellant. Thus, the appellant's this ground of appeal is allowed.”
7. It is clear from the above order of CIT(A) that the CIT(A) has deleted the addition after following the order of the Tribunal. The Tribunal have followed the decision of Hon’ble Bombay High Court in the case of Indo American Jewellery Ltd. wherein it was held that when there is complete uniformity in the act of assessee in not charging interest from both the AE and non AE debtors and delay in realisation of export proceeds in both the cases are same, there is no justification for addition of notional interest on the outstanding amount of export proceeds realised belatedly and deleted the addition. After the Tribunal passed its order dated 8-8-2014 deleting entire addition on account of interest, the revenue has filed M.A., which was disposed off by the Tribunal on 20-2-2015, wherein the Tribunal observed as under :-
5 “2.2 Thus, it is the case of the Revenue that to the extent it relates to Rs.9. 70 lacs, since no interest was charged by the assessee from its AE even for 20 days, then international transaction of the assessee to that extent would not be at ALP and, therefore, addition to that extent has been incorrectly deleted. Net receivable amounts by the assessee from its AE was a sum of Rs.28.27 crores on which, if the interest is calculated @ 7% for 20 days, then the same would come to RS.9.70 lacs. The Revenue has submitted the following calculation to say that +/- 5% range in the present case would a sum of Rs.6.92 lacs as the assessee did not charge interest of Rs.9.70 lacs for 20 days on the amount of Rs.25.27 crores the amount of addition would not fall within +/-5% range. x x x x 3. We have heard both the parties and their contentions have carefully considered. We see force in the contention of the Revenue that there is mistake in the order of the Tribunal to the extent that addition of 9.70 lacs was required to be upheld for the reason that the same would not fall within the +/- 5% range. Therefore, we amend para 7.4 and 7.5 as under: “7.4 The above calculation of the assessee have not been disputed by the Revenue at any stage of the proceedings . Therefore, we are of the opinion that addition, if any, should be restricted only to a sum of Rs.9.70 lacs as calculated above. 7.5 In view of above discussions, we hold that addition of Rs.9.70 lacs is required to be made and rest of the addition confirmed by Ld. CIT(A) is deleted.” The appeal filed by the assessee is considered to be partly allowed.
It is clear from the order passed by the Tribunal in M.A. that there was more delay in realisation of receivables from AE by 20 days on which interest amount works out to be Rs.9.70 lakhs, therefore, to this extent addition was upheld by the Tribunal in the order passed in M.A.
As the facts and circumstances during the year under consideration are same, respectfully following the order of the Tribunal in quantum appeal as well as M.A. order dated 20-2-2015 in assessee’s own case as well as order of the Hon’ble Bombay High Court, as discussed by the 6 Tribunal in its order dated 8-8-2014, we modify the order of CIT(A) in deleting entire upward adjustment made on account of interest receivable on delayed realisation of export proceeds from A.E., and restrict the disallowance to Rs.49,66,277/- as there was delay of 76 days more than the delay in case of credit extended by the assessee to Non-AE. Interest rate has been confirmed for earlier year was US LIBOR rate for debts of 1 year maturity period. Hence, such rate for financial year 2008-09 is 2.83%. Accordingly as in the last year, Libor plus 2% works out to 4.83%. Hence, the interest working will be 49.66 crores (net receivables x 4.83%x76 days/365=49,66,277/-). Thus, an amount of Rs.49,66,277/- will be the transfer pricing adjustment on account of charging of interest to trade debt in r/o A.E.’s. Thus, instead of deleting entire addition as done by CIT(A), we upheld the addition to the extent of Rs.49,66,277/-.
In the result, ground taken by the revenue is allowed in part in the A.Y.2009-2010.
Similar ground has been taken by the revenue in the A.Y.2010-11. However, during this year credit allowed to AE is 350 days and credit allowed to Non-AE is 425 days. Hence, credit allowed to AE is less than Non-AE and hence no adjustment is called for. Accordingly, by following the order of Tribunal in assessee’s own case, we do not find any infirmity in the order of CIT(A) deleting the adjustment made by the AO on account of interest for delayed realisation of receivables from its AE.
Next grievance of the revenue relates to rejecting the assessee’s computing book profit u/s.115JB without including income earned from 7 unit in Special Economic Zone (SEZ), which is exempt u/s.10A of the Act. While computing book profit u/s.115JB of the I.T.Act AO included profit of unit exempt u/s. 10A. This issue is also covered by the order of the Tribunal dated 8.8.2014 in assessee’s favour.
We have gone through the orders of the authorities below and found that addition so made by AO has been deleted by CIT(A) after following the order of the Tribunal in assessee’s own case. The precise observation of the CIT(A) was as under :- 9. I have considered the AO's order as well as the appellant's submission. Having taken note to the same, I find that this issue of the appellant is covered in favour of the appellant by my predecessor CIT(A)'s order in A.Y.2008-09 wherein the appellant's this ground of appeal was allowed by CIT(A). I find that the decision of my predecessor CIT(A) has also been confirmed by the order of the Jurisdictional ITAT, Mumbai Benches 'K' Mumbai vide ITA No.5875/MUM/2013 and ITA.No.6221/MUM/2013. The relevant portion of the said order is extracted herein below: "We have carefully considered the rival submissions in the light of the material placed before us. Ld. CIT(A) has granted relief to the assessee on the basis of aforementioned decision of Tribunal in the case of Genesys International Corpn. Ltd. Vs. ACJT(supra) The relevant observations of the Tribunal from the said decision have already been reproduced. No contrary decision has been cited by the Revenue. Therefore, respectfully following the decision in the case of Genesys International Corpn.(supra) we decline to interfere in the relief granted by the Ld. CIT(A) and ground No. 1 to 4 of the Revenue are dismissed". Respectfully following the decision of the jurisdictional ITAT, the appellant's this ground of appeal is allowed in favour of the appellant. Thus, the appellant's this ground of appeal is allowed.”
14. As the facts and circumstances during the assessment year 2009- 2010 are pari material to the assessment year 2008-09, as discussed by the Tribunal in assessee’s own case, respectfully following the order of 8 the Tribunal in assessee’s own case, we confirm the action of CIT(A) for directing the AO to exclude the profit earned from unit exempt u/s.10A while computing book profit u/s.115JB of the I.T.Act.