Symphony Ltd., Ahmedabad V. The Dy. Commissioner of Income Tax, Circle-4(1)(1), Ahmedabad

ITA 1057/AHD/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 8873 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 19-09-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 01-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; International transaction; Notional interest; Set aside
• Section: 92C; 143(3); 142(1); 14A; 115JB; 68

Judgement Text

, D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORESHRI MANISH BORAD, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ./ ITA NO.1057/AHD/2017 { / ASSESSMENT YEAR:2012-13 SYMPHONY LTD. SYMPHONY HOUSE, FP 12, TP 50 S. G. HIGHWAY, BODAKDEV, AHMEDABAD-380054, BODAKDEV, AHMEDABAD-380054. PAN NO-AACCS6739B VS DY. COMMISSIONER OF INCOME TAX, CIRCLE-4(1)(1) B WING, 2 ND FLOOR, PRATYAKSH KAR BHAVAN, AHMEDABAD-15. ! / (APPELLANT) '# ! / (RESPONDENT) APPELLANT BY : SHRI BHARAT SHAH, AR REVENUE BY : SMT. VINOD TANWANI, CIT- DR / DATE OF HEARING : 19/09/2019 / DATE OF PRONOUNCEMENT: 20/09/2019 $%/ O R D E R PER SHRI MANISH BORAD, A.M: THE CAPTIONED APPEAL FILED AT THE INSTANCE OF ASSES SEE PERTAINING TO ASSESSMENT YEAR 2012-13 IS DIRECTED A GAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-8 (IN SHORT LD.CIT(A)], AHMEDABAD DATED 07.03.2017 WHICH IS A RISING OUT OF THE ORDER U/S 143(3)R.W.S 144 OF THE ACT, 1961 D ATED 26.02.2016 FRAMED BY DCIT, AHMEDABAD. 2 . BRIEF FACTS STATED AS CULLED OUT FROM THE RECORDS ARE THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE MANUFACTURING AND TRADING OF AIR-COOLER AND OTHER C ONSUMER ITA NO.1057/AHD/2017 SYMPHONY LTD. FOR AY 2012-13 2 DURABLES. INCOME OF RS.52,89,18,140/- DECLARED IN T HE E-RETURN OF INCOME FILED ON 28.09.2012 WHICH WAS SUBSEQUENTL Y REVISED ON 28.03.2013 DECLARING INCOME AT RS.52,89,93,637/- . CASE SELECTED FOR SCRUTINY THROUGH CASS FOLLOWED BY SERV ING OF NOTICES U/S 143(3) & 142(1) OF THE ACT. SINCE THE A SSESSEE ENTERED INTO THE INTERNATIONAL TRANSACTIONS, THE CA SE WAS REFERRED TO THE TRANSFER PRICING OFFICER (TPO) ON 0 9.12.2014 FOR DETERMINATION OF ARMS LENGTH PRICE (ALP) IN RELATI ON TO THE INTERNATIONAL TRANSACTIONS. THE LD. TPO VIDE ITS OR DER DATED 31.12.2005 MADE AN UPWARD ADJUSTMENT OF RS.17,77,39 3/- AND THE SAME WAS ADDED TO THE INCOME OF THE ASSESSE E AS PER THE PROVISIONS OF SECTION 92CA OF THE ACT. APART FR OM THIS ADDITION THE AO EXAMINED THE RECORDS AND AFTER CONS IDERING THE SUBMISSIONS MADE BY THE ASSESSEE MADE DISALLOWANCE U/S 14A OF THE ACT AT RS.4,23,953/-, ADDITION U/S 68 OF THE ACT AT RS.5,60,000/-, ADDITION U/S 145A OF THE ACT FOR UNT ILIZED BALANCE OF TAX AT RS.21,05,125/-. INCOME ASSESSED A T RS.53,37,84,610/- AND BOOK PROFIT U/S 115JB OF THE ACT ASSESSED AT RS.53,77,58,612/-. 3. AGGRIEVED ASSESSEEPREFERRED APPEAL BEFORE LD. CIT(A ) BUT PARTLY SUCCEEDED. NOW THE ASSESSEE IN APPEAL BEFORE THE TRIBUNAL RAISING FOLLOWING GROUNDS OF APPEAL.:- THE PART OF IMPUGNED ORDER IS CONTRARY TO THE EVIDENCE AND MATERIAL ON RECORD, CONTRARY TO THE PRINCIPLES OF LAW AND BINDING JUDGMENTS OF THE COURT, CONTRARY TO THE RELEVANT PROVISIONS OF THE A CT AND DESERVES TO BE QUASHED AND SET ASIDE. ITA NO.1057/AHD/2017 SYMPHONY LTD. FOR AY 2012-13 3 2. