GOLAWALA DIAMONDS, MUMBAI V. ACIT 16(2), MUMBAI

ITA 518/MUM/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3162 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 01-09-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 22-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Related party transaction; Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

GOLAWALA DIAMONDS ITA NO. 518 /MUM/20 1 4 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K , MUMBAI , , BEFORE SHRI G S PANNU , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBERITA ITA NO. : 5 1 8 /MUM/20 1 4 ( ASSESSMENT YEAR: 200 3 - 04 ) GOLAWALA DIAMONDS , GE - 6031 - 32, G BLOCK, BHARAT DIA BOURSE, BANDRA - KURLA COMPLEX, BANDRA EAST, MUMBAI - 400 0 51 .: PAN: AA C FG 5729 L VS ACIT - 1 6( 2 ), MATRU MANDIR, TARDEO, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : MISS AARTI VISANJI RESPONDENT BY : SHRI N K CHAND /DATE OF HEARING : 08 - 0 7 - 201 5 / DATE OF PRONOUNCEMENT : 30 - 09 - 201 5 ORDER , . . : PER AMIT SHUKLA, JM : THE A FORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST IMPUGNED ORDER DATED 2 5 . 11 .201 3 PASSED BY CIT(A) - 15, MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) R.W.S. 147 FOR THE ASSESSMENT YEAR 200 3 - 0 4 . THE ASSESSEE IS MAINLY AGGRIEVED BY THE ADDITION OF RS. 6,28,102/ - ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT BY WAY OF INTEREST , CALCULATED @ 18% ON THE DELAYED CREDIT PERIOD ON THE IMPORT MADE BY A E S BEYOND 180 DAYS. 2. B RIEF FACTS QUA THE ISSUE ARE THAT, ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF DIAMOND STUDDED JEWELLERY WHEREBY IT IMPORTS ROUGH DIAMONDS FROM ITS ASSOCIATES ENTERPRISES (AE) AND EXPORTS POLISHED DIAMONDS AS WELL AS DIAMOND STUDDED JEWELLERIES BACK TO GOLAWALA DIAMONDS ITA NO. 518 /MUM/20 1 4 2 ITS AE. DURING THE YEAR, THE ASSESSEE HAD UNDERTAKEN FOLLOWING INTERNATIONAL TRANSACTION WITH ITS AE : S.NO. TRANSACTION FY 02 - 03 METHOD 1 IMPORT OF ROUGH DIAMONDS 12,05,31,932 TNMM 2 EXPORT POLISHED DIAMONDS 19,34,81,398 TNMM TOTAL 31,40,13,330 3 . TRANSFER PRICING OFFICER OBSERVED THAT THERE WA S DELAY IN REALIZATION OF DEBT S FROM THE AE ON WHICH NO INTEREST HAS BEEN CHARGED , WHICH IN A THIRD PARTY SITUATION SUCH A DELAY IN REALIZATION OF DEBTS WOULD NOT BE THERE. ACCORDINGLY, THE TPO OBSERVED THAT NON - RECOVERY OF OUTSTANDING DUES FROM ITS AE HAS RESULTED IN BUSINESS FUNDS BEING BLOCK ED WITH THE RELATED PARTIES WHICH OTHERWISE COULD HAVE UTILIZ ED FOR THE PURPOSE OF BUSINESS. HE HELD THAT IN A NORMAL CONDITION SUCH A TRANSACTION BETWEEN TWO UNRELATED PARTIES WOULD HAVE INVOLVED CHARGING OF INTEREST ON THE DELAYED PAYMENTS. HE, THEREFORE, APPLIED INTEREST RATE OF 18% PER AN N UM WHICH WAS BASED ON AVERAGE YIELD ON ANY RATE BONDS FOR FY 2002 - 03 , AS A BENCHMARK OF INTEREST RATE TO ARRIVE AT INTEREST CHARGE ABLE AT ARMS LENGTH AND ACCORDINGLY , HE WORKED OUT THE ADJUSTMENT OF INTEREST ON THE DELAYED REALIZATION OF RS. 6,00,102/ - . 4. BEFORE THE CIT(A), ASSESSEE SUBMITTED THAT, GENERALLY MOST OF THE PAYMENTS WE RE RECEIVED IN TIME AND IN VERY FEW TRANSACTIONS W HERE PAYMENT HAS EXCEEDED BEYOND 180 DAYS, NO INTEREST HAS BEEN CHARGED FOR SUCH OCCASIONAL DELAYS AS A MATTER OF GROUP POLICY. THE ASSES S EE FURNISHED FOLLOWING CHART OF DELAYED PAYMENTS BEFORE THE CIT(A) AND SUBMITTED THAT NO ADJUST MENT AT ALL IS REQUIRED ON THESE FACTS : - NO. AMOUNT % PAYMENTS RECEIVED WITHIN 180 DAYS 25 136,614,969 74.03% PAYMENTS RECEIVED BEYOND 180 DAYS WITH DELAY OF 0 - 15 DAYS 3 24,378,055 13.21% WITH DELAY OF 16 - 30 DAYS 3 5,593,384 3.03% WITH DELAY OF 31 - 45 DAYS 1 10,169,469 5.51% WITH DELAY OF 46 - 60 DAYS 1 7,785,331 4.22% 33 184,541,208 100.00% GOLAWALA DIAMONDS ITA NO. 518 /MUM/20 1 4 3 LD. CIT(A), HOWEVER, CONFIRMED THE SAID ADJUSTMENT AFTER OBSERV ING THAT SUCH A DELAYED PAYMENT RECEIVABLE OR ANY OTHER SUCH DEBT ARISING DUR ING THE COURSE OF BUSINESS IS AN INTERNATIONAL TRANSACTION AND THEREFORE NO T OF CHARGING OF INTEREST ON THE DELAYED PAYMENT IS UN JUSTIFIED IN A RELATED PARTY TRANSACTION. 