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

ITA 432/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2896 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Assessment Year: 2009-2010
• Appeal Filed On: 20-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N PADMANABHAN
• Assessee Lawyers: MRS ARATI VISSANJI
• Keywords: Transfer pricing

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH K, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AN D SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.432/M/2014 ASSESSMENT YEAR: 2009-10 M/S. JEWELLMARK INDIA P. LTD., 501, TOWER 2, SEEPZ, MIDC, MAROL, ANDHERI (EAST), MUMBAI 400 096 PAN: AABCJ3769M VS. INCOME TAX OFFICER 8(2)(1), AAYAKAR BHAVAN, CHURCHGATE, MUMBAI (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : MRS. ARATI VISSANJI, A.R. REVENUE BY : SHRI N. PADMANABHAN, D.R. DATE OF HEARING : 24.05.2016 DATE OF PRONOUNCEMENT : 24.06.2016 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 11.11.2013 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2009-10. 2. THE SOLE ISSUE TAKEN BY THE ASSESSEE VIDE ITS GR OUNDS OF APPEAL IS AGAINST THE CONFIRMATION OF ADDITION OF RS.7,34,345/- BEING INTEREST RECEIVABLE BY THE ASSESSEE FROM ITS ASSOCIATE ENTERPRISES (AES) CALCU LATED AT THE RATE OF 18% ON THE CREDIT PERIOD BEYOND 180 DAYS. 3. THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTU RING OF JEWELLERY. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OF FICER (HEREINAFTER REFERRED TO AS THE AO) OBSERVED THAT THE ASSESSEE HAD MADE T RANSACTIONS WITH ITS AES AMOUNTING TO RS.97251676/- AND APPLIED TNMM METHOD FOR DETERMINING THE ARMS LENGTH PRICE. THE AO FURTHER OBSERVED THAT TH E ASSESSEE COMPANY HAD ITA NO.432/M/2014 M/S. JEWELLMARK INDIA P. LTD. 2 GRANTED CREDIT PERIOD TO AES BEYOND 180 DAYS OF TOT AL INVOICE VALUE OF RS.8,55,61,484/-. WHEN ASKED TO EXPLAIN AS TO WHY INTEREST SHOULD NOT BE DISALLOWED ON CREDIT GRANTED TO AE BEYOND 180 DAYS. THE ASSESSEE EXPLAINED AS UNDER: I. THE ASSESSEE DID NOT CHARGE ANY INTEREST ON EXP ORTS PAYMENTS RECEIVED AFTER 180 DAYS (OVERDUE) FROM AE. II. THE ASSESSEE DID NOT PAY ANY INTEREST TO THE AE ON DELAYED IMPORT PAYMENTS MADE BASED ON CREDIT TERMS INSPITE OF HUGE DELAY. III. IN RESPECT OF AE ASSESSEE SUBMITTED A) THE ASSESSEE HAS 57 SALE BILLS WITH AE DURING THE Y EAR UNDER CONSIDERATION. B)THERE ARE 20 CASES IN WHICH THERE IS DELAY OVER 180 DAYS C) MAJORITY OF THE DELAYS ARE DUE TO DELAY IN RECEI PT OF A VERY SMALL PORTION OUT OF FULL INVOICE VALUE (DELAY IN RECEIPT OF BALANCE PAYMENT). IV. FROM THE ABOVE IT WAS STATED THAT DELAY IN RES PECT OF REALIZATION OF EXPORTS ARE VERY NEGLIGIBLE TOTALING TO US $ 432,85 0/- AS COMPARED TO TOTAL US $ RECEIVED AMOUNTING TO US$ 18.76,126/-. V. IT WAS FURTHER STATED THAT THE ASSESSEE HAS ENJ OYED CREDIT ON IMPORT PAYMENTS AND IF INTEREST IS CALCULATED ON SUCH DELA YS THERE WILL HE INTEREST PAYMENT TO BE MADE BY THE ASSESSEE. NO SUCH INTERES T HAS BEEN PAID TO THE AE. VI. THUS, IT WAS REQUESTED THAT NO ADJUSTMENT BE M ADE IN RESPECT OF PAYMENTS RECEIVED BEYOND 180 DAYS FROM AE AS SUCH I NTEREST GETS SQUARED OFF WITH INTEREST PAYABLE TO AE. 4. THE AO, HOWEVER, WAS NOT CONVINCED WITH THE SUBM ISSIONS OF THE ASSESSEE AND HE ACCORDINGLY MADE TOTAL ADJUSTMENT O F RS.7,34,345/- IN RESPECT OF INTEREST ON CREDIT GRANTED TO AES BEYOND 180 DAY S. 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 AS SESSEE WHILE RELYING UPON HIS OWN ORDER ON SOMEWHAT SIMILAR CIRCUMSTANCES IN THE ASSESSEES OWN CASE FOR A.Y. 2008-09. BEING AGGRIEVED BY THE SAID ORDE R OF THE LD. CIT(A), THE ASSESSEE HAS COME IN APPEAL BEFORE US. ITA NO.432/M/2014 M/S. JEWELLMARK INDIA P. LTD. 3 5. 