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TMI Blog2019 (9) TMI 949X X X X Extracts X X X X X X X X Extracts X X X X ..... ces u/s 143(3) & 142(1) of the Act. Since the assessee entered into the international transactions, the case was referred to the Transfer Pricing Officer (TPO) on 09.12.2014 for determination of Arm's Length Price (ALP) in relation to the international transactions. The Ld. TPO vide its order dated 31.12.2005 made an Upward Adjustment of Rs. 17,77,393/- and the same was added to the income of the assessee as per the provisions of section 92CA of the Act. Apart from this addition the AO examined the records and after considering the submissions made by the assessee made disallowance u/s 14A of the Act at Rs. 4,23,953/-, addition u/s 68 of the Act at Rs. 5,60,000/-, addition u/s 145A of the Act for untilized balance of tax at Rs. 21,05,125/-. Income assessed at Rs. 53,37,84,610/- and Book Profit u/s 115JB of the Act assessed at Rs. 53,77,58,612/-. 3. Aggrieved assesseepreferred appeal before Ld. CIT(A) but partly succeeded. Now the assessee in appeal before the Tribunal raising following grounds of appeal.:- "The part of impugned order is contrary to the evidence and material on record, contrary to the principles of law and binding judgments of the Court, contrary to the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) At para 7 on page 8 of TPO order (paper book page 86) it was stated that the appellant company has factored it while quoting sale price to AE IMPCO. (d) At para 9 on page 9 of TPO order (paper book page 87), it was cited by appellant that the Hon'ble Mumbai High Court in the case of Indo American Jewellery Ltd (2014) in taxmann 310 upheld, the findings of tribunal holding that interest income associated only with the lending or borrowing of money and not the case of sale. It is further respectfully submitted that when the revenue is recognized only on the basis of mercantile method of accounting then the notional interest for extended credit period is not justifiable and to consider as income. Please note that it is not a loan or borrowing. The receivable happened is only resultant of the main international export sale and there is a complete uniformity in the act of the Symphony in not charging interest from the AE. Therefore, the outstanding amount from the AE on account of continuing debit balance for the goods supplied is a normal course of business and is not an international transaction. (ii) At page 3, last para (paper book page 107) observation of learned CIT(A): ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustomer, the assessee company had deprived itself of the working capital and rather has funded the working capital requirement of such AE customer. Accordingly, the excess credit period to the AE was not at Arm's length." (vi) The appellant respectfully submits that the facts of the case is squarely covered by the facts of the decision of Hon'ble - D Bench, vide ITA No.1565/Ahd/2017 dated 16.11.2018 in the case of Sophos Technologies Private Limited vs. DCIT Circle 4{1)(1), Ahmedabad. Facts:- (1) Page 2 - para 3 of above citation. (Similar to learned TPO). (2) Page 2 - para 4 of said citation. (Similar to learned TPO). (3) Page 6 - para 7 & 8 of said citation. (Similar to learned TPO). The appellant shall be grateful if the above synopsis with written submissions submitted on 06.03.2019 is considered while disposing of the appeal for the year under consideration." 5. Per contra, the Ld. Departmental Representative with regard to the ground no.1 relating to addition of Rs. 80,000/- u/s 68 of the Act supported the finding of the both the lower authorities. As regards ground no. 2 relating to Upward Adjustment of Rs. 17,73,393/-, he submitted that the providing mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sale price charged to the non-AE. It is ageneral business practice that if profit margin is kept higher in the sale price credit period is also higher and vice versa if the profit margin is kept lower the credit period is less.Therefore, we find force in the contention of the learned counsel for the assessee that the extended credit period provided to the AE has been adjusted with the higher sale price charged on the product sold to the AE. As regards to issue that whether the action of the AO/TPO in computing the notional interest on extended credit period given to AE and considering it as a separate International transactions, coordinate bench Ahmedabad in the case of Sophos Technologies Pvt. Ltd. Vs. DCIT in ITA. No.1565/Ahd/2017as decided similar issue in favour of the assesseeobserving as follows.:- "5. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 6. As learned Counsel rightly points out, this issue is now covered, in favour of the assessee, by a decision of Ahmedabad Bench of this Tribunal in the case of Micro Inks Limited Vs. ACIT, [2016] 157 ITD 132 (Ahmedabad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve, he did not have much to say except to place his bland but dutiful reliance on the orders of the authorities below. However, for the reasons set out above and in the absence of any comparative price and credit period figures on comparable product to support the case of the revenue, we uphold the grievance of the assessee and direct the Assessing Officer to delete this ALP adjustment. The assessee gets the relief accordingly." 6. Learned counsel for the assessee submits that the issue being squarely covered, in favour of the assessee and on admittedly similar set of facts, there is no occasion to reconsider the matter. We are urged to follow the said decision and delete the impugned adjustment. On the other hand, while learned Departmental Representative does not dispute that this issue is squarely covered by the aforesaid decision, he submits that the aforesaid decision is "severely flawed" as no matter what is the goods sold, "a credit period is a credit period". It is also submitted that "the credit period for sale of raw material to an independent manufacturer would be lower as the supplier does not have to factor the lead time for the sale of finished goods by the manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... example given below would make it clear: Particulars Case 1 Case 2 Sales 1000 1,000 Purchase Price 600 500 Gross Margin 400 (40%) 500 Marketing Sale promotion 50 150 Overhead expense 300 300 Net profit 50 (5%) 50 (5%) The above illustrations draw a distinction between two distributors having different marketing functions. In case 2, a distributor having significant marketing functions incurs substantial expenditure on AMP, three times more than in case 1, but the purchase price being lower, the Indian AE gets adequately compensated and, therefore, no transfer pricing adjustment is required. In case we treat the AMP expenses in case 2 as Rs. 501-, i.e. identical as case 1 and AMP of Rs. 100 as a separate transaction, the position in case 2 would be: Particulars Case 2 Sales 1,000 Purchase Price 500 Gross Margin 500 50% Overhead expenses 300 Marketing expenses 50 Net profit 150 (15%) It is obvious that this would not be the correct way and method to compute the arm's length price. The purchase price adjustments/set off would be mandated to arrive at the arm's length price, if the AMP expenses are segregated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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