5. BEFORE US, LD. COUNSEL AFTER REITERATING THE ENTIRE FACTS, SUBMITTED THAT, FIRST OF ALL, NO INTEREST SHOULD BE CHARGED ON SUCH A MINOR DELAY IN FEW TRANSACTIONS , WHICH IS EVIDENT FROM THE FACT THAT OUT OF 3 3 TRANSACTIONS, IN 25 TRANSACTIONS THE PAYMENTS WERE RECEIVED WITHIN 180 DAYS AND IN OTHER 6 TRANSITION DELAY WAS 30 DAYS. THUS, ON THESE FACTS NO ADJUSTMENT IS REQUIRED TO BE MADE . WITHOUT PREJUDICE, HE SUBMITTED THAT IF AT ALL ANY INTEREST RATE IS TO BE APPLIED ON THE TRANSACTIONS WERE THERE IS DELAY THEN THE SAME SHOULD BE CALCULATED ON THE BASIS OF LIBOR AND NOT 18%. IN SUPPORT OF HIS CONTENTION H E RELIED UPON THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF DANIA ORO JEWELLERY (P) LTD. VS ITO [2014] 43 TAXMAN.COM190 , WHEREIN THE TRIBUNAL DIRECTED THE TPO TO APPLY INTEREST RATE OF LIBOR + 1.5% ON THE PAYMENT S RECEIVED BEYOND THE PERI OD OF 200 DAYS. 6. ON THE OTHER HAND LD. DR, RELIED UPON THE DECISION OF ITAT PUNE BENCH IN THE CASE OF IGATE COMPUTER SYSTEMS LTD. IN ITA NO. 2504/MUM/2012 WHEREIN THE TRIBUNAL HAS APPLIED LIBOR + 3%. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON P ERUSAL OF THE IMPUGNED ORDERS, IT IS SEEN THAT ASSES S EE HAS UNDERTAKEN 33 TRANSACTION OF EXPORTS F OR THE VALUE AGGREGATING RS 18.45 CRORES, OUT OF WHICH IN 25 TRANSACTIONS, THE PAYMENTS WAS RECEIVED WELL BEFORE THE EXPIRY OF CREDIT PERIOD OF 180 DAYS. FOR THE BALANCE 8 TRANSACTIONS, IN 6 TRANSACTIONS THE DELAY WAS LESS THAN 30 DAYS AS GIVEN IN THE TABLE INCORPORATED ABOVE. IF OVERALL CREDIT PERIOD OF ALL THE 33 TRANSACTIONS IS TO BE ANALYZED , THEN IT IS EVIDENT THAT THE AVERAGE CREDIT PERIOD FOR ALL THE TR ANSACTIONS IS ONLY 139 DAYS , T HE GOLAWALA DIAMONDS ITA NO. 518 /MUM/20 1 4 4 WORKING FOR WHICH HA S BEEN GIVEN AT PAGE 5 OF THE PAPER BOOK. FOR MAKING ANY ADJUSTMENT IN THE ARMS LENGTH PRICE, A COMPARABILITY ANALYSIS IS TO BE CARRIED OUT WITH THE UNCONTROL L ED TRANSACTIONS TO BENCHMARK THE PRICE OR PR OFIT IN A THIRD PARTY SITUATION. HERE IN THIS CASE, NEITHER THE TPO NOR THE ASSESSEE HAS GIVEN ANY COMPARABLE INSTANCE AS TO WHETHER IN SUCH A SITUATION OR CONDITION AN UNRELATED PARTY WOULD HAVE CHARGED INTEREST. IF IN THE MAJORITY TRANSACTION T HERE NO DE LAY THEN FOR FEW TRANSACTIONS INTEREST CANNOT BE IMPUTED , UNLESS IT IS BENCHMARK ED WITH THE TRANSACTIONS WITH SOME UNRELATED PARTIES. HOWEVER, NO SUCH COMPARABLE INSTANCE HAS BEEN FILED OR SOWN BEFORE US. THEREFORE, WE FEEL THAT IN THE 8 TRANSACTIONS WHE RE THERE IS A DELAY BEYOND THE PERIOD OF 180 DAYS, THE INTEREST IF AT ALL, SHOULD BE LEVIED . T HEN SAME SHOULD BE ON THE BASIS OF LIBOR + 150 POINTS ( I.E. 1.5% ) AS HELD BY THE TRIBUNAL IN THE CASE OF. ACCORDINGLY, WE DIRECT THE TPO/AO TO APPLY THE INTEREST RA TE OF LIBOR + 1.5% AND WORKED OUT THE ADJUSTMENT ON ACCOUNT OF INTEREST FOR THE TRANSACTIONS , WHICH ARE BEYOND THE PERIOD OF 180 DAYS. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREAT ED AS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER , 2015. SD/ - SD/ - ( ) ( ) ( G S PANNU ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 30 TH SEPTEMBER , 2015 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 15 , M UMBAI. 4 ) THE CIT 16 , MUMBAI. GOLAWALA DIAMONDS ITA NO. 518 /MUM/20 1 4 5 5 ) , , / THE D.R. K BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS