M/S. GIMPEX PRIVATE LIMITED, CHENNAI V. The Assistant Commissioner of Income Tax, Central Circle-1(2)(i/c), CHENNAI

ITTPA 6/CHNY/2021

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The case involves M/s. Gimpex Pvt. Ltd., which appealed against the final assessment order passed by the Assessing Officer under the directions of the Dispute Resolution Panel (DRP). The appeal primarily concerned the transfer pricing adjustment related to interest on overdue receivables from its Associated Enterprises (AEs) for the Assessment Year 2016-17. The TPO had proposed an adjustment due to substantial delays in receivables from certain AEs, which was contested by the assessee. The Tribunal noted that the issue had been previously addressed in favor of the assessee in earlier assessment years, but acknowledged the factual distinctions in the current year, leading to a different approach by the TPO. The Tribunal decided to restore the matter back to the TPO/AO for a detailed re-examination.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 134063 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 22-11-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Next Hearing Date: 15-11-2022
• Assessment Year: 2016-2017
• Appeal Filed On: 14-03-2021
• Other Referred Cases: Maxim Integrated Products India Sales (P) Ltd. vs. DCIT, Bisazza India (P) Ltd, Gemstone Glass Pvt Ltd
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Notional interest
• Section: 143(3); 92CA

Judgement Text

आयकर अपीलीय अिधकरण ’डी’ ायपीठ चे ई म । IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI माननीय ,ी वी. द ु गा2 राव, ाियक सद4 एवं माननीय ,ी मनोज कु मार अ9वाल ,लेखा सद4 के सम;। BEFORE HON’BLE SHRI V. DURGA RAO, JUDICIAL MEMBER AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ IT(TP)A No.06/Chny/2021 (िनधा2रण वष2 / Assessment Year: 2016-17) M/s. Gimpex Pvt. Ltd. (Formerly known as GIMPEX Ltd) No.228, Old No.181, Lingi Chetty Street, Chennai – 600 001. बनाम/ V s. ACIT Central Circle-1(2)(i/c), Chennai. थायी लेखा सं./जीआइ आर सं./P AN /GI R No . AAAC G -2 4 8 2 -P (अपीलाथ /Appellant) : ( थ / Respondent) अपीलाथ की ओरसे/ Appellant by : Shri S.P. Chidambaram (Advocate)-Ld. AR थ की ओरसे/Respondent by : Dr. S. Palanikumar (CIT) – Ld. DR सुनवाई की तारीख/Date of Hearing : 16-11-2022 घोषणा की तारीख /Date of Pronouncement : 23-11-2022 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2016-17 arises out of final assessment order dated 24-02-2021 passed by Ld. Assessing Officer (AO) u/s 143(3) r.w.s. 144C(13) pursuant to the directions of Ld. Dispute Resolution Panel-2, Bengaluru-3 (DRP) u/s 143(3) r.w.s. 144C(5) dated 05-02-2021. Since the assessee carried out certain international transactions with its Associated Enterprises (AE), the same were subject matter of determination of Arm’s Length IT(TP)A No.06/Chny/2021 - 2 - Price (ALP) before Ld. Transfer Pricing Officer-2, Chennai (TPO) vide order u/s 92CA(3) dated 31-10-2019. Incorporating the proposed adjustment, draft assessment order was passed by Ld. AO on 05-11- 2019 which was subjected to assessee’s objections before Ld. DRP. Subsequently, final assessment order was passed by Ld. AO pursuant to the directions of Ld. DRP which is in further appeal before us. Aggrieved by confirmation of certain transfer pricing adjustment, the assessee is in further appeal before us. Though the assessee has raised multiple grounds of appeal, however, the only substantive ground that falls for our consideration is transfer pricing adjustment towards interest on overdue receivables. 