Income Tax Appellate Tribunal - Delhi
M/S. Kadimi Tool Manufacturing Co. Pvt. ... vs Dcit, New Delhi on 25 September, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "I-2", NEW DELHI
BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER
AND
SHRI KULDIP SINGH, JUDICIAL MEMBER
ITA No.7068/Del/2014
Assessment Year : 2010-11
Kadimi Tool Manufacturing Co. DCIT, Circle- 5(1),
Pvt. Ltd., New Delhi.
Vs.
118, Udyog Vihar, Phase-I,
Dundahera, Gurgaon.
PAN : AAACK1016F
(Appellant) (Respondent)
Appellant by : Shri Pradeep Dinodia, Adv.
Respondent by : Shri H. K. Choudhary, CIT-DR
Date of hearing : 07-09-2017
Date of pronouncement : 25-09-2017
ORDER
PER R. K. PANDA, AM :
This appeal filed by the assessee is directed against the order passed u/s 143(3)/144C r.w.s. 92CA(3) of the I.T. Act, 1961 relating to assessment year 2010-11.
2. The only issue raised by the assessee in the ground of appeal relates to the order of the Assessing Officer in making the adjustment of Rs.6,36,894/- u/s 92CA(3) of the I.T. Act on account of interest on delay in recovering the outstanding trade receivables from the AE.
3. Facts of the case, in brief, are that the assessee company is engaged in the business of manufacturing of Thread Rolling Dies, Milled Flat Dies and Milled 2 ITA No.7068/Del/2014 Ground Dies and sale of Screws. It filed its return of income on 25.09.2010 declaring total income of Rs.68,20,911/-. During the year under consideration, the assessee company had entered into international transactions with the Associated Enterprises covered u/s 92CA of the I.T. Act. The Assessing Officer referred the matter to the Transfer Pricing Officer (TPO) in terms of section 92CA(3) of the I.T. Act. During the course of transfer pricing assessment proceedings, the TPO noted that the major transactions undertaken by the assessee is the sale of finished goods amounting to Rs.18.80 crores to its AE for which the assessee has applied TNMM as the most appropriate method. The assessee earned margins under the TNMM method at the rate of 26.06% based on OP/OC and the comparables have earned a margin of 7.73%. All the reported international transactions have been accepted by the TPO as arm's length price and no adjustment was made by the TPO in any of the reported international transactions.
4. The TPO, however, observed that the assessee has outstanding debts of Rs.2,42,46,942/- as on 31st March, 2010 which he considered for charging interest in the subsequent year. In addition to the above amount, he noted that there are amounts receivable as on 31.03.2009 of Rs.2,02,73,906/- as outstanding from its AEs. The TPO computed the interest at the rate of 14.88% on the receivables and proposed adjustment of Rs.10,69,759/- being the interest that should have been charged by the assessee on the amounts outstanding. 3 ITA No.7068/Del/2014
5. The Assessing Officer passed the draft assessment order on 30.01.2014 with the assessed income of Rs.78,90,670/-. The assessee filed its objection before the DRP-1, New Delhi, who vide order dated 25.09.2014 issued certain directions to the TPO. Accordingly, the TPO vide order dated 29.10.2014 passed the revised order proposing upward adjustment of Rs.6,36,894/-. The Assessing Officer accordingly passed the order by madding disallowance of Rs.6,36,894/-.
6. Ld. counsel for the assessee at the outset referred to the decision of the Hon'ble Delhi High Court in the case of Pr.CIT vs. M/s Bechtel India Pvt. Ltd. reported in 2016-TII-37-HC-DEL-TP and submitted that the Hon'ble High Court in the said decision has held that the assessee being a debt free company therefore the question of receiving any interest on receivables did not arise. He submitted that the Special Leave Petition filed by the Department against the decision of the Hon'ble High Court has been rejected by the Hon'ble Supreme Court.
7. Referring to the decision of the Hon'ble Delhi High Court in the case of Pr.CIT vs. Kusum Health Care Pvt. Ltd. reported in 2017-TII-28-HC-DEL-TP, he submitted that the Hon'ble High Court in the said decision has held that TP adjustment is not warranted for delay in collection of monies for supplies made beyond the agreed limit, particularly when the assessee has already factored in the impact of receivables on the working capital.
4ITA No.7068/Del/2014
8. Referring to the decision of the Co-ordinate Bench of the Tribunal in the case of Teradata India Pvt. Ltd. vs. ACIT vide ITA No.87/Del/2017 order dated 08.08.2017 for assessment year 2012-13, he submitted that the Tribunal in the said decision has held that interest on the outstanding receivables cannot be taken into account for adjustment of ALP. Referring to the decision of the Hon'ble Delhi High Court in the case of CIT vs. M/s Indo American Jewellery Ltd. vide Income Tax Appeal (L) No.1053 of 2012 order dated 08.01.2013, he submitted that the Hon'ble High Court in the said decision has dismissed the appeal filed by the Revenue against the decision of the Tribunal in deleting the notional interest on outstanding amount of export proceeds realized belatedly. He accordingly submitted that this issue being a covered matter, the ground raised by the assessee should be allowed.
9. Ld. DR on the other hand referred to the provisions of explanation (i)(c) to section 92B and submitted that as per the said Explanation, the expression "international transactions" shall include capital financing, including any type of long term or short term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business. He accordingly submitted that the TPO was justified in making adjustment of Rs.6,36,894/- u/s 92CA(3) on account of notional interest on delay in recovering the outstanding from the AE.
