2016 (6) TMI 1405 - AT - Income Tax

Interest receivable by the assessee from its Associate Enterprises (AEs) - calculated at the rate of 18% on the credit period beyond 180 days - assessee did not charge any interest on Exports Payments received after 180 days (overdue) from AE - Assessee pleaded though the Tribunal in principle agreed that if the assessee has to make the payments of imports some party then, receiving delayed export realization cannot be said to be bearing interest as assessee is already owing much more amount to its AEs on account of import payments - also contended that 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 interest payable and receivable be made - HELD THAT - 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 payable by the assessee to its AEs. Thereafter, the AO should do netting off of the 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 above. Assessee appeal allowed for statistical purposes.

Summary

Issues:
Confirmation of addition of interest receivable by the assessee from its Associate Enterprises (AEs) calculated at the rate of 18% on the credit period beyond 180 days.

Analysis:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) concerning the addition of interest receivable from AEs beyond 180 days. The Assessing Officer observed that the assessee had transactions with AEs and granted credit period beyond 180 days. The assessee argued that no interest was charged on overdue export payments and no interest was paid on delayed import payments. The AO, however, made an adjustment for interest on credit granted beyond 180 days. The CIT(A) dismissed the appeal, leading the assessee to appeal to the ITAT.

The ITAT referred to a previous order in the assessee's case for A.Y. 2008-09 where a similar issue was considered. The Tribunal in the previous order noted that if the assessee had to make import payments to a party, delayed export realization should not be considered as bearing interest. The Tribunal directed the AO to re-examine the issue and consider if the assessee already had obligations to pay its AEs for imports. The ITAT agreed with the assessee's argument that a uniform policy of not charging or paying interest should be considered in the assessment.

The ITAT modified the directions given in the previous order and instructed the AO to examine the matter as a whole. The AO was directed to apply the same criteria for credit periods in both receivable and payable transactions with AEs. The netting off of interest payable and receivable should be done, and adjustments made accordingly. The appeal of the assessee was treated as allowed for statistical purposes, and the matter was remanded to the AO for further examination and adjudication based on the modified directions.