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.80,000/- OUT OF TOTAL ADDITION OF RS.5,60,000/- MADE BY LEARNED AO U/S.68 OF THE ACT. SUCH CONFIRMATION ADDITION OF RS.80,000/- BY LEARNED CIT(A) BEING CONTRARY TO THE FACTS AND WITHOUT GOING INTO THE MERITS OF THE CASE AND THEREFORE SUCH ADDITION BEING CONTRARY TO THE FACTS AND RELEVANT PROVISIONS OF THE ACT DESERVES TO BE QUASHED AND SET ASIDE. IT MAY BE SO HELD NOW. 3. THE LEARNED CIT(A). HAS ERRED IN CONFIRMING THE UPWARD ADJUSTMENT OF RS.17,73,393/- MADE BY THE ''LD.AO''. TRANSFER PRICING OFFICER-2 AS PER HIS OR DER U/S 92CA(3). SUCH ADDITION BEING CONTRARY TO THE FACTS AND UNTENABLE UNDER LAW, IS REQUIRED TO BE DELETED IN TOTO. IT MAY BE SO DONE NOW. 4. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, AM END, MODIFY AND/ OR VARY ANY OR ALL OF THE GROUNDS OF AFORESAID AT THE TIME OF HEARING. 4. LEARNED COUNSEL FOR THE ASSESSEE ARGUED AT LENGTH REFERRING TO THE FOLLOWING RETURN SUBMISSIONS IN SU PPORT OF THE ISSUES RAISED IN BOTH THE GROUNDS OF APPEAL.:- YOUR APPELLANT RESPECTFULLY SUBMITS THAT FOLLOWING 2 GROUNDS ARE FOR ADJUDICATION; 1. ADDITION OF RS.80,000/- OUT OF RS.5,60,000/- C ONFIRMED BY LEARNED CIT(A) AS SMALL TRADE DEPOSIT TAKEN FROM SMALL DEAL ERS U/S.68 WHERE THE SUBMISSION IS ALREADY MADE IN PAPER BOOK PAGE 2 & 3 WITH THE DETAILS OF DEPOSITS WITH NAME AND COMPLETE ADDRESS ALONGWITH M ODE OF ACCEPTANCE BY CHEQUES WITH DETAILS, (ON PAGE NUMBER 93 TO 95 O F PAPER BOOK). 2. UPWARD ADJUSTMENT OF RS.17,77,393/- MADE BY LE ARNED TPO 2 CONFIRMED BY LEARNED A.O. 4(1) BEING THE CREDIT PER IOD EXTENDED TO AE IMPCO (MEXICO) BEYOND 90 DAYS AND CHARGING INTEREST ON OUTSTANDING RECEIVABLES CONSIDERED BY TPO AS BEYOND ARM'S LENGT H CREDIT PERIOD SO THAT THE SAID INTERNATIONAL TRANSACTION IS AT ALP. (I) THE APPELLANT DURING PROCEEDINGS U/S.92CA(2), M ADE FOLLOWING ARGUMENTS FOR UPWARD ADJUSTMENT OF RS.17,77,393/-: (A) AT PAGE 6, LAST PARA OF LEARNED TPO ORDER (PAPE R BOOK PAGE 85), IT IS STATED THAT ADJUSTMENT OF NOTIONAL INTEREST ON OVER DUE PAYMENTS FROM AE CANNOT BE CONSIDERED AS INTERNATIONAL TRANSACTION. (B) AT PARA 8 OF PAGE 9 OF TPO ORDER (PAPER BOOK PA GE 87), IT IS THE POLICY OF COMPANY NOT TO CHARGE ANY INTEREST ON THE DELAY OF CREDIT PERIOD OR DELAY IN REALIZATION OF SALE PROCEEDS. ITA NO.1057/AHD/2017 SYMPHONY LTD. FOR AY 2012-13 4 (C) AT PARA 7 ON PAGE 8 OF TPO ORDER (PAPER BOOK PA GE 86) IT WAS STATED THAT THE APPELLANT COMPANY HAS FACTORED IT WHILE QU OTING SALE PRICE TO AE IMPCO. (D) AT PARA 9 ON PAGE 9 OF TPO ORDER (PAPER BOOK PA GE 87), IT WAS CITED BY APPELLANT THAT THE HON'BLE MUMBAI HIGH COURT IN THE CASE OF INDO AMERICAN JEWELLERY LTD (2014) IN TAXMANN 310 UPHELD , THE FINDINGS OF TRIBUNAL HOLDING THAT INTEREST INCOME ASSOCIATED ON LY WITH THE LENDING OR BORROWING OF MONEY AND NOT THE CASE OF SALE. IT IS FURTHER RESPECTFULLY SUBMITTED THAT WHEN THE REVENUE IS RECOGNIZED ONLY ON THE BASIS OF MERCANTILE METHOD OF ACCOUNTING THEN THE NOTIONAL I NTEREST FOR EXTENDED CREDIT PERIOD IS NOT JUSTIFIABLE AND TO CONSIDER AS INCOME. PLEASE