TMI Blog2021 (2) TMI 1016X X X X Extracts X X X X X X X X Extracts X X X X ..... e of State Bank of India i.e 10.81% - We find is rendered as infructuous, for the reason, that the transfer pricing adjustment as regards the delayed realization of sale proceeds by the assessee from its AE had been vacated by us while disposing off its additional ground of appeal. Addition/disallowance under Sec. 2(24)(x) r.w.s 36(1)(va) - delayed the payments made in respect of the employees contributions to PF and ESIC by failing to deposit the same within the due dates (including the grace period) - HELD THAT:- On a perusal of the judgment of the Hon ble High Court of Bombay in the case of CIT (Central), Pune Vs. Ghatge Patil Transport Limited. [ 2014 (10) TMI 402 - BOMBAY HIGH COURT ] both the employers and the employees contributions to the various employees welfare funds are covered under Sec. 43B of the Act. In our considered view, as the employees contribution towards PF and Employees State Insurance therein aggregating to ₹ 8,65,227/- was deposited by the assessee prior to the due date of filing of its return of income hence, the same was not liable to be disallowed under Sec. 2(24)(x) r.w.s 36(1)(va) of the Act. Our aforesaid view is further supported by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (for short Act ), dated 17.01.2017. The assessee has assailed the impugned order on the following grounds of appeal before us : 1. On the facts and circumstances of the case and in law, the Ld. Assessing Officer (AO) and the Hon. Members of Dispute Resolution Panel (DRP) respectively, erred in passing the impugned assessment order U/s. 143(3) r.w.s. 92CA and 144C(13) of the Income Tax Act, 1961 (the Act), which is illegal and bad in law. 2. On the facts and circumstances of the case and in law, the Ld. AO and DRP respectively, ought to have held that- 2.1 Since the appellant enjoys the deduction U/s. 10A of the Act and shifting of profits is not possible, transfer pricing adjustment of ₹ 1,07,01,654/- on account of notional interest for delay in realization of debts from AEs is not required to be made by relying on the decision of the Hon. Income Tax Appellate Tribunal, Mumbai Bench E ITA No. 7513/M/2010 in case of Tata Consultancy Services Ltd. 2.2 Without prejudice to the above and in the alternate, if at all adjustment on account of notional interest for delay in realization of debts from AEs is required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales made to AEs of ₹ 1,07,01,654/- is not warranted and accordingly same should be deleted in its entirety. 2. Briefly stated, the assessee company which is engaged in the business of manufacturing of studded gold and silver jewellery had e-filed its return of income for A.Y 2012-13 on 21.11.2012, declaring its total income at ₹ 1,48,990/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. 3. Observing that the assessee had during the year in question entered into international transactions with its AE s for an amount exceeding ₹ 15 crores, the A.O made a reference under Sec. 92CA(1) of the Act to the Transfer Pricing Officer (for short TPO ) for determining the Arm s Length Price (for short ALP ) of the said transactions. TPO vide his order passed under Sec. 92CA(3), dated 29.01.2016 made an upward transfer pricing adjustment of ₹ 1,07,01,654/-. 4. After receiving the order passed by the TPO under Sec. 92CA(3), dated 29.01.2016, the A.O passed a draft assessment order under Sec. 143(3) r.w.s 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und of appeal. 10. We have heard the authorized representatives for both the parties on the issue as to whether or not the additional ground of appeal raised by the assessee merits admission. As is discernible from the aforesaid additional ground of appeal, the assessee by raising the same has sought adjudication of an issue which is based on the facts already available on record and would not require reference to any new facts. Accordingly, we are of the considered view that in all fairness the additional ground of appeal raised by the assessee merits to be admitted. 11. Adverting to the facts pertaining to the aforesaid additional ground of appeal, it was averred by the ld. A.R that in the normal course of its business certain delay was involved in realisation of the export sale proceeds by the assessee from both its AEs and non-AEs. It was submitted by the ld. A.R that the TPO in the course of the transfer pricing proceedings had called upon the assessee to explain as to why an adjustment for the interest foregone by it on the delayed realisation of the export sale proceeds from its AEs may not be made in its hands. In reply, it was submitted by the assessee vide its lette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made by imputing any interest w.r.t the delay involved in realisation of the sale proceeds from the AEs. It was submitted by the ld. A.R that as the weighted average delay in realisation in debts from the AEs of 145 days was substantially lower than that involved in respect of non- AEs of 425 days thus no adjustment w.r.t the delayed realisation of the export sale proceeds was called for in the hands of the assessee. In order to buttress his aforesaid claim the ld. A.R had drawn support from the order passed by the Tribunal in the case of its sister concern in Dania Oro jewellery Pvt. Ltd. Vs. DCIT-9(3)(1), ITA No. 665/Mum/2016, dated 24.07.2020 (copy placed on record). Taking us through the aforesaid order, it was submitted by the ld. A.R that the Tribunal by relying on the judgment of the Hon ble High Court of Bombay in the case of CIT-9 Vs. Indo American Jewellery Ltd., dated 08.01.2013, had observed, that the average delay in realisation of the sale proceeds by the assessee from its AE was 132 days as in comparison to the average delay of 130 days in the case of non-AEs, and the assessee by adopting a uniform policy had not charged any interest either from the AEs or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n held that a decision of a High Court would have binding force in the State in which it has jurisdiction. 6.2 Even in the case of the assessee for the assessment year 2008-09 (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 case like this the proper method is to take a simple average. If we take a simple average then there has been a delay of 132 days in the case of AE and 130 days in the case of Non-AEs in realization of the export proceeds. Thus there is uniformity in the act of the assessee in not charging interest from both AE and Non-AE debtors for delayed realization of export proceeds. 7. Respectfully following the judgment of Hon'ble Bombay High Court in the case of Indo American Jewellery Ltd. the appeal filed by the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assailed the transfer pricing adjustment of ₹ 1,07,01,654/- on the ground that for computing the impugned adjustment LIBOR+ 200 basis points (2.583%) should have been applied instead of the base rate of State Bank of India i.e 10.81% the same we find is rendered as infructuous, for the reason, that the transfer pricing adjustment as regards the delayed realization of sale proceeds by the assessee from its AE had been vacated by us while disposing off its additional ground of appeal No. 2.1. Accordingly, the Ground of appeal No. 2.2 is dismissed as having been rendered as merely academic in nature. 14. We shall now advert to the grievance of the assessee that the A.O had erred in making an addition/disallowance under Sec. 2(24)(x) r.w.s 36(1)(va) of ₹ 8,65,227/-. As is discernible from the records, the A.O, observing that the assessee had delayed the payments made in respect of the employees contributions to PF of ₹ 6,87,565/- and ESIC of ₹ 1,77,662/- by failing to deposit the same within the due dates (including the grace period), had therein disallowed the same under Sec. 36(1)(va) of the Act and treated the same as the deemed income of the assessee. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 8,65,227/- made by the A.O under Sec. 2(24)(x) r.w.s 36(1)(va) of the Act. The Ground of appeal No. 2.4 is allowed in terms of our aforesaid observations. 18. We shall now deal with the grievance of the assessee that the A.O/DRP had erred in making/sustaining the disallowance under Sec. 36(1)(iii) of the interest expenditure of ₹ 2,39,126/- attributable to the interest free advances that were given by the assessee company to its directors. As is discernible from the orders of the lower authorities the assessee had advanced interest free loans to its two directors, as under: Sr. No. Particulars Amount 1. Shri Sanjay Ghosh ₹ 34,17,064/- (from 01.04.2011 to 31.03.2012) 2. Shri Pramod Goenka ₹ 3,48,299/- (from 01.04.2011 to 30.04.2011) On a perusal of the records, it was observed by the A.O that while for the loan to Shri Pramod Goenka was given during the financial year 2009-10, the loan to Shri Sanjay Ghosh was advanced way back in the financial year 2005-06. On being qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance to the said extent would be called for u/s 36(1)(iii) of the Act. Question of law that was inter alia raised before the Hon ble Apex Court for its kind consideration read as under : 1. Whether the High Court is correct in holding that interest amount being interest referable to funds given to subsidiaries is allowable as deduction under Section 36(1)(iii) of the Income Tax Act, 1961 (for short the Act ) when the interest would not have been payable to banks, if funds were not provided to subsidiaries Answering the aforesaid question of law, the Hon ble Apex Court while approving the view taken by the Hon ble High Court of Bombay had observed, as under: 7. Insofar as the first question is concerned, the issue raises a pure question of fact. The High Court has noted the finding of the Tribunal that the interest free funds available to the assessee were sufficient to meet its investment. Hence, it could be presumed that the investments were made from the interest free funds available with the assessee. The Tribunal has also followed its own order for Assessment Year 2002-03. 