2017 (1) TMI 117 - AT - Income Tax

Imputing of interest on amounts outstanding from the associated enterprises in terms of section 92(1) - not charging interest from both associated enterprises as well as non-associated enterprise debtors and that the delay in realization of export proceeds - Held that - It was a common point between the parties that there was uniformity in the act of the assessee in not charging interest for the belated recovery from its associated enterprises as well as non-associated enterprises, but in so far as the issue as to whether the delay in ultimate realization of export proceeds in both cases is same or not is also required to be verified, having regard to the judgment of the Hon ble High Court in the case of Indo-American Jewellery (2013 (1) TMI 804 - BOMBAY HIGH COURT). A perusal of the said details reveal that the Transfer Pricing Officer has culled out the delay in excess of 365 days in the cases of associated enterprises and for such delay he has imputed interest @ 10.75%. So however, in the case of non-associated enterprises also there is a delay in recovery beyond the period of 365 days. So however, the extent of such delay is not emerging from the discussion in the orders of the authorities below because the Transfer Pricing Officer has confined his working to the delay in the case of associated enterprises alone. The rival counsels agreed that for this purpose, the matter may be restored back to the file of the Transfer Pricing Officer/Assessing Officer. Deduction allowable under section 10AA - Held that - Income tax authorities erred in setting-off of losses amounting to ₹ 2,14,77,088/- of assessment year 2009-10 from the business income of the current year before allowing exemption under section 10AA of the Act. Accordingly, we set-aside the order of the CIT(A) and direct the Assessing Officer to recompute the deduction allowable under section 10AA of the Act, as above. See CIT VS Black And Veatch Consulting Pvt. Ltd. 2012 (4) TMI 450 - BOMBAY HIGH COURT Non granting credit for the Fringe Benefit Tax (FBT) paid on 15/6/2010 towards regular income tax - Held that - Necessary credit deserves to be allowed to the assessee in terms of the CBDT Circular dated 29/1/2010. On this aspect of the matter, the Ld. Departmental Representative had no objection and accordingly the matter is restored back to the file of Assessing Officer, who shall allow appropriate relief in accordance with law. Thus, Ground of appeal of the assessee succeeds for statistical purposes.

Summary

Issues Involved:
1. Addition towards upward adjustment of ?18,68,812 in respect of value of international transactions with associate enterprises.
2. Set off of brought forward losses of ?2,14,77,088 of AY 2009-10 before allowing exemption u/s 10AA.
3. Non-grant of credit of FBT of ?25,000 paid on 15.6.2009 towards regular income tax.
4. Addition made on account of bogus purchase of ?2,813.

Detailed Analysis:

1. Addition towards upward adjustment of ?18,68,812 in respect of value of international transactions with associate enterprises:
The assessee appealed against the addition of ?18,68,812 made by the Assessing Officer (AO) on account of transfer pricing adjustment. The assessee, engaged in manufacturing and exporting jewellery, had entered into international transactions with associated enterprises. The Transfer Pricing Officer (TPO) noted that the assessee provided a credit period beyond 365 days to associated enterprises and imputed interest at 10.75% on delayed export receivables, resulting in the addition. The assessee argued that it did not charge interest on delayed payments from both associated and non-associated enterprises, citing the Hon'ble Bombay High Court's judgment in CIT v. Indo American Jewellery Ltd. The Tribunal found merit in the assessee's argument and noted the need to compare the delay in realization of export proceeds from associated and non-associated enterprises. The matter was remanded to the TPO/AO for re-examination, keeping the principles from the Indo American Jewellery case in mind. Other arguments raised by the assessee were kept open for consideration during the remand proceedings.

2. Set off of brought forward losses of ?2,14,77,088 of AY 2009-10 before allowing exemption u/s 10AA:
The assessee contested the AO's decision to set off brought forward losses before allowing the deduction under section 10AA. The AO had set off the entire brought forward loss of ?2,14,77,088 before allowing the deduction, which reduced the exemption claim. The assessee argued that the exemption under section 10AA, falling under Chapter III, should take precedence over the set-off provisions under Chapter VI. The Tribunal referred to the Hon'ble Bombay High Court's judgment in CIT v. Black And Veatch Consulting Pvt. Ltd., which held that deductions under section 10A should be allowed before setting off brought forward losses. The Tribunal found the AO's approach incorrect and directed the AO to recompute the deduction under section 10AA without setting off the brought forward losses first.

3. Non-grant of credit of FBT of ?25,000 paid on 15.6.2009 towards regular income tax:
The assessee claimed that the AO did not grant credit for the Fringe Benefit Tax (FBT) of ?25,000 paid, which should be adjusted against regular income tax as per CBDT Circular No. 2120 dated 29/1/2010. The Tribunal restored the matter to the AO to allow the appropriate relief in accordance with the law, as the Departmental Representative had no objection.

4. Addition made on account of bogus purchase of ?2,813:
The assessee's grievance regarding the addition of ?2,813 for bogus purchases was not addressed by the Tribunal and was accordingly dismissed.

Conclusion:
The appeal of the assessee was partly allowed. The Tribunal remanded the issues related to transfer pricing adjustment and FBT credit to the AO for reconsideration and directed the AO to recompute the deduction under section 10AA without setting off brought forward losses first. The addition for bogus purchase was dismissed.