2. The Ld. AR, at the outset, submitted that this issue is covered in assessee’s favour by the decisions of this Tribunal in assessee’s own case for AY 2014-15 in IT(TP)A No.57/Chny/2018 dated 05.04.2019 which has subsequently been followed by the coordinate bench in AY 2015-16 in ITA No.57/Chny/2019 order dated 28-12-2020. The Ld. CIT(A), on the other hand sought distinction in the facts of the earlier years and relied on the decision of Bangalore Tribunal in Maxim Integrated Products India Sales (P) Ltd. vs. DCIT (140 Taxmann.com 578) wherein it was held that interest on receivables would constitute independent international transactions and is required to be benchmarked separately. The Ld. CIT-DR also filed written submissions to submit that in AY 2014-15, Ld. TPO proposed adjustment under TNMM method. The Tribunal held that once TPO determined the ALP by adopting TNMM, there should not be any further adjustment of interest on overdue receivables. However, in AY 2015-16, there was no adjustment on margins but adjustment was IT(TP)A No.06/Chny/2021 - 3 - proposed by Ld. TPO on overdue receivables. This factual difference was not noted in AY 2015-16. The Ld. CIT-DR further submitted that revenue’s appeal in both the years is pending before Hon’ble High Court of Madras. The Ld. CIT-DR submitted that since in this year, there is no adjustment on margins, the transactions of overdue receivable were to be benchmarked separately. The facts of earlier years are thus distinguishable. Having heard rival submissions, our adjudication would be as under. 3. Upon perusal of order passed by Ld. TPO u/s. 92CA (3), it could be seen that the assessee has carried out many international transactions with its AEs and benchmarked the same using CUP method. The same was not disturbed by Ld. TPO. However, Ld. TPO noted that the assessee had large outstanding receivables from its AEs and accordingly proceeded to benchmark these transactions. The Ld. TPO distinguished Tribunal’s order for AY 2014-15 on the ground that the relief was granted by Tribunal because the assessee adopted uniform credit policy during financial year 2013-14 and it was further noted that substantial part of the receivables as due from AE was received well within the due date and there were only small delays in that year. However, during this year as against credit period of 90 days, there were substantial delay in number of invoices in respect of an AE namely SPG Mining Pte. Ltd. from whom major receivables were to be recovered. Similar was the position of another AE namely SS Mineral trading which had substantial delay ranging from 100 to 200 days. Accordingly, differentiating the facts of AY 2014-15, Ld. TPO proposed an adjustment of Rs.320.97 Lacs. The assessee countered the same by submitting that it had received substantial interest free IT(TP)A No.06/Chny/2021 - 4 - security deposit from SPG Mining Pte. Ltd. and further no interest was paid on overdue payables in respect to that entity as well as other AE. However, rejecting the same, Ld. TPO proposed the impugned adjustment. 4. The Ld. DRP held an opinion that the said transaction would constitute international transactions in terms of Explanation to Sec.92B. However, Ld. TPO was directed to adopt SBI short term deposit interest rate as ALP interest rate. All the other pleas raised by the assessee were rejected. Aggrieved, the assessee is in further appeal before us. 5. Upon perusal of Para-3 of Tribunal order for AY 2015-16, it could be seen that the assessee adopted CUP method to benchmark the transactions. The same was rejected by Ld. TPO and TNMM was considered as most appropriate method. Under this method, the assessee’s margins were found to be much more than margin of comparable entities and no adjustment was proposed by Ld. TPO in that year. However, Ld. TPO benchmarked the transactions of export receivables by adopting ALP rate of 13%. The bench held that the transactions of receivables would certainly constitute international transaction. However, TNMM method would take care of all notional interest costs and therefore, no separate adjustment would be required. Accordingly, the bench chose to accept the ratio of order for AY 2014-15. Upon perusal of Tribunal order for AY 2014-15, we find that the assessee benchmarked the transactions using CUP method which was rejected by Ld. TPO and certain adjustments were proposed by adopting TNMM Method. The adjustment so made by Ld. IT(TP)A No.06/Chny/2021 - 5 - TPO were deleted by the Tribunal. The adjustment made on overdue receivables were deleted on following reasoning: - 23. Now we take up the dispute regarding the Arms Length Price adjustment imputing interest on overdue