NOTE THAT IT IS NOT A LOAN OR BORROWING. THE RECEIVABLE HAPPE NED IS ONLY RESULTANT OF THE MAIN INTERNATIONAL EXPORT SALE AND THERE IS A C OMPLETE UNIFORMITY IN THE ACT OF THE SYMPHONY IN NOT CHARGING INTEREST FR OM THE AE. THEREFORE, THE OUTSTANDING AMOUNT FROM THE AE ON ACCOUNT OF CO NTINUING DEBIT BALANCE FOR THE GOODS SUPPLIED IS A NORMAL COURSE O F BUSINESS AND IS NOT AN INTERNATIONAL TRANSACTION. (II) AT PAGE 3, LAST PARA (PAPER BOOK PAGE 107) OBS ERVATION OF LEARNED CIT(A): 'AFTER DETAILED VERIFICATION THE TPO CONCLUDED THAT BY NON-REALISATION OF THE SALE PROCEEDS FROM AE BEYOND THE ARM'S LENGTH P ERIOD OF 90 DAYS, THE ASSESSEE COMPANY HAD DEPRIVED ITSELF OF THE FUN DS AVAILABLE IN ITS HAND AND NON-CHARGING OF ANY COMMENSURATE REMUNERAT ION FROM THE ASSOCIATE ENTERPRISE IN RESPECT OF SUCH GRANT OF RS .17,77,393/- ON OUTSTANDING RECEIVABLE BY CONSIDERING THAT IT IS BE YOND THE ARM'S LENGTH CREDIT PERIOD IN THE SAID INTERNATIONAL TRANSACTION . THE TPO ALSO OBSERVED THAT THERE WAS SIGNIFICANT DIFFERENCE BETWEEN THE C REDIT TERMS EXTENDED TO THE AE AND THE NON-AE CUSTOMERS. FOR THE PURPOSE OF BENCHMARKING, THE CREDIT TERMS EXTENDED TO THE NON-AE CUSTOMER WAS AD OPTED AS AN INTERNAL CUP AND SUITABLE ADJUSTMENT WAS CARRIED OUT TO ACCO UNT FOR DIFFERENCE IN TRANSIT TIME. ACCORDINGLY, THE ALP CREDIT PERIOD IN THE CASE OF AE CUSTOMER (IMPCO, MEXICO) WAS COMPUTED AT 90 DAYS IN PLACE OF 180 DAYS ALLOWED SUCH AE CUSTOMER.' (III) AT PAGE 4, SUB PARA 2 OF PARA 5.1 (PAPE R BOOK PAGE 108), APPELLANT ARGUMENT: 'YOU WILL ALSO APPRECIATE THAT SALE PRICE OF BRAND TO AE IS HIGHER AS COMPARED TO NON AE. THE SALE PRICE OF ANY PRODUCT O R SERVICE DETERMINED BETWEEN THE PARTIES IS ALWAYS INFLUENCED BY THE CREDIT PERIOD ALLOWED BY THE SELLER. PLEASE NOTE THAT THE RATES T O AE IMPCO INCLUDES INSURANCE, SHIPPING CHARGES, ETC BUT WITHOUT CONSID ERING ANY EXPENSES RELATING TO FOREIGN EXCHANGE FLUCTUATION. THEREFORE THE TRANSACTION OF SALE TO THE AE AND CREDIT PERIOD ALLOWED IN REALIZATION OF SALE PROCEEDS ARE CLOSELY LINKED AS THEY ARE INTER LINKED AND CONDITI ONS OF SALE AS WELL AS THE PRICE ARE DETERMINED BASED ON THE TOTALITY OF T HE TRANSACTION WITH AN OVERALL SCENARIO OF MARKET.' (IV) AT PARA 5.2 ON PAGE 5 OF THE ORDER (PAPE R BOOK PAGE 109), THE LEARNED CIT(A) CONCLUDED: '...... IN THE CASE OF THE APPELLANT, HUGE AMOUNT O F RECEIVABLES WERE OUTSTANDING AT THE END OF THE RELEVANT PREVIOUS YEA R. IF THE FUNDS ARE ITA NO.1057/AHD/2017 SYMPHONY LTD. FOR AY 2012-13 5 REPATRIATED TO INDIA, THE ASSESSEE WOULD HAVE BEEN IN A POSITION TO EARN BETTER PROFIT FROM APPROPRIATE INVESTMENT OF THOSE REPATRIATED FUNDS. THIS POTENTIAL LOSS IS DEFINITELY A FACTOR TO BE CONSIDE RED WHILE EVALUATING THE FINANCIAL IMPACT OF THE INTERNATIONAL TAXATION CONC LUDED BY THE ASSESSEE WITH ITS AE.' (V) AT PARA C ON PAGE 6 OF THE ORDER (PAPER BOOK PAGE 110), THE LEARNED CIT(A) STATED: 'BY ALLOWING EXCESS CREDIT PERIOD TO THE AR CUSTOME R, THE ASSESSEE COMPANY HAD DEPRIVED ITSELF OF THE WORKING CAPITAL AND RATHER HAS FUNDED THE WORKING CAPITAL REQUIREMENT OF SUCH AE CUSTOMER . ACCORDINGLY, THE EXCESS CREDIT PERIOD TO THE AE WAS