POPATLAL NATHALAL SHAH,MUMBAI vs. DCIT 16(3), MUMBAI

The sole grievance of the assessee is that the Transfer Pricing Officer(TPO) has erred in proposing addition of Rs.25,53,906/- in respect of delayed realization of Export proceeds from the Associated Enterprise(AE), which addition has been confirmed by the CIT(A).

Briefly stated, the facts of the case are that the assessee is engaged in the business of purchase of rough diamonds, manufacturing of polished diamonds and sale thereof. The assessee is a partnership firm. The international transaction reported by the assessee with its AEs was referred to the TPO for the determination of arms’s length price.

During the course of transfer pricing proceedings, the assessee was asked to provide details of realization period of sale proceeds from its AEs and Non-AEs. The details were furnished by the assessee explaining the average realization period which went upto 177 days in the case of AEs and 141 days in the case of Non-AEs, thereby showing a difference of 36 days in realization.

The assessee was asked to explain why an adjustment should not be made for interest on such late realization from the AEs. The assessee filed detailed reply vide letter dated 8/10/2010. It was contended that generally AEs and Non-AEs, both have made payments at about credit of 180 days on an average. However, in case of some new customers, the sales have been made on COD basis and if these parties to whom COD sales were made are removed, the realization of AEs and Non-AEs become comparable.

This submission of the assessee did not find favour with the TPO, who proceeded by computing the interest by taking 36 days as the benefit given by the assessee to its AEs and computed the interest @ 7% amounting to Rs.25,53,906/- and proposed the same adjustment.

Assessee carried the matter before the CIT(A) but without any success.

Before us, the Ld. Counsel for the assessee reiterated what has been submitted before the lower authorities. It is the say of the Counsel that if the sales made on COD basis are excluded from the Non- AEs, the average realization period would come to 165 days as against average realization period of 177 days from AEs, which is reasonably comparable. The Ld. Counsel further stated that the Revenue authorities have not appreciated the COD sales in the right perspective and, therefore, erred in computing the interest on the delayed realization. The Ld. Counsel further drew our attention to the summary of exports to Non-AEs, which is placed at Page-6 of the Paper Book. The Ld. Counsel further drew our attention to the export payment received during the year from AEs, which is placed at Page-7 of the Paper Book and also to the details of export realization from Non-AEs excluding the COD sales which is placed at Pages 8 to 11 of the Paper Book. The Ld. Counsel demonstrated the average realization period from AEs at 177 days and from Non-AEs at 165 days and concluded by saying that these are reasonably comparable.

Per contra, Ld. DR strongly supported the findings of the Revenue authorities.

We have given thoughtful consideration to the orders of the authorities below and with the assistance of the Ld. Counsel we have gone through the related documents brought to our notice.

In the result, the appeal filed by the assessee is accordingly allowed. Order pronounced in the open court on 20/11/2015.