TMI Blog2023 (7) TMI 846X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the interest for receivable outstanding for more than 90 days, the TPO has taken the entire period of outstanding without allowing any credit period. We, therefore, see merit in the submission of the Ld.AR that there should be uniformity in the stand taken by the TPO and accordingly credit period of 90 days should be applied while arriving at the interest on delayed receives on outstanding for more than 90 days. Accordingly, we direct the TPO / AO to revise the interest working after taking into consideration the credit period of 90 days as has been allowed in the case of invoices outstanding for less than 90 days. Interest on interest outstanding/interest receivable - TPO noticed that the assessee has given loans to its AE and has been charging interest @5.5% - HELD THAT:- Assessee did not provide any details before the lower authorities to substantiate the said submissions. Further we notice that the assessee has also not shared any evidence or efforts made towards recovery of the interest amount. We, therefore, see merit in the argument of DR that the assessee has not properly substantiated the reasons for delay in interest receivables which has resulted in improving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /07/2022 for A.Y.2018-19 under section 143(3) read with section 143(3) read with section 144C(13) of the I.T. Act. 2. The assessee company was established in 1974 in Mumbai and is 100% subsidiary of Parle Products Pvt Ltd. The assessee manufactures wide range of biscuits, confectionary, snacks and bakery products. During the year under consideration, the assessee has entered into various international transactions as listed below:- Sr.No. Type of Transactions Name of the Associates Enterprises Amount 1 Rendering of technical services Antactic Biscuits Pvt Ltd 1,42,65,536/- 2 Interest on term loan Antactic Biscuits Pvt Ltd 27,47,425/- Equator Foods Ghana Ltd 1,80,13,714/- Arctic Biscuits Pvt Ld 3,47,50,000/- 3 Investment in equity shares Oceanic Holdings Pte Ltd 11,74,99,550/- 4 P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining to A.Y. 2018-19 Ground 3 (3.1 to 3.4) iv. Penalty proceedings under section 270A of the Act Ground no.1 (1.1. to 1.5) Interest on receivable 4. The TPO noticed from records that the assessee has accounts receivable as on 31/03/2018 and required the assessee to furnish aging analysis of the receivables. The TPO on perusal of all the details furnished noticed that the assessee has not charged interest on the receivables though the same has been outstanding for more than 90 days. The TPO treated the receivable as a separate international transaction and stated that interest needs to be charged on the same. The TPO calculated the interest @5.5% based on the interest charged by the assessee on its AE on the loan transactions. Thus, the TPO made a TP adjustment of Rs.5,32,605/- as per below working:- Description Date of invoice Currency Amount receivable Outstanding as on 31/.03.2018 (in Foreign Currency) Amount receivables Outstanding as on 31.03.2018 (in INR) No. of days outstanding for the FY 2017-18 Interest @5.5% (Amount in INR) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the levy of interest before the DRP by stating that (i) Benchmarking of outstanding receivable amounts to re-characterization of the same as a loan which is not correct (ii) Charging of notional interest on receivable is equal to hypothetical income and not real income. (iii) There are entity specific reason for delay in realization of account receivable. Further, the assessee submitted a revised working before the DRP as given below wherein the assessee pleaded that the credit period of 90 days has not been considered by the TPO and the same should be applied for receivables outstanding for more than 90 days. Date of invoice (A) Due Date post credit period of 90 days (as provided by the Learned TPO) Amount receivable Outstanding as on 31.03.2018 (in Foreign Currency) Amount receivables Outstanding as on 31.03.2018 (in INR) No. of days outstanding for FY 2017-18 considered by the Learned TPO [31 March 2018 -A] No. of days outstanding for FY 2017-18 post considering 90 days credit period [31 March 2018 -B] Actual interest @5.5% considering cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns made and take separate decisions accordingly on a stand-alone basis. Lastly, the assessee has pleaded that the interest receivable cannot be termed as an International transaction and therefore, no interest should be charged on the same. In fact, the contrary is true. There is no doubt that the assessee itself is charging interest on money advanced or money receivable. Interest is always charged with reference to a time period. So, logically speaking, if the interest is not being paid in time, further interest should be charged on the same In any case, the interest receivable also, finally speaking income receivable only and there is no particular reason why it should be differentiated from a trade receivable. The assessee has cited specific reasons party-wise for not receiving interest in time. The reasons given are general in nature and no cognizance can be taken of them at this level. The assessee could also have been wiser in pursuing its claims or informing the AEs about the TP normals and guinelines. 6. The Ld.AR with regard to the interest charged on receivables reiterated the submissions made before the lower authorities. Without prejudice, the Ld.AR submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f invoices outstanding for less than 90 days. Needless to say that the assessee be given an opportunity of being heard. It is ordered accordingly. Interest on interest outstanding/interest receivable 9. During the course of TP proceedings, the TPO noticed that the assessee has given loans to its AE and has been