NOT AT ARM'S LEN GTH.' (VI) THE APPELLANT RESPECTFULLY SUBMITS THAT THE FACTS OF THE CASE IS SQUARELY COVERED BY THE FACTS OF THE DECISION OF HO N'BLE - D BENCH, VIDE ITA NO.1565/AHD/2017 DATED 16.11.2018 IN THE CASE O F SOPHOS TECHNOLOGIES PRIVATE LIMITED VS. DCIT CIRCLE 4{1)(1 ), AHMEDABAD. FACTS:- (1) PAGE 2 - PARA 3 OF ABOVE CITATION. (SIMILAR TO LEARNED TPO). (2) PAGE 2 - PARA 4 OF SAID CITATION. (SIMILAR TO L EARNED TPO). (3) PAGE 6 - PARA 7 & 8 OF SAID CITATION. (SIMILAR TO LEARNED TPO). THE APPELLANT SHALL BE GRATEFUL IF THE ABOVE SYNOPS IS WITH WRITTEN SUBMISSIONS SUBMITTED ON 06.03.2019 IS CONSIDERED W HILE DISPOSING OF THE APPEAL FOR THE YEAR UNDER CONSIDERATION. 5. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE WIT H REGARD TO THE GROUND NO.1 RELATING TO ADDITION OF R S.80,000/- U/S 68 OF THE ACT SUPPORTED THE FINDING OF THE BOTH THE LOWER AUTHORITIES. AS REGARDS GROUND NO. 2 RELATING TO UP WARD ADJUSTMENT OF RS.17,73,393/-, HE SUBMITTED THAT THE PROVIDING MORE CREDIT LIMIT TO THE ASSOCIATES ENTERPRISE (IN SHORT E) VIS- -VIS NON-AE CALLS FOR THE CALCULATION OF ARMS LEN GTH PRICE. IN SUPPORT HE RELIED UPON THE DECISION OF HONBLE ITAT CHENNAI BENCH IN THE CASE OF PROFESSIONAL ACCESS SOFTWARE D EVELOPMENT (P.) LTD. VS. DCIT (2017) 79 TAXMANN.COM 25 (CHENNA I TRI.). 6. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE REC ORD PLACED BEFORE US AND CAREFULLY GONE THROUGH JUDGMEN TS REFERRED AND RELIED BY THE BOTH THE PARTIES. ITA NO.1057/AHD/2017 SYMPHONY LTD. FOR AY 2012-13 6 7. AS REGARDS GROUND NO. 1 BY WAY OF WHICH THE ASSESSE E HAS CHALLENGED THE ADDITION OF RS.80,000/- SUSTAINED BY THE LD. REPRESENTATIVE OF THE CIT(A) REGARDING TO SMALL TRA DE DEPOSIT TAKEN FROM SMALL DEALERS, WE FIND THAT THE LOAN AMO UNT OF RS.80,000/- CONSTITUTES DEPOSITS OF RS.10,000/- EAC H FROM 5 PARTIES AND RS.5,000/- EACH FROM 6 PARTIES. THE PAY MENTS WERE RECEIVED THROUGH CHEQUES AND WERE PART OF THE TRADE DEPOSITS. LOOKING TO THE TURN-OVER OF THE ASSESSEE WHICH STOO D AT RS.225.9. CRORES AND THE PROFIT BEFORE THE TAX AT R S.57.87 CRORES, WE DO NOT FIND ANY REASON TO DOUBT THE GENU INENESS OF THE SMALL TRADE DEPOSITS RECEIVEDIN NORMAL COURSE O F BUSINESS AND THUS DIRECT THE ASSESSING OFFICER TO DELETE THE SAME. IN THE RESULT GROUND NO. 2 OF THE ASSESSEEAPPEAL STANDS AL LOWED AND ADDITIONS U/S 68 OF THE ACT AT RS.8,000/- IS DELETE D. 8. APROPOS TO GROUND NO. 3 THROUGH WHICH THE ASSESSEE HAS CHALLENGED THE ADDITION FOR UPWARD ADJUSTMENT OF RS.17,77,393/- FOR THE NOTIONAL INTEREST CALCULATED ON THE EXTENDED CREDIT PERIOD PROVIDED TO THE ASSOCIATE EN TERPRISE (IMPCO) (MEXICO).THE LEARNED COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE LOWER AUTHORITIES ERRED IN CHARG ING INTEREST ON OUTSTANDING RECEIVABLE CONSIDERING THEM AS INTER NATIONAL TRANSACTIONS. LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE LD. TPO HAS ALSO OBSERVED THAT THERE WAS S IGNIFICANT DIFFERENT BETWEEN THE CREDIT TERMS EXTENDED TO THE AE AND THE NON-AE CUSTOMER. HOWEVER FOR THE PURPOSE FOR BENCH MARKING, THE CREDIT TERM EXTENDED TO THE NON-AE CUSTOMER WAS ADOPTED ITA NO.1057/AHD/2017 SYMPHONY LTD. FOR AY 