receivables. It is not disputed by the Revenue that assessee had not charged interest either from its Associated Enterprise or from Non Associated Enterprises, for delay in collection of receivables. It is also not disputed that out of the total transactions of the assessee almost 57% were with its Non Associated Enterprises. Once there is complete uniformity followed by assessee in not charging any interest from any party, whether Associated Enterprise or Non Associated Enterprises, in our opinion there could not be any selective imputing of notional interest. Submission of the assessee that out of total sales of about of Rs.261 Crores to its Associated Enterprise, Rs.100 Crores was received well within the due date and small delays were only in the balance of Rs.161 Crores has not been disputed by the ld. Departmental Representative. Assessee had not offered any discount to any party for payment of bills before the expiry of the credit period. Hence, it is only a natural corollary that it did not charge any interest for delays also. Where a good part of the dues were collected earlier to the due date, in our opinion the instances where there were delays could not be selectively elected for a levy of charge of notional interest. Such an approach if accepted will completely overlook commercial realties. That apart, once TNMM method is considered as the most appropriate method, as held by Ahmedabad Bench of the Tribunal in the cases of Bisazza India (P) Ltd (supra) and Gemstone Glass Pvt Ltd (supra) the net margin worked out there under could take care of all such notional interest cost, wherever it could be imputed and there could be no Arms Length Price adjustment for any overdue receivables. We therefore delete Arms Length Price adjustment of B6,18,43,887/- made on overdue receivables. The bench was primarily guided by the fact that substantial payment was received well within the due date and there were only small delays in certain payment. 6. In this year, we find that the assessee has benchmarked the transactions using CUP method which has been accepted by Ld. TPO and the transactions of overdue receivables have separately been benchmarked. In this year, no benchmarking has been done using TNMM method whereas in AY 2014-15 as well as in AY 2015-16, benchmarking was done using TNMM method. Therefore, the argument of Ld. CIT-DR that the facts are distinguishable in this year, IT(TP)A No.06/Chny/2021 - 6 - has to be accepted. It could also be noted that in Tribunal order for AY 2015-16, it has already been held that the transactions of receivables would certainly constitute international transaction. In this year, Ld. TPO has tabulated invoice wise details and noted substantial delay in recovery of receivables which has delay of as much as 216 days. Though the interest free security deposit received from AE has been factored in by Ld. TPO while computing adjustment of corporate guarantee, however, the assessee’s arguments that there were outstanding payables to these two AEs have not been factored in. Further, the adjustment as proposed by Ld. TPO has been retained in final assessment order despite the directions of Ld. DRP in para 2.4 that SBI short terms interest rate could be considered as ALP interest rate. In other words, the adjustment has not been recomputed in terms of the directions of Ld. DRP. Considering all these factors, we restore this issue of TP adjustment on overdue receivables back to the file of Ld. TPO / Ld. AO for fresh adjudication after considering all the aspects of the matter. The assessee is directed to provide requisite information / data to substantiate its stand. 7. In the result, the appeal stands partly allowed for statistical purposes. Order pronounced on 23 rd November, 2022. Sd/- (V. DURGA RAO) ाियक सद4 /JUDICIAL MEMBER Sd/- (MANOJ KUMAR AGGARWAL) लेखा सद4 / ACCOUNTANT MEMBER चे+ई / Chennai; िदनांक / Dated : 23-11-2022 EDN/- IT(TP)A No.06/Chny/2021 - 7 - आदेश की Vितिलिप अ 9ेिषत/Copy of the Order forwarded to : 1. अपीलाथ /Appellant 2. यथ /Respondent 3. आयकर आयु (अपील)/CIT(A) 4. आयकर आयु /CIT 5. िवभागीय ितिनिध/DR 6. गाड फाईल/GF