2018 (5) TMI 1835 - HC - Income Tax

Addition on account of reference u/s 92CA (1) - sham export transaction - no interest on amount received by the assessee in advance from its AE in earlier years - HELD THAT - The form and substance of the transactions are the same. The Transfer Pricing Officer has not brought on record any material to demonstrate and establish that the form and substance of transactions are different. It is not and it cannot be the case of the Transfer Pricing Officer that the export transaction was a sham transaction to finance the AE. It is also observed that even on the amount received by the assessee in advance from its AE in earlier years no interest was paid. Never in the past the assessee has charged any interest from its export customers on delayed realization of its sales proceeds. Meaning thereby the stand of the assessee that it has not charged interest on the delayed realization of debts in non-AE institutions has rightly been accepted by the ITAT because it is admitted position of the case that no interest is charged from non AE/s which is independent transaction as well there cannot be any occasion to make ALP adjustment for notional interest on delay in realization of trade debts from AE/s. The finding given by the learned ITAT is based upon factual aspect of the matter therefore no question of law emerges for consideration in this regard. Allowability of loss - HELD THAT - So far as second substantial question of law as suggested by the learned counsel for the appellant is concerned we are of the opinion that the learned ITAT has remanded the question of claim of loss of 701.08 lacs and passed order that AO shall verity whether the loss has ultimately been allowed in the A.Y.2010-11 and if not then the same be allowed in the year under consideration.

Summary

Issues:
Challenge to the validity of the judgment dated 22nd of May 2017 passed by the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur for the Assessment Year 2009-10.

Analysis:
The appellant, Revenue, filed an Income Tax Appeal challenging the ITAT's judgment dated 22nd of May 2017 for the Assessment Year 2009-10. The assessment under Section 143 of the Income Tax Act, 1961 was completed on 15.03.2013, assessing the respondent-Assessee's total income at &8377; 2,53,97,970/- against the returned income of &8377; 72,66,010/-. The respondent appealed before the C.I.T. (A) against the assessment order, which was dismissed. Subsequently, the respondent appealed to the ITAT, which allowed the appeal. The appellant raised questions regarding the deletion of an addition of &8377; 1,79,92,192/- and the direction to allow a loss of &8377; 701.08 lacs in A.Y. 2009-10. The ITAT's decision was based on the finding that the conditions for recharacterization of a transaction were not satisfied in the present case, as the form and substance of the transactions were the same. The ITAT also noted that no interest was charged on the amount received in advance from the AE or on delayed realization of sales proceeds. The ITAT's decision was considered factual, and no question of law emerged in this regard.

Regarding the second substantial question of law, the ITAT remanded the question of the claim of loss of &8377; 701.08 lacs to the assessing officer to verify if the loss was allowed in the A.Y. 2010-11. The High Court found no merit in this appeal as no substantial question of law arose for consideration. Therefore, the appeal was dismissed accordingly.