2012-13 7 AS INTERNAL CUP AND SUITABLE ADJUSTMENT WAS CARRIED OUT TO ACCOUNT FOR DIFFERENCE IN TRANSIT TIME. THEREFORE, THE ALP CREDIT IN THE CASE OF AE CUSTOMER (IMPCO) (MEXICO) WAS COM PUTED AT 90 DAYS IN PLACE OF 180 DAYS ALLOWED TO AE CUSTOMER . WE OBSERVETHAT THE SALE PRICE CHARGED BY THE ASSESSEE FOR THE PRODUCTS EXPORTED TO AE IS HIGHER VIS--VIS THE SAL E PRICE CHARGED TO THE NON-AE. IT IS AGENERAL BUSINESS PRAC TICE THAT IF PROFIT MARGIN IS KEPT HIGHER IN THE SALE PRICE CRED IT PERIOD IS ALSO HIGHER AND VICE VERSA IF THE PROFIT MARGIN IS KEPT LOWER THE CREDIT PERIOD IS LESS.THEREFORE, WE FIND FORCE IN T HE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE EXTEN DED CREDIT PERIOD PROVIDED TO THE AE HAS BEEN ADJUSTED WITH TH E HIGHER SALE PRICE CHARGED ON THE PRODUCT SOLD TO THE AE. A S REGARDS TO ISSUE THAT WHETHER THE ACTION OF THE AO/TPO IN COMP UTING THE NOTIONAL INTEREST ON EXTENDED CREDIT PERIOD GIVEN T O AE AND CONSIDERING IT AS A SEPARATE INTERNATIONAL TRANSACT IONS, CO- ORDINATE BENCH AHMEDABAD IN THE CASE OF SOPHOS TECHNOLOGIES PVT. LTD. VS. DCIT IN ITA. NO.1565/AHD/2017 AS DECIDED SIMILAR ISSUE IN FAVOUR OF THE ASSESSEEOBSERVING AS FOLLOWS.:- 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 6. AS LEARNED COUNSEL RIGHTLY POINTS OUT, THIS ISSU E IS NOW COVERED, IN FAVOUR OF THE ASSESSEE, BY A DECISION OF AHMEDABAD BENCH OF THIS TRIBUNAL IN THE CASE OF MICRO INKS LIMITED VS. ACIT , [2016] 157 ITD 132 (AHMEDABAD - TRIB.), WHEREIN, AFTER TAKING INTO ACCOUNT HONBLE JURISDICTIONAL HIGH COURTS JUDGMENT IN THE CASE OF NIRMA INDUSTRIES LTD. VS.. DCIT, [2006] 283 ITR 402 AND THE HONBLE DELHI HIGH COURTS JUDGEMENT IN THE CASE OF SONY ERICSSON MOBILE CORPN . (P.) LTD. V. CIT, [2015] 374 ITR 118, THE COORDINATE BENCH HAS, INTER ALIA, OBSERVED AS UNDER:- ITA NO.1057/AHD/2017 SYMPHONY LTD. FOR AY 2012-13 8 5. WE FIND THAT THIS ISSUE IS COVERED, IN FAVOUR OF THE ASSESSEE, BY A DECISION OF THE COORDINATE BENCH IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2002-03 [REPORTED AS MICRO INKS LTD . V. ASSTT. CIT [2013] 144 ITD 610/36 TAXMANN.COM 50 (AH D.), WHILE DELETING SIMILAR ADDITION, THE COORDINATE BEN CH HAD OBSERVED AS FOLLOWS: ' 20. THE ONLY OTHER ALP ADJUSTMENT IN APPEAL BEFORE US IS WITH RESPECT TO, WHAT THE AUTHORITIES BELOW HAVE TREATED AS, EXCESS CREDIT PERIOD ALLOWED TO MICRO USA. THIS ADJUSTMENT MUST BE DELETED FOR THE SHORT REASON THAT IT WAS PART OF TH E ARRANGEMENT THAT SPECIFIED CREDIT PERIOD WAS ALLOWED AND THUS T HE COST OF FUNDS BLOCKED IN THE CREDIT PERIOD WAS INBUILT IN T HE SALE PRICE. THERE IS NO DISPUTE THAT SIMILAR PRODUCTS ARE NOT S OLD TO ANY OTHER CONCERN, AT SAME PRICE OR EVEN ANY OTHER PRIC E, AND INTEREST IS LEVIED ON THE SIMILAR CREDIT PERIOD ALLOWED TO T HOSE INDEPENDENT PARTIES BUT NOT TO MICRO USA. THE QUEST ION OF EXCESS CREDIT PERIOD ARISES ONLY WHEN THERE IS A ST ANDARD CREDIT PERIOD FOR THE PRODUCT SOLD AT THE SAME PRICE AND T HE CREDIT PERIOD ALLOWED TO THE ASSOCIATED ENTERPRISES IS MOR E THAN THE CREDIT PERIOD ALLOWED TO INDEPENDENT ENTERPRISES. T HAT IS NOT THE CASE HERE. THE CREDIT PERIOD FOR FINISHED GOODS CAN NOT BE COMPARED WITH