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2016 (11) TMI 962 - ITAT MUMBAI

2016 (11) TMI 962 - ITAT MUMBAI - TMI - Addition of notional interest on the outstanding debtor balances with associated enterprises - Held that:- At the time of hearing, it is pointed out that if the notional interest calculated @ LIBOR + 200 basis points is reduced from the margin earned by the assessee, the entity level margin will reduce from 21.29% to 21.17% and if the notional interest calculated @ 6.19%, as taken by the Assessing Officer, is reduced from the margin of assessee, the entity .....

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fore, following the precedent, in the instant year also, it has to be held that the addition of ₹ 12,83,550/- made on account of notional interest chargeable on the outstanding debtor (i.e. associated enterprises) balances is not tenable and is directed to be deleted. - Decided in favour of assessee - ITA No. 7622/MUM/2014 - Dated:- 11-11-2016 - Shri G. S. Pannu, Accountant Member And Shri Ram Lal Negi, Judicial Member Assessee by : Shri Ronak G. Doshi & Shri Mathan Shah Revenue by : S .....

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red in confirming the action of Income-tax officer - 9(1)(1) the AO"+ by treating the outstanding debtors balance as at the year-end as an international transaction u/s 92B and thereby computed arm s length price u/s 92C(3) by making addition of notional interest. 2. The ld. CIT(A) failed to appreciate and ought to have held that the continuing debit balance with the Associate Enterprises ( AE ) does not constitute an international transaction as defined u/s 92B of the Act. 3. Without preju .....

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e Appellant, the said ratio is much higher than the ratio of Operating Profit to Operating Expenses of the comparable company and hence, no further addition is called for. 5. The Appellant humbly prays that the order of the ld. CIT(A) be set aside and the adjustment on account of arm s length adjustment be deleted. 3. As the Grounds of appeal reveal, the solitary grievance of the assessee is with respect to an addition of ₹ 12,83,550/- made by the Assessing Officer on account of notional i .....

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.2016 respectively. In particular, reference has been made to the decision of Tribunal for Assessment Year 2009-10 dated 31.10.2016 (supra) wherein the addition has been deleted based on an alternate plea of the assessee that even if the overdue receivables from the associated enterprises constitute an international transaction within the meaning of Sec. 92B of the Act, if the margin of the assessee is calculated after reducing the notional interest, the resultant margin still compares favourabl .....

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rably with the average margin of the comparables selected. In this context, the plea of assessee is that without admitting that non-charging of interest on continuing debit balances of associated enterprises is an international transaction , the arm s length interest on such debit balances be adjusted/reduced from the assessee s margin of 9.19% and the resultant margin would also be favourable in comparison to the average margin of the comparables selected. It has been explained that assessee ha .....

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duce from 9.19% to 7.61% and in the latter case, the entity level margin would reduce from 9.19% to 7.25%. Thus, it is pointed out that in both the situations, the margin of assessee-company is much higher than the comparable concerns, i.e., 3.53% and, therefore, the transaction can be said to be at arm s length and no separate adjustment is required to be made on this count. We find that such a plea of assessee was very much before the Assessing Officer also, as is evident from a copy of commun .....

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ute an international transaction , after reducing the adjustment on account of such notional interest out of its margin, the resultant margin of assessee is still more than that of the comparables thereby revealing that no further adjustment is required. 9. The ld. DR has not assailed the factual matrix asserted by the assessee with respect to the alternate plea though he has reiterated that the instant transaction is to be construed as an international transaction within the meaning of Sec. 92B .....

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average margin of the comparables selected thereby showing that no further adjustment is required to be made to the stated transactions. It is also quite clear that allowing of extended credit period to the associated enterprises is otherwise closely linked to the determination of sale price, which in-turn is the basis to arrive at the margins of the assessee. Thus, on the aforesaid limited aspect, we hold that the addition of ₹ 15,82,891/- on account of notional interest chargeable on the .....

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