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M/s. Dania Oro Jewellery Pvt. Ltd. Versus The Income Tax Officer – 9 (3) (1) , Mumbai

2018 (1) TMI 240 - ITAT MUMBAI

Addition on account of notional interest due to delayed recovery of trade debts from AE - Held that:- First ground of appeal in favour of the assessee , as there is ‘uniformity in the act of the assessee in not charging interest from both AE and Non-AE debtors for delayed realisation of export proceeds. - Calculation u/s. 10AA - Held that:- We find that interest on electricity deposit(Rs. 18, 568/-)was on account of security deposited placed for availing electricity connection for its manuf .....

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it is eligible for the purpose of calculation u/s. 10AA of the Act. Considering the peculiar facts of the case under appeal, we are deciding ground in favour of the assessee. - I.T.A./7635/Mum/2014 - Dated:- 3-1-2018 - Sh. Rajendra,Accountant Member And Sh. Ravish Sood, Judicial Member For The Revenue : Shri V. Jenardhan, DR For The Assessee : Shri Arati Vissanji Order u/s. 254(1)of the Income- tax Act, 1961(Act) PER RAJENDRA, AM Challenging the order of the assessing officer (AO), dated 26/11/2 .....

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on delayed payment amounting to ₹ 8. 25 lakhs. During the assessment proceedings, the AO found that the assessee had entered into International Transactions (IT. s)with its associated enterprises (AE). Therefore, he made reference to the transfer pricing officer (TPO) for ascertaining the arms length price (ALP) of the IT. s. 2.1. During the Transfer Pricing (TP) proceedings the TPO found that the assessee has carried out certain IT. s with its AE. s. He TPO observed that the margin earned .....

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delay in case of AE. s was 290 days (weighted average delay-348 days), that the average delay in case of non-AE. s 340 days (weighted average delay-477 days). He found that the assessee has not charged interest for delayed payment from the AE. s as well as the non-AE. s. It was claimed befor the TPO that no adjustment was required to be made for interest on delayed debt from the AE. s. It was also argued that in case adjustment was made for interest on account of delay in realisation of debt fr .....

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for an entity whose rating was classified as BBB by CRISIL Ltd, that the DRP had directed to compute the interest @7%, that for the A. Y. 2009-10 DRP has directed to delete the adjustment made under the head delay in realisation of debts. The TPO observed that the average delay from non-AE for the year was more(145 days) then the earlier years delay (115days), that the facts of the case were different from the facts of the earlier year. So, he directed the assessee to work out the average cost .....

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as suggested for an upward adjustment. The AO passed the draft order accordingly. 2.3. Aggrieved by the order of the TPO/AO the assessee preferred objection before the DRP and made elaborate submissions. After considering the available material, the DRP held that the assessee was allowing its AE to utilize interest free funds without corresponding compensation to itself, that a trade transaction could not be permitted to be utilized as a funding opportunity especially when no compensations was b .....

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ingly. 2.4. It was brought to our notice that identical question was dealt with by the Tribunal in assessee s own case for the AY. (ITA/802/Mum/2014/dtd. 29. 07. 2016). We find that following GOA. s were filed by AO before the Tribunal: Whether on the facts and in the circumstances of the case and in law, the Hon ble DRP was correct in deleting the addition of ₹ 33, 90, 931 on account of notional interest due to delayed recovery of trade debts from AE by accepting the assessee s contention .....

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rage delay in respect of non-AE would be 64. 54 days as against average credit period of 145 days advanced to the assessee (calculation of interest as per Annexure-2 is made part of this authorization) . Dismissing the appeal, filed by the AO, the Tribunal held as follow: 6. We have heard the rival contentions, perused the findings of the authorities below as well as material available on record. The ld. Counsel for the assessee has placed reliance on the judgment of the Hon ble Bombay High Cour .....

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er cent, Transfer Pricing Officer determined interest receivable at ₹ 87. 66 lakhs and added same to international transaction cost - Tribunal noted that there was complete uniformity in act of assessee in not charging interest from both Associated Enterprises and non-Associated Enterprises debtors for delay in realization of export proceeds - Tribunal thus deleted addition of notional interest on outstanding amount of export proceeds realized belatedly whether on facts, no substantial que .....

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8-09 (Dania Oro Jewellery Pvt. Ltd. vs. ITO) relied on by the ld. DR, we find that in some of the cases the terms of credit has been extended beyond 700 days and in some of the cases, it has gone beyond 1200 days whereas in the case of Non-AE, the maximum delay is of 203 days. In view of the above, the order of the Tribunal in the case of the assessee for the A. Y. 2008-09 is not applicable to the issue at hand for the A. Y. 2009-10. 6. 3 Let us now examine the facts in the present case. In a ca .....