8. In view of the above findings, we find no reason to interfere with the judgment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement for deduction under Sec. 10A of the Act. On objection filed before the DRP, the panel being of the view that the interest income from deposits made with bank and the electricity department could at best be regarded as attributable to and not derived from its undertaking, therein concurred with the A.O that the aforesaid interest income were liable to be excluded from computing the assessee s deduction under Sec. 10A of the Act. After receiving the order passed by the DRP the A.O vide his order passed under Sec. 143(3) r.w.s 144C(13), dated 17.01.2017 worked out the assessee s claim for deduction under Sec. 10A of the Act i.e after inter alia excluding the aforesaid interest income. 21. We have heard the authorized representatives for both the parties in context of the aforesaid issue and have perused the orders of the lower authorities as well as the material available on record. It is the claim of the ld. A.R that the aforesaid issue was squarely covered by the order passed by the Tribunal in its own case for A.Y. 2011-12, in Lily Jewellery Pvt. Ltd. Vs. DCIT-10(2)(1), Mumbai, dated 19.03.2019, ITA No. 1533/Mum/2018 (copy placed on record). It was submitted by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Oro Jewellery Pvt. Ltd. (supra). The facts noted by the CIT(A) in para 4.2 of the impugned order bring out the similarity of fact-situation vis-a-vis Assessment Year 2009-10 and, therefore, following the precedent by way of Tribunal order for Assessment Year 2009-10 dated 13.04.2018 (supra), the claim of assessee for inclusion of interest income of ₹ 2,32,939/- for the purposes of Sec. 10A of the Act is accepted. Thus, in view of the decision of our coordinate Bench in its order dated 13.04.2018 (supra), we set-aside the impugned order of CIT(A) and the Assessing Officer is directed to compute deduction under Section 10A of the Act by considering the aforesaid interest income. Accordingly, concurring with the aforesaid view taken by the Tribunal, we respectfully follow the same and therein direct the A.O to consider interest income of ₹ 12,715/- as a part of the eligible profits of the assessee s business for computing its deduction under Sec. 10A of the Act. 22. We shall now deal with the grievance of the assessee that the A.O/DRP had erred in not considering its claim that the unrealised export turnover of ₹ 2,00,75,675/- as and when realised should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction under Sec. 10A, however, he had erred in not stating in his draft assessment order that the said amount would be considered as export turnover as and when the same was received in India. However, the DRP being of the view that no such statement could be demanded by the assessee from the A.O as the latter was only required to see as to whether the amount in question could be considered for deduction in the year before him thus, not finding favour with the aforesaid objection of the assessee dismissed the same. 24. After receiving the order passed by the DRP under Sec. 144C(5) of the Act, the A.O vide his order passed under Sec. 143(3) r.w.s 144C(13) dated 17.01.2017 worked out the assessee s claim for deduction under Sec. 10A after excluding the unrealised export sale proceeds of ₹ 2,00,675/-. 25. Before us, the ld. A.R submitted that the aforesaid issue was squarely covered by the order passed by the Tribunal in the assessee s own case for A.Y. 2010-11 in ITA No. 5756/Mum/2014, dated 13.04.2018 (copy placed on record). Taking us through the aforesaid order of the Tribunal, it was submitted by the ld. A.R that the Tribunal by relying on its earlier orders passed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to consider any sum realised out of the unrealised export sales of ₹ 5,18,97,639/- as part of the export turnover as and when the same is received as per the extant guidelines of Reserve Bank of India for the purpose of calculating deduction u/s 10A of the Act. Thus, on this aspect, assessee succeeds for statistical purpose. Finding ourselves to be in agreement with the aforesaid view taken by the tribunal in the assessee s own case for A.Y 2010-11 in ITA No. 5756/Mum /2014, dated 13.04.2018, we respectfully follow the same. Accordingly, we herein set aside the aforesaid matter to the file of the A.O, with a direction to consider any sum realised out of the unrealised export sales of ₹ 2,00,75,675/- as part of the assessee s export turnover for the purpose of computing its deduction under Sec.10A of the Act, as and when the same is received as per the extant guidelines of the Reserve Bank of India. The Ground of appeal No. 2.7 is allowed in terms of our aforesaid observations. 27. The Grounds of appeal Nos.1, 3, 4 and 5 being general in nature are dismissed as not pressed. 28. The appeal of the assessee is allowed in terms of our aforesaid observations. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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