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2019 (9) TMI 949 - AT - Income TaxAddition u/s 68 - small trade deposit taken from small dealers - HELD THAT - Loan amount of ₹ 80,000/- constitutes deposits of ₹ 10,000/- each from 5 parties and ₹ 5,000/- each from 6 parties. The payments were received through cheques and were part of the trade deposits. Looking to the turn-over of the assessee which stood at ₹ 225.9. crores and the profit before the tax at ₹ 57.87 crores, we do not find any reason to doubt the genuineness of the small trade deposits receivedin normal course of business and thus direct the Assessing Officer to delete the same. In the result ground no. 2 of the assessee-appeal stands allowed and additions u/s 68 is deleted. Addition u/s 92CA(3) - Upward Adjustment for the notional interest calculated on the extended credit period provided to the Associate Enterprise (IMPCO) (Mexico) - HELD THAT - We are of the view that since that the extended credit period provided by the assessee has been adjusted by the higher sale price charged to the AE and such transactions of providing extended credit period for more than 90 days or above cannot be considered as a separate International transaction, do not call for and any Upward Adjustment. We accordingly direct the AO to delete the additions for Upward Adjustment made u/s 92CA(3)
Issues Involved:
1. Addition of ?80,000 under Section 68 of the Income Tax Act. 2. Upward Adjustment of ?17,77,393 for notional interest on extended credit period to Associate Enterprise (AE) under Section 92CA(3) of the Income Tax Act. Detailed Analysis: Issue 1: Addition of ?80,000 under Section 68 of the Income Tax Act The assessee challenged the addition of ?80,000 confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] as small trade deposits taken from small dealers. The assessee submitted details of these deposits, including names, addresses, and cheque details. The Departmental Representative supported the findings of the lower authorities. Tribunal's Observation: The Tribunal noted that the total loan amount of ?80,000 consisted of deposits of ?10,000 each from 5 parties and ?5,000 each from 6 parties, all received through cheques and part of trade deposits. Considering the assessee's turnover of ?225.9 crores and profit before tax of ?57.87 crores, the Tribunal found no reason to doubt the genuineness of these small trade deposits. Consequently, the Tribunal directed the Assessing Officer to delete the addition of ?80,000 under Section 68. Conclusion: The addition of ?80,000 under Section 68 was deleted by the Tribunal, allowing the assessee's appeal on this ground. Issue 2: Upward Adjustment of ?17,77,393 for Notional Interest on Extended Credit Period to AE The assessee contested the upward adjustment made by the Transfer Pricing Officer (TPO) for notional interest on the extended credit period provided to AE, IMPCO (Mexico). The TPO had computed the Arm's Length Price (ALP) credit period at 90 days instead of the 180 days allowed to the AE, leading to an upward adjustment of ?17,77,393. Assessee's Argument: The assessee argued that the sale price to AE was higher compared to non-AE customers, and this higher price factored in the extended credit period. The assessee cited the Hon'ble Mumbai High Court's decision in Indo American Jewellery Ltd., which held that interest income is associated only with the lending or borrowing of money and not with the sale of goods. The assessee also referred to the decision of the Ahmedabad Tribunal in Sophos Technologies Pvt. Ltd. vs. DCIT, which supported the view that extended credit periods adjusted by higher sale prices should not be considered separate international transactions. Departmental Representative's Argument: The Departmental Representative argued that providing more credit to AE compared to non-AE justified the calculation of ALP and relied on the decision of the ITAT Chennai Bench in Professional Access Software Development (P.) Ltd. vs. DCIT. Tribunal's Observation: The Tribunal observed that the higher sale price charged to AE accounted for the extended credit period. It also noted that similar issues had been decided in favor of the assessee in previous cases, including Sophos Technologies Pvt. Ltd. vs. DCIT, where it was held that extended credit periods adjusted by higher sale prices should not be considered separate international transactions. The Tribunal found that the extended credit period provided to AE was adjusted by the higher sale price and, therefore, did not warrant any upward adjustment. Conclusion: The Tribunal directed the Assessing Officer to delete the upward adjustment of ?17,77,393, allowing the assessee's appeal on this ground. General Grounds: The Tribunal noted that the general grounds raised by the assessee did not require specific adjudication. Final Order: The appeal filed by the assessee was allowed, with the Tribunal directing the deletion of both the addition under Section 68 and the upward adjustment under Section 92CA(3). Order pronounced in the Court on 20.09.2019.
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