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TMI Blog2023 (1) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... issue any written show cause notice as required in terms of proviso to section 92C(3) of the Act for his proposal to make transfer pricing adjustment in respect of notional interest on export receivables by the appellant from its Associated Enterprises (AEs). 2. The Ld. CIT(A) grossly erred, in facts and in law, in upholding the transfer pricing adjustment of Rs. 24,27,405/- u/s. 92 of the Act made by the Ld. TPO/AO towards notional interest on delay in export receivables by the appellant from its AES. 2:1 The Ld. CIT (A) grossly erred, in facts and in law: 2.1.1 in holding delayed outstanding receivables as an international transaction within the meaning of international transaction as per section 92B of the Act for AY 2010-11. The Ld. CIT(A) failed to appreciate that amendment in s. 92B of the Act by Finance Act, 2012 whereby an explanation has been added to s. 92B, shall be considered prospective in operation and cannot have retrospective effect. 2.1.2 in not holding that receivables arising out of sale of cut and polished diamonds in the ordinary course of appellant's business are not in the nature of capital financing and hence not covered in clause (c) of explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstrate that there has been under charging of real income. 2.1.11 in not considering that ALP interest rate on receivables shall be 3.51% p.a. being average of interest rates paid by the appellant on USS working capital loan for debtor financing, as against impugned ALP interest rate of 5.69% p.a. applied by the Ld. TPO 2.2 The Ld. CIT(A) grossly erred, in facts and in law, in not following binding judicial precedents and this action of the Ld. CIT(A) is against the principle of judicial discipline and propriety. B. Other Grounds B. Other Grounds 1.1 The Learned Commissioner of Income Tax (Appeals) erred in confirming disallowance of proportionate interest expenditure of Rs. 5,79,000/- by applying proviso to section 36(1)() of the Income Tax Act, 1961. 1.2 He erred in holding that interest bearing funds were utilized for purchasing the office premises at Bharat Diamond Bourse (BDB) without appreciating that the appellant had utilized its own funds to acquire the property and the borrowings were used only for business purpose. 1.3 He erred in interpreting that purchase of fixed assets as per the cash flow statement were financed from borrowings without appreciating that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Assessing Officer further noted that assessee has given advance against capital expenditure of Rs.3,16,96,827/-, however, assessee did not capitalized any expenditure to the cost of capital asset. Assessee was issued show cause notice on 27th February, 2014, which was replied on 28th February, 2014. The argument of the assessee was that investment was made out of company's interest free fund and not from borrowed funds and therefore, no disallowance or addition to the cost of capital is required. The learned Assessing Officer referred to the proviso to Section 36(iii) of the Act and computed the interest cost of Rs.5,79,000/- on the advances. Disallowance under Section 14A of the Act of Rs.13,93,798/- was also made. Accordingly, the assessment order under Section 143(3) read with section 144C(3) of the Act was passed on 3rd April, 2014 determining the total income of the assessee at Rs.21,41,29,290/-. 06. The assessee preferred the appeal before the learned CIT (A). The learned CIT (A) on the issue of outstanding receivable holding that it is a separate international transaction. The learned CIT (A) held that the learned Assessing Officer is correct in charging interest on out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the non Associated Enterprises on the similar time period. He further stated that in certain cases the credit period allowed to the non Associated Enterprises is only 10 days where the credit period allowed to the Associated Enterprises is 180 days. Therefore, the internal CUP available on the face of the records clearly suggests that adjustment is proper. He submitted that assessee has failed to prove that evidence about the industry practices of non-charging interest. On the issue of interest disallowance, he supported the order of the learned Assessing Officer and learned CIT (A). 011. We have carefully considered the rival contentions and perused the orders of the lower authorities. The fact suggests that the learned Assessing Officer/ Transfer Pricing Officer has considered the export receivable from its associated enterprises as international transaction separate from export. We do not find fault with above approach of the learned Assessing Officer confirmed by the learned CIT (A). Moment export proceeds remain outstanding beyond agreed credit period; it becomes a transaction of loan or financing to the Associated Enterprises. This is different from the transaction of e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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