2015 (10) TMI 2376 - AT - Income Tax

Adjustment made on account of arm s length price of interest receivable transaction from the Netherland based associate enterprise company - Held that - Hon ble Bombay High in Court CIT Vs. Tata Autocomp Systems Ltd. (2015 (4) TMI 681 - BOMBAY HIGH COURT ) has held that while computing arm s length price of international transaction, where the assessee had advanced loan to its associate enterprises situated in Germany, then the rate of interest was to be determined on the basis of rate prevailing in Germany, where the loan had been consumed and not to be determined on the basis of rate prevailing in India. The issue arising in the present appeal is identical to the issue before the Tribunal in assessee s own case relating to assessment year 2008-09 and before the Hon ble Bombay High Court in CIT Vs. Tata Autocomp Systems Ltd. (supra) and following the same parity of reasoning, we direct the Assessing Officer to re-compute arm s length price of international transaction entered into by the assessee with its associate enterprises, following the directions in our earlier year. The learned Authorized Representative for the assessee pointed out that though in the earlier, there was discrepancy in the picking up of figure interest receivable from associate enterprises, but in the year under appeal, there is no such issue. Decided in favour of assessee. Disallowance of additional depreciation under section 32(1)(iia) of the Act on items of fixed assets - Held that - We direct the Assessing Officer to allow the additional depreciation under section 32(1)(iia) of the Act on trolley and industrial fans - Decided in favour of assessee in part Deduction claimed on account of payments to PF / ESCI - Held that - Perusal of the details tabulated in assessment order reflect that the payments have been made by the assessee within a delay of few days and much before the due date of filing the returns. Following the ratio of CIT Vs. Ghatge Patil Transports Ltd. (2014 (10) TMI 402 - BOMBAY HIGH COURT ), we hold that the assessee is entitled to the claim of deduction in this regard. Accordingly, we direct the Assessing Officer to disallow the addition - Decided in favour of assessee

Summary

Issues Involved:
1. Determination of Arm's Length Price (ALP) for Interest Receivable from an Associate Enterprise (AE).
2. Disallowance of Additional Depreciation under Section 32(1)(iia) on Fixed Assets.
3. Disallowance of Deduction for Delayed Payments of PF/ESIC/MLWF under Section 36(1)(va).

Detailed Analysis:

1. Determination of Arm's Length Price (ALP) for Interest Receivable from an Associate Enterprise (AE):
The primary issue was whether the interest rate charged by the assessee from its Netherland-based AE at 4.75% was at arm's length. The Transfer Pricing Officer (TPO) proposed an adjustment based on the Prime Lending Rate (PLR) of the State Bank of India (SBI), which averaged 12.94%. The same adjustment was upheld by the Dispute Resolution Panel (DRP) for the previous assessment year 2008-09.

The Tribunal noted that the assessee had borrowed funds from Citi Bank at LIBOR+ rates and advanced the same to its AE. The Tribunal held that international transactions should be benchmarked using international rates (LIBOR+ rates) rather than domestic rates (PLR). The Tribunal directed the TPO/AO to re-compute the ALP based on LIBOR+ rates, as the transaction was found to be within arm's length price. The Tribunal also referenced similar judgments from other cases, including the Hon'ble Bombay High Court in CIT Vs. Tata Autocomp Systems Ltd., which supported the use of international rates for such transactions.

2. Disallowance of Additional Depreciation under Section 32(1)(iia) on Fixed Assets:
The assessee claimed additional depreciation on various fixed assets, which was disallowed by the AO except for trolley and industrial fans. The Tribunal reviewed the nature of each asset and upheld the AO's decision to allow additional depreciation only on trolley and industrial fans. For other assets like racks, air conditioners, TV music systems, water coolers, dispensers, refrigerators, handicams, projectors, scanners, UPS, inverters, attendance card readers, EPBX systems, and energy savers, the Tribunal concluded these do not qualify for additional depreciation as they were not directly used in manufacturing activities.

3. Disallowance of Deduction for Delayed Payments of PF/ESIC/MLWF under Section 36(1)(va):
The AO disallowed the deduction for delayed payments of PF, ESIC, and Maharashtra Labour Welfare Fund contributions, as they were not made within the due dates stipulated under the relevant Acts. However, the Tribunal observed that the payments were made within a few days of the due dates and before the filing of the return. Citing the Hon'ble Bombay High Court's decision in CIT Vs. Ghatge Patil Transports Ltd., the Tribunal held that the assessee is entitled to the deduction for these payments, directing the AO to disallow the addition of Rs. 5,97,354.

Conclusion:
The appeal was partly allowed. The Tribunal directed the re-computation of the ALP for the interest receivable transaction using LIBOR+ rates, allowed additional depreciation only on trolley and industrial fans, and permitted the deduction for delayed PF/ESIC/MLWF payments.