CREDIT PERIOD FOR UNFINISHED GOODS AN D RAW MATERIALS, AND IN ANY CASE, WHEN PRODUCTS ARE NOT T HE SAME, THERE CANNOT BE ANY QUESTION OF PRICES BEING THE SAME. UN LESS THE PRICES OF THE PRODUCT AND THE PRODUCT ARE THE SAME, AND YET EXTRA CREDIT PERIOD IS ALLOWED, THERE CANNOT BE ANY OCCAS ION FOR MAKING ALP ADJUSTMENT ON THE BASIS OF THE EXCESS CR EDIT PERIOD. NONE OF THE AUTHORITIES BELOW HAVE EVEN DISPUTED TH AT THE INGREDIENTS, RAW MATERIALS AND SEMI-FINISHED GOODS SOLD TO MICRO USA ARE NOT SOLD TO ANY OTHER CONCERN. THE VE RY FOUNDATION OF IMPUGNED ADDITION IN ARM'S LENGTH PRI CE ON ACCOUNT OF EXCESS CREDIT PERIOD IS THUS DEVOID OF A NY LEGALLY SUSTAINABLE MERITS OR FACTUAL BASIS. WHEN ALL THESE FACTORS WERE POINTED OUT TO THE LEARNED DEPARTMENTAL REPRESENTAT IVE, HE DID NOT HAVE MUCH TO SAY EXCEPT TO PLACE HIS BLAND BUT DUTIFUL RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. HO WEVER, FOR THE REASONS SET OUT ABOVE AND IN THE ABSENCE OF ANY COM PARATIVE PRICE AND CREDIT PERIOD FIGURES ON COMPARABLE PRODU CT TO SUPPORT THE CASE OF THE REVENUE, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THIS ALP ADJUSTMENT. THE ASSESSEE GETS THE RELIEF ACCORDINGLY.' 6. LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT TH E ISSUE BEING SQUARELY COVERED, IN FAVOUR OF THE ASSESSEE AND ON ADMITTEDLY SIMILAR SET OF FACTS, THERE IS NO OCCASION TO RECON SIDER THE MATTER. WE ARE URGED TO FOLLOW THE SAID DECISION AND DELETE THE IMPUGNED ADJUSTMENT. ON THE OTHER HAND, WHILE LEARN ED DEPARTMENTAL REPRESENTATIVE DOES NOT DISPUTE THAT T HIS ISSUE IS SQUARELY COVERED BY THE AFORESAID DECISION, HE SUBM ITS THAT THE AFORESAID DECISION IS 'SEVERELY FLAWED' AS NO MATTE R WHAT IS THE ITA NO.1057/AHD/2017 SYMPHONY LTD. FOR AY 2012-13 9 GOODS SOLD, 'A CREDIT PERIOD IS A CREDIT PERIOD'. I T IS ALSO SUBMITTED THAT 'THE CREDIT PERIOD FOR SALE OF RAW M ATERIAL TO AN INDEPENDENT MANUFACTURER WOULD BE LOWER AS THE SUPP LIER DOES NOT HAVE TO FACTOR THE LEAD TIME FOR THE SALE OF FI NISHED GOODS BY THE MANUFACTURER' AND THAT 'THE SUPPLIER IS ENTITLE D TO RECEIPT OF PAYMENT IMMEDIATELY ON DELIVERY IRRESPECTIVE OF WHE THER THE FINISHED GOODS IS SOLD IN THE MARKET, GET SPOILED I N MANUFACTURING OR IS DAMAGED'. HE FURTHER SUBMITS TH AT 'IT IS BY NOW ACKNOWLEDGED THAT GRANTING OF EXCESS CREDIT PER IOD IS A SERVICE RENDERED TO THE AE AND NEEDS TO BE BENCHMAR KED'. A REFERENCE IS THEN MADE TO SPECIAL BENCH DECISION IN THE CASE OF AZTEC SOFTWARE & TECHNOLOGY SERVICES (P.) LTD. V. ASSTT. CIT [2007] 107 ITD 141/162 TAXMAN 119 (SB) (BANG.), IN SUPPORT OF THE PROPOSITION THAT MERELY BY FINDING FAULT IN THE WORK DONE BY THE TPO , THE ADJUSTMENTS CANNOT BE DELETED AND THAT UNLESS THE ALP SUBMITTED BY THE TAXPAYER IS SPECIFICALLY ACCEPTED, THE APPELLATE AUTHORITIES, O N THE BASIS OF MATERIAL AVAILABLE ON RECORD HAVE TO DETERMINE ALP THEMSELVE S. 7. WE FIND THAT, AS EVIDENT FROM AUDIT REPORT ON FORM 3CEB (PAGES 39 TO 52 OF THE PAPER- BOOK), THE ARM'S LENGTH PRICE OF EXPORTS TO THE AES , INCLUDING MICRO USA, HAS BEEN DETERMINED ON THE BASIS OF THE TRANSA CTIONAL NET MARGIN METHOD (TNMM). BY WAY OF A NOTE AT PAGE 51, IT IS