JEWELLMARK INDIA P.LTD,MUMBAI vs. ITO 8(2)(1), MUMBAI

The present appeal has been preferred by the assessee against the order dated 11.11.2013 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2009-10.

The sole issue taken by the assessee vide its grounds of appeal is against the confirmation of addition of Rs.7,34,345/- being interest receivable by the assessee from its Associate Enterprises (AEs) calculated at the rate of 18% on the credit period beyond 180 days.

The AO, however, was not convinced with the submissions of the assessee and he accordingly made total adjustment of Rs.7,34,345/- in respect of interest on credit granted to AEs beyond 180 days. Being aggrieved from the order of the AO, the assessee preferred appeal before the Ld. CIT(A). The Ld. CIT(A), however, dismissed the appeal of the assessee while relying upon his own order on somewhat similar circumstances in the assessee’s own case for A.Y. 2008-09. Being aggrieved by the said order of the Ld. CIT(A), the assessee has come in appeal before us.

At the outset, the Ld. A.R. of the assessee has brought our attention to the order of the Tribunal dated 15.04.15 passed in the own case of the assessee for A.Y. 2008-09 in ITA No.431/M/2014 wherein considering the identical issue, the Tribunal observed that there was force in the contention of the assessee that if the assessee had to make payments of imports to some party then, receiving delayed export realization cannot be said to be bearing interest as assessee is already owing much more amount to its AE on account of import payments.

We have gone through the said order of the Tribunal. The relevant part of the observation of the Tribunal for the sake of convenience is reproduced as under: “3.1 Before us it was pleaded by Ld. AR that assessee is neither charging interest from its AE and also not paying any interest to its AE. It was submitted that assessee also utilized credit in the shape of import payments to be made to its AE and these are listed at page 133 of the paper book. It was submitted that assessee did not make payment even for a period, more than exceeding 1000 days. It may be mentioned here that on page- 133 of the paper book the assessee has given details regarding "working of interest on delay in import payments". Those payments in excess of 180 days are listed as against impugned interest of Rs.8,36,437/- worked out on delay in export realization, interest on delay in import payments have been worked out at Rs.1,10,01,043/-. Thus, it is the case of Ld. AR that when assessee is not making the payment for delay which is much more than 180 days, then how assessee's transaction for receiving delayed export realization can be considered to be not on arms length. Thus, it was pleaded by Ld. AR that adjustment of Rs.8,36,437/- should be deleted.

The Ld. A.R. of the assessee has pleaded that there needs to be certain modifications in directions to be given to the AO in relation to the matter for the year under consideration vis-à-vis the directions given by the Tribunal in the earlier assessment year 2008-09. She has pleaded that though the Tribunal in principle agreed that if the assessee has to make the payments of imports some party then, receiving delayed export realization cannot be said to be bearing interest as assessee is already owing much more amount to its AEs on account of import payments. She, however, has contended that the Tribunal after observing above, directed the AO to examine and verify that if on the dates when the impugned interest is computed in respect of export realization, the assessee is already having obligation to pay to its AE the amount regarding import made by it, then, to that extent interest cannot be added as TP adjustment. She, in this respect, has contended that when the assessee is adopting a uniform policy of neither to receive the interest nor to pay the interest to its AEs, then, not only the parties or the dates on which the payment was receivable by the assessee is to be considered but the matter should be considered as a whole and the netting off of the interest payable and receivable be made.

We find force in the above contention of the Ld. A.R. The matter is to be examined by the AO as a whole and if bench mark of 180 days is to be taken as the credit period without levy of interest then the AO should adopt the same criteria also in relation to the payments payable by the assessee to its AEs. Thereafter, the AO should do netting off of the interest payable and receivable and to make adjustments of the resultant amount of interest, if any, found, receivable by the assessee. With the above modified directions, the matter is restored to the file of the AO to examine and verify the facts and adjudicate the same as per the directions given above.