5ITA No.7068/Del/2014
10. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the DRP and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. The only issue to be decided in the above ground is regarding as to whether the receivables beyond the period mentioned in the service agreement is international transaction and as to whether any adjustment u/s 92CA(3) of the I.T. Act is required on account of delay in recovering outstanding receivables from the AE. We find the Assessing Officer, after the direction of the DRP, made an adjustment of Rs.6,36,894/- on account of the interest that should have been charged by the assessee on the outstanding amount from the AE. It is the submission of the ld. counsel for the assessee that in view of the decision of the Hon'ble Delhi High Court in the case of Bechtel India Pvt. Ltd. (supra) and in the case of Kusum Healthcare Pvt. Ltd. (supra), no adjustment is required on account of notional interest on receivables. We find merit in the above argument of the ld. counsel for the assessee. We find the Hon'ble Delhi High Court in the case of Bechtel India Pvt. Ltd. (supra) has held that where the assessee is a debt free company the question of receiving any interest on receivables did not arise. Consequently, no adjustment for interest on receivables is required. The decision of the Hon'ble High Court was challenged by the Revenue and the SLP was dismissed by the Hon'ble Supreme Court vide CC No(s).4956/2017 order dated 21.07.2017.
6ITA No.7068/Del/2014 10.1. We also find the Hon'ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd. (supra) while deciding an identical issue has observed as under :-
"10. The Court is unable to agree with the above submissions. The inclusion in the Explanation to Section 92B of the Act of the expression „receivables‟ does not mean that de hors the context every item of „receivables‟ appearing in the accounts of an entity, which may have dealings with foreign AEs would automatically be characterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the Assessee will have to be studied. In other words, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-à-vis the receivables for the supplies made to an AE, the arrangement reflects an international transaction intended to benefit the AE in some way.
11. The Court finds that the entire focus of the AO was on just one AY and the figure of receivables in relation to that AY can hardly reflect a pattern that would justify a TPO concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. With the Assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-à-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and re- characterised the transaction. This was clearly impermissible in law as explained by this Court in CIT v. EKL Appliances Ltd. (2012) 345 ITR 241 (Delhi).
12. Consequently, the Court is unable to find any error in the impugned order of the ITAT giving rise to any substantial question of law for determination. The appeal is, accordingly, dismissed."
11. Similar view has been taken by the Co-ordinate Bench of the Tribunal in the case of Teradata India Pvt. Ltd. (supra) wherein the Tribunal following the decision of Hon'ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd. (supra) has held that no adjustment can be made on account of interest on receivables on credit granted by the Indian Subsidiary to its foreign AE. Respectfully following the decisions cited above, we hold that the TPO is not 7 ITA No.7068/Del/2014 justified in making adjustment of interest amounting to Rs.6,36,894/- on account of alleged delay in recovering the outstanding toward receivables from the AE as per the provisions of section 92CA(3) of the I.T. Act. The first issue raised by the assessee in the grounds of appeal is accordingly allowed.
12. The assessee has also taken an additional ground which reads as under :-
"That the Ld. AO has erred in law in creating a demand of Rs.1,62,330/- on account of dividend distribution tax by taking the surcharge @ 10% instead of 7.5% on final dividend declared in June 2010."
13. Ld. counsel for the assessee at the outset submitted that the facts pertaining to the additional ground are already on record and, therefore, in view of the decision of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. vs. CIT reported in 229 ITR 383, the additional ground should be admitted for adjudication.
13.1. After hearing both the sides and considering the fact that all material facts are already on record, therefore, following the decision of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. (supra), the additional ground raised by the assessee is admitted for adjudication.
14. Ld. counsel for the assessee at the outset submitted that the Assessing Officer has wrongly charged surcharge at the rate of 10% instead of 7.5% on final dividend declared in June, 2010. He submitted that the matter may be restored to the file of the Assessing Officer with a direction to compute correct surcharge. Ld. DR on the other hand has no objection for the same. 8 ITA No.7068/Del/2014 Accordingly, the issue is restored to the file of the Assessing Officer with the direction to apply correct surcharge as per law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The additional ground raised by the assessee is allowed for statistical purposes.
15. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 25th September, 2017.
Sd/- Sd/-
Sd/- Sd/-
(KULDIP SINGH) (R. K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 25-09-2017.
Sujeet / Binita
Copy of order to: -
1) The Appellant
2) The Respondent
3) The DRP-1, New Delhi
4) The DR, I.T.A.T., New Delhi
By Order
//True Copy//
Assistant Registrar
ITAT, New Delhi
9
ITA No.7068/Del/2014
S.No. Details Date Initials Designation
1 Draft dictated on 07.09.2017 Sr. PS/PS
2 Draft placed before author 12.09.2017 Sr. PS/PS
Draft proposed & placed before the 22/09/2017
3 JM/AM
Second Member
Draft discussed/approved by Second 25/09/2017
4 AM/AM
Member
Approved Draft comes to the Sr. 25/09/2017
5 Sr. PS/PS
PS/PS
6 Kept for pronouncement on 25/09/2017 Sr. PS/PS
7 Date of uploading of Order 25/09/2017 Sr. PS/PS
8 File sent to Bench Clerk Sr. PS/PS
Date on which the file goes to the
9
Head Clerk
10 Date on which file goes to the A.R.
11 Date of Dispatch of order