S PECIFICALLY STATED THAT 'FURTHER, THE SAID AMOUNT OF RS 2428.26 MILLIO NS HAS ALSO BEEN DETERMINED/ COMPUTED BY THE ASSESSEE HAVING REGARD TO THE ARM'S LENGTH PRICE ON APPLICATION OF TRANSACTIONAL NET MARGIN ME THOD (TNMM), ON AGGREGATION OF TRANSACTIONS, AS PRESCRIBED UNDER SE CTION 92C OF THE INCOME-TAX ACT, 1961'. IN THIS BACKDROP, WE CAN USE FULLY REFER TO THE DECISION OF HON'BLE DELHI HIGH COURT, IN THE CASE O F SONY ERICSSON MOBILE CORPN. (P.) LTD. V. CIT [2015] 374 ITR 118/2 31 TAXMAN 113/55 TAXMANN.COM 240 (DELHI), WHEREIN THEIR LORDSHIPS HA D, INTER ALIA, OBSERVED AS FOLLOWS: 'WHERE THE ASSESSING OFFICER/T PO ACCEPTS THE COMPARABLES ADOPTED BY THE ASSESSED, WITH OR WITHOU T MAKING ADJUSTMENTS, AS A BUNDLED TRANSACTION, IT WOULD BE ILLOGICAL AND IMPROPER TO TREAT AMP EXPENSES AS A SEPARATE INTERNATIONAL T RANSACTION, FOR THE SIMPLE REASON THAT IF THE FUNCTIONS PERFORMED BY TH E TESTED PARTIES AND THE COMPARABLES MATCH, WITH OR WITHOUT ADJUSTMENTS, AMP EXPENSES ARE DULY ACCOUNTED FOR. IT WOULD BE INCONGRUOUS TO ACCEPT TH E COMPARABLES AND DETERMINE OR ACCEPT THE TRANSFER PRICE AND STILL SE GREGATE AMP EXPENSES AS AN INTERNATIONAL TRANSACTION,' 8. BY WAY OF AN EXAMPLE, THIS ASPECT OF THE MATTER WAS THEN EXPLAINED BY HON'BLE DELHI HIGH COURT AS FOLLOWS: 'AN EXAMPLE GI VEN BELOW WOULD MAKE IT CLEAR: PARTICULARS CASE 1 CASE 2 SALES 1000 1,000 PURCHASE PRICE 600 500 GROSS MARGIN 400 (40%) 500 MARKETING SALE PROMOTION 50 150 OVERHEAD EXPENSE 300 300 ITA NO.1057/AHD/2017 SYMPHONY LTD. FOR AY 2012-13 10 NET PROFIT 50 (5%) 50 (5%) THE ABOVE ILLUSTRATIONS DRAW A DISTINCTION BETWEEN TWO DISTRIBUTORS HAVING DIFFERENT MARKETING FUNCTIONS. IN CASE 2, A DISTRIBUTOR HAVING SIGNIFICANT MARKETING FUNCTIONS INCURS SUBST ANTIAL EXPENDITURE ON AMP, THREE TIMES MORE THAN IN CASE 1 , BUT THE PURCHASE PRICE BEING LOWER, THE INDIAN AE GETS ADEQ UATELY COMPENSATED AND, THEREFORE, NO TRANSFER PRICING ADJ USTMENT IS REQUIRED. IN CASE WE TREAT THE AMP EXPENSES IN CASE 2 AS RS.501-, I.E. IDENTICAL AS CASE 1 AND AMP OF RS. 100 AS A SE PARATE TRANSACTION, THE POSITION IN CASE 2 WOULD BE: PARTICULARS CASE 2 SALES 1,000 PURCHASE PRICE 500 GROSS MARGIN 500 50% OVERHEAD EXPENSES 300 MARKETING EXPENSES 50 NET PROFIT 150 (15%) IT IS OBVIOUS THAT THIS WOULD NOT BE THE CORRECT WA Y AND METHOD TO COMPUTE THE ARM'S LENGTH PRICE. THE PURCHASE PRICE ADJUSTMENTS/SET OFF WOULD BE MANDATED TO ARRIVE AT THE ARM'S LENGTH PRICE, IF THE AMP EXPENSES ARE SEGREGATED AS AN INDEPENDENT INTER NATIONAL TRANSACTION.....' 9. BY THE SAME LOGIC, EVEN MAKING AN ADJUSTMENT FOR INTEREST ON EXCESS CREDIT ALLOWED ON SALES TO AES WILL VITIATE THE PICTURE, INASMUCH AS WHAT HAS ALREADY BEEN FACTORED IN THE T NMM ANALYSIS, BY TAKING OPERATING PROFIT FIGURE WHICH F INANCIAL IMPACT OF THE EXCESS CREDIT PERIOD ALLOWED, WILL BE ADJUSTED AGAIN SEPARATELY AS WELL. OF COURSE, IN THE EXAMPLE USED BY HON'BLE DELHI HIGH COURT, THE AMP EXPENSES ARE DEDUCTIBLES IN COMPUTAT ION OF OPERATING PROFIT BUT THAT DOES NOT MAKE ANY MATERIA L DIFFERENCE BECAUSE THE INTEREST LEVY FOR LATE REALIZATION OF D EBTORS, BEING INEXTRICABLY CONNECTED WITH THE SALES, IS ALSO PART OF OPERATING INCOME. IN THE CASE OF NIRMA INDUSTRIES LTD. V. DY. CIT [2006] 283 ITR 402/155 TAXMAN 330 (GUJ.), HON'BLE HIGH COURT H AS DEALING WITH THE NATURE OF INTEREST ON DEBTORS, HELD IT TO BE INTEGRAL TO BUSINESS INCOME. THE SAME IS THE PRINCIPLE FOR THE TRANSFER PRICING CASES TO THAT EXTENT INTEREST IS TO BE TAKEN AS INT EGRAL TO SALE PROCEEDS, AND, AS SUCH, INCLUDIBLE IN OPERATING INC OME. WHEN SUCH AN INTEREST IS INCLUDIBLE IN OPERATING INCOME AND T HE OPERATING INCOME ITSELF HAS BEEN ACCEPTED AS REASONABLE UNDER THE TNMM, THERE CANNOT BE AN OCCASION TO MAKE ADJUSTMENT FOR NOTIONAL ITA NO.1057/AHD/2017 SYMPHONY LTD. FOR AY 2012-13 11 INTEREST ON DELAYED REALIZATION OF DEBTORS. ONE CAN UNDERSTAND SEPARATE ADJUSTMENT FOR EXCESS CREDIT PERIOD WHEN T HE ARM'S LENGTH PRICE FOR EXPORTS HAS BEEN BENCHMARKED ON THE CUP B ASIS BUT NOT IN A CASE WHEN THE ARM'S LENGTH PRICE OF THE EXPORT S HAS BEEN BENCHMARKED ON THE BASIS OF TNMM. THE VERY CONCEPTU AL FOUNDATION, FOR SEPARATE ADJUSTMENT FOR DELAYED REA LIZATION OF DEBTORS AND ON THE FACTS OF THIS CASE, IS THUS DEVO ID OF LEGALLY SUSTAINABLE MERITS. 7. IN ANY CASE, AS POINTED OUT BY THE LEARNED COUN SEL, THE UNDISPUTED POSITION IS THAT THE ASSESSEE HAD ALLOWE D CREDIT PERIOD BEYOND 90 DAYS IN THE CASE OF NON-ASSOCIATED ENTERP RISES, I.E. INDEPENDENT ENTERPRISES AS WELL. ONCE THIS FACT IS NOT DISPUTED, THE TRANSACTIONS WITH THE NON-AE CONSTITUTE VALID INTER NAL CUP INPUTS AND ALP ADJUSTMENT ON ACCOUNT OFREALISATION OF BILL S BEYOND 90 DAYS FROM THE ASSOCIATED ENTERPRISE CANNOT BE JUSTI FIED. 8. IN VIEW OF ABOVE DISCUSSIONS, AND RESPECTFULLY FOLLOWING THE BINDING JUDICIAL PRECEDENTS AS REFERRED TO ABOVE, W E UPHOLD THE PLEA OF THE ASSESSEE AND DIRECT THE ASSESSING OFFIC ER TO DELETE THE IMPUGNED ALP ADJUSTMENT OF RS.2,04,090/-. 9. IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE AN D RESPECTFULLY FOLLOWING THE DECISIONS OF THE CO-ORDI NATE BENCH AHMEDABAD REFERRED ABOVE, WE ARE OF THE VIEW THAT S INCE THAT THE EXTENDED CREDIT PERIOD PROVIDED BY THE ASSESSEE HAS BEEN ADJUSTED BY THE HIGHER SALE PRICE CHARGED TO THE AE AND SUCH TRANSACTIONS OF PROVIDING EXTENDED CREDIT PERIOD FO R MORE THAN 90 DAYS OR ABOVE CANNOT BE CONSIDERED AS A SEPARATE INTERNATIONAL TRANSACTION, DO NOT CALL FOR AND ANY UPWARD ADJUSTMENT. WE ACCORDINGLY DIRECT THE AO TO DELETE THE ADDITIONS FOR UPWARD ADJUSTMENT OF RS.17,73,393/- M ADE U/S 92CA(3) OF THE ACT AND ALLOW. GROUND NO. 3 RAISED B Y THE ASSESSEE. ITA NO.1057/AHD/2017 SYMPHONY LTD. FOR AY 2012-13 12 10. GROUND NO. 4 ARE GENERAL NATURE WHICH NEEDS TO BE ADJUDICATION. 11 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE ITA NO.1057/AHD/2017 IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 20.09.2019. SD/- SD/- (AMARJIT SINGH) JUDICIAL MEMBER ( MANISH BORAD) ACCOUNTANT MEMBER AHMEDABAD; DATED 20/09/2019 VIJAY PAL SINGH/ SR. PS $% & ''() *$)' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ! / CONCERNED CIT 4. ! ( ) / THE CIT(A)-XV, AHMEDABAD 5. $%& '' , , )*++ / DR, ITAT, AHMEDABAD 6. &,- . / GUARD FILE. $% + / BY ORDER, TRUE COPY ,/ - ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD