9911796707
TMI Blog2014 (2) TMI 1229X X X X Extracts X X X X X X X X Extracts X X X X ..... ization period from the AE exceeds similar period in respect of non-AE transaction - Held that:- As the assessee did not charge any interest on non-AE transactions and in some cases the realization period of non-AE transactions was more than the similar realization period of AE transactions, hence no addition was called for.- Decided in favour of assessee Disallowance under section 14A - Held that:- It has been shown that assessee has its own sufficient funds which are sufficient to cover the investment from where the assessee has earned tax free income. Moreover, on the major portion of the interest the AO has accepted the submissions of the assessee in subsequent year, therefore, we are of the opinion that addition on interest component is not called for. We confirm the addition to the extent of 90,000/- and delete the addition of 10,34,917/- - Decided in favour of assessee partly X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal) and ITA No.7460/Mum/2011 ( Revenue's appeal) reference was made to the following observations: 7.1 The application of arm's length price is based on comparison of the conditions in controlled transaction with the conditions in transaction between independent enterprise i.e. uncontrolled transaction, so as to determine the market price or the margin on which the two related parties are carrying on their transaction. The determination of arm's length price has to be done as per the methodology prescribed u/s 92C read with Rule 10B. All these methods are either based on price or on profit which determine the transfer price by examining comparable matching transaction, comparable adjustable transaction and comparable profit transaction. The rule 1OB(1)(a) provides that Comparable Uncontrolled Price method i.e. CUP, is comparison of the prices of the property or services transferred in a control transaction to the price charged in the property or services transferred in a comparable uncontrolled transaction. The main criteria is that, the market price should be comparable to the same or similar nature of goods which has been charged under similar conditions. Thus, not only ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to transfer pricing adjustment of ₹ 1,99,356/- the appropriate method to be adopted was CUP in place of TNMM applied by the assessee. Therefore, ground No.1 is decided against the assessee and is dismissed. 6. Apropos Ground No.2, it was submitted that this issue also was considered by the Tribunal in the aforementioned order and after analyzing the facts of the case Tribunal vide para-8 of the aforementioned order has come to a conclusion that on account of various factors which inter-alia include an element of bad debt risk involved in the case of three parties, which is much less probable in the case of related parties, the assessee was entitled to get discount of approximately 11%. The relevant observations of the Tribunal from said order read as under: "8.Now coming to the adjustment of ₹ 51,32,512/-on which assessee is in appeal, which is on account of transactions with one of the third party given at serial no.4 of the table, assessee's case before the TPO as well as before the CIT(A) was that, the assessee's sales with its AE aggregated to ₹ 126.43 crores, whereas in case of the non AE it was only 70 lakhs, thus there was a huge difference of vol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is difference in the price as compared to the one where very small quantity of sale or purchase takes place. Such difference of volume, definitely has a bearing on the negotiation of the prices and, therefore, adjustment on this factor has to be made. This itself is a material difference. We, also agree with the contention of the assessee that marketing expenses in the case of the AE are comparatively less as there is quite probability of transaction being finalized. There is also an element of bad debt risk involved in the case of third party which is much less probable in the case of the related party. If all these differences, which in our opinion are quite "material differences" are taken into account and adjustment is made then difference of rate, which here in this case is approximately 11%, can be made. Thus, looking to these factors of material difference including huge difference in volume, adjustment of differential rate of 41.11 in terms of Dollar in the transaction of sale price between AE and third party can be made under the CUP, which is also permissible under Rule 10B. Accordingly, we hold that such a price difference in the aforesaid transaction has to be ign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly then there cannot be any addition with regard to transaction mentioned at Sl. No. 1 to 3. So far as it relates to addition with regard to 4th transaction Ld. AR submitted that the same will fall within the safe harbour of (+) 5% . 6.3. On the other hand Ld. DR relied upon the order passed by A.O and Ld. CIT(A). 6.4 We have heard both the parties and their contentions have carefully been considered. Respectfully following the aforementioned order of the Tribunal we hold that assessee is entitled to get 11% discount for the reasons given in the earlier order of the Tribunal. If the same is taken into consideration, according to the facts mentioned above, no addition on this issue will survive. The impugned addition is deleted. Therefore, we allow Ground No.2 of the assessee's appeal. 7. Apropos Ground No.3, this addition has been discussed by TPO in para - 6 of his order. The addition is made on the ground that the average realization period from the AE exceeds similar period in respect of non-AE transaction. According to TPO average period of realization from AE was 196 days against similar period for non-AEs of 126 days. The difference was calculated of a delay of 70 days a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and such delay in realization of payment should not be adversely viewed on the basis of average working of days. The average days of delay in payment as worked out by the TPO is also inappropriate as number of sale transactions with AE is far more than the non AE and will result in improper working of average days. On these facts of the case, we do not find any reason for making any kind of upward adjustment on account of differences in period for realization of payments in respect of sales made to AE as well as non AEs. Such a notional interest cannot be charged for the purpose of making adjustment in arm's length price. Thus the order of CIT(A) deleting the adjustment of Rs, 4,65,23,007/- on this score is upheld and the ground raised by the department stands dismissed. 7.3 It was submitted that facts and circumstances of the case are similar as the assessee did not charge any interest on non-AE transactions and in some cases the realization period of non-AE transactions was more than the similar realization period of AE transactions. He submitted that this fact has been taken note by the Tribunal and it was held that no addition was called for. 7.4 On the other hand, Ld. DR r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other table which is described at page 28 of the CIT(A)'s order , which reads as under: Particulars Amount Bank Interest paid on Working Capital 85,600,521 Bank Interest paid on Term Loans for Machinery / Car/Other Fixed Asset 18,190 Interest paid to loan parties 9,905,670 TOTAL 95,524,381 8.3 Referring to above table it was submitted by him that bank interest paid by the assessee amounting to ₹ 8,56,00,521/- pertains to bank interest paid on working capital which is major portion of a total interest paid amounting to ₹ 9.55 crores. He further submitted that in subsequent year while calculating the disallowance under Rule-8D this submission was made before AO for exclusion of bank interest paid on working capital and such plea of the assessee was accepted by the AO in respect of A.Y 2009-10. Reference in this regard was made to the assessment order dated 7/5/2013 in respect of assessment year 2009-10, copy of which is placed at pages 43 to 46 of the paper book and the disallowance was computed as under: "(i) Direct Expenditure : Nil (ii) Interest X Average Investment giving rise to tax free Income Average total Assets 8576969 X (18500000 + 18500000)/2 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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