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 CONSI DERING THE IDENTICAL ISSUE, THE TRIBUNAL OBSERVED THAT THERE WAS FORCE I N THE CONTENTION OF THE ASSESSEE THAT IF THE ASSESSEE HAD TO MAKE PAYMENTS OF IMPORTS TO SOME PARTY THEN, RECEIVING DELAYED EXPORT REALIZATION CANNOT B E SAID TO BE BEARING INTEREST AS ASSESSEE IS ALREADY OWING MUCH MORE AMOUNT TO IT S AE ON ACCOUNT OF IMPORT PAYMENTS. 6. WE HAVE GONE THROUGH THE SAID ORDER OF THE TRIBU NAL. 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 ASSESS EE IS NEITHER CHARGING INTEREST FROM ITS AE AND ALSO NOT PAYING ANY INTERE ST 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 F OR 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 'WORK ING OF INTEREST ON DELAY IN IMPORT PAYMENTS'. THOSE PAYMENTS IN EXCESS OF 18 0 DAYS ARE LISTED AS AGAINST IMPUGNED INTEREST OF RS.8,36,437/- WORKED O UT ON DELAY IN EXPORT REALIZATION, INTEREST ON DELAY IN IMPORT PAYMENTS H AVE BEEN WORKED OUT AT RS.1,10,01,043/-. THUS, IT IS THE CASE OF LD. AR TH AT WHEN ASSESSEE IS NOT MAKING THE PAYMENT FOR DELAY WHICH IS MUCH MORE THA N 180 DAYS, THEN HOW ASSESSEE'S TRANSACTION FOR RECEIVING DELAYED EXPORT REALIZATION CAN BE CONSIDERED TO BE NOT ON ARMS LENGTH. THUS, IT WAS P LEADED BY LD. AR THAT ADJUSTMENT OF RS.8,36,437/- SHOULD BE DELETED. 3.2 ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY TPO AND LD. CIT(A). 3.3 WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED. TO SOME EXTENT THERE IS A FORCE IN THE CONTENTION OF LD. AR THAT IF THE ASSESSEE HAS TO MAKE PAYMENT OF IMPORTS TO SAME PARTY THEN, RECEIVING DELAYED EXPORT REALIZATION CANNOT BE SAID TO BE BEA RING INTEREST AS ASSESSEE IS ALREADY OWING MUCH MORE AMOUNT TO ITS AE ON ACCOUNT OF IMPORT PAYMENTS. THEREFORE, IN THE INTEREST OF JUSTICE, WE CONSIDER IT JUST AND PROPER TO RESTORE THIS ISSUE TO THE FILE OF AO TO EXAMINE AND VERIFY THE FACTS AND IF ON THE DATES WHEN THE IMPUGNED INTEREST IS COMPUTED IN RESPECT O F 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 CAN NOT BE ADDED AS TP ADJUSTMENT. WE THEREFORE, RESTORE THIS MATTER TO THE FILE OF AO WITH A DIRECTION ITA NO.432/M/2014 M/S. JEWELLMARK INDIA P. LTD. 4 TO RE-ADJUDICATE THIS ISSUE AS PER DIRECTIONS GIVEN ABOVE. FOR STATISTICAL PURPOSES THIS GROUND IS TREATED TO BE ALLOWED. 7. THE LD. A.R. OF THE ASSESSEE HAS PLEADED THAT TH ERE NEEDS TO BE CERTAIN MODIFICATIONS IN DIRECTIONS TO BE GIVEN TO THE AO I N RELATION TO THE MATTER FOR THE YEAR UNDER CONSIDERATION VIS--VIS THE DIRECTIO NS GIVEN BY THE TRIBUNAL IN THE EARLIER ASSESSMENT YEAR 2008-09. SHE HAS PLEAD ED THAT THOUGH THE TRIBUNAL IN PRINCIPLE AGREED THAT IF THE ASSESSEE HAS TO MAK E THE PAYMENTS OF IMPORTS SOME PARTY THEN, RECEIVING DELAYED EXPORT REALIZATI ON 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 CONT ENDED THAT THE TRIBUNAL AFTER OBSERVING ABOVE, DIRECTED THE AO TO EXAMINE A ND VERIFY THAT IF ON THE DATES WHEN THE IMPUGNED INTEREST IS COMPUTED IN RES PECT 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 CA NNOT BE ADDED AS TP ADJUSTMENT. SHE, IN THIS RESPECT, HAS CONTENDED TH AT 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 IN TEREST PAYABLE AND RECEIVABLE BE MADE. 8. 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 PAYA BLE BY THE ASSESSEE TO ITS AES. THEREAFTER, THE AO SHOULD DO NETTING OFF OF T HE 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 ABO VE. ITA NO.432/M/2014 M/S. JEWELLMARK INDIA P. LTD. 5 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TRE ATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24.06.2016. SD/- SD/- (D. KARUNAKARA RAO) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 24.06.2016. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.