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ed by the Revenue is dismissed. Considering the above, we decide first ground of appeal in favour of the assessee , as there is uniformity in the act of the assessee in not charging interest from both AE and Non-AE debtors for delayed realisation of export proceeds. 3. Recomputation of deduction u/s. 10AA of the Act is the subject matter of the next ground of appeal. During the assessment proceedings, the AO found that the assessee-company had declared total income of ₹ 4, 77, 240/-in the .....

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a/c for the year ended on 31. 03. 2010, operating income comprised mainly of exports amounting to ₹ 27. 82crores, that as per the Balance Sheet Sundry Debtors stood at ₹ 38. 60 crores. Assessee was showcaused to explain the reason for such difference and was directed to furnish partywise details, of sales and date wise realization of export sale proceeds in foreign-exchange till 31. 12. 2013 for verifica - tion of deduction u/s. 10AA. To this assessee, vide letter, dated 28. 01. 201 .....

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u/s. 10AA and the total income should be amended. Referring to the provisions of section , the AO held that the deduction u/s. 10AA was to be recomputed taking export turnover to the extent of export consideration received into India till the time of passing of draft order and not as per the calculation adopted by the assessee. The DRP confirmed the order of the AO. 3.1. Before us, the AR referred to the case of M/s. Niru Jewels P. Ltd. , (ITA/1468/Mum/2014 (AY. 2008-09), dated 27/4/16. He also .....

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ing and export of diamond studded jewellery. Its claim for deduction u/s. 10A was restricted by CIT(A) to the extent of receipt of foreign exchange uptil 30-9-2008. It was argued by ld. AR that RBI has already issued circular in respect of units situated in SEZ(Special Economic Zone), relaxing the realisation to the exports proceeds. Reliance was also placed on the decision of coordinate bench in the case of Tara Jewels Exports Pvt. Ltd. , ITA No. 662/Mum/2012, dated 29-1-2014, wherein it was he .....

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Competent Authority, u/s. 10A(3) of the Act had vide its Circular bearing A. P. -(DIR Series) Circular No:91 dated 1st April, 2003 relaxed the realization of export proceeds, which reads as under: In terms of para II(c) of AP (DIR Series) Circular No. 28 dated March 30, 2001, units situated in Special Economic Zones have been permitted to realise and repatriate to India the full value of goods or software within a period of twelve months from the date of export. It has now been decided to remove .....

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wels Exports Pvt. Ltd. in ITA No. 662/Mum/2012 for A. Y. 2003- 04 dated 29th January, 2014 held as under (page - 9): Once, therefore, the RBI has clarified that it has not stipulated any time period for the realization of the sale proceeds for the SEZ units, as the assessee. it can-only be considered as having allowed an indefinite time period for the same. Consequently, it cannot be said that the condition of section 10A(3) is' not satisfied. The objection of the Revenue is, in our view, no .....

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The Legislature has provided a definition of the expression export turnover in Explanation 2 to section 10A by which the expression is defined to mean the consideration in respect of export by the undertaking of articles, things or computer software received in, or brought into India by the assessee in convertible foreign exchange but so as not to include inter alia freight, telecommunication charges or insurance attributable to the delivery of the articles, things or software outside India. The .....

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poses of section 10A. However, the expression export turnover has been defined. The definition of export turnover excludes freight and insurance. Since export turnover has been defined by Parliament and there is a specific exclusion of freight and insurance, the expression export turnover cannot have a different meaning when it forms a constituent part of the total turnover for the purposes of the application of the formula. Undoubtedly, it was open to Parliament to make a provision to the contr .....

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excluded from export turnover for the purposes of the numerator would be brought in as part of the export turnover when it forms an element of the total turnover as a denominator in the formula. A construction of a statutory provision which would lead to an absurdity must be avoided. Respectfully following the above we restore the issue to the file of the AO for fresh adjudication, who would decide it after affording a reasonable opportunity of hearing to the assessee and after considering the a .....

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e purpose of deduction u/s. 10AA of the Act. In its reply, dated 29. 01. 2014, the assessee filed explanation in that regard. However, the AO was not satisfied with the explanation and added back the above mentioned items to the total income of the assessee, except the repairs charge(Rs. 7. 48 lakhs). 4.1. Aggrieved by the order of the AO, the assesses filed objections before the DRP and made detailed submissions. After considering the available material, he held that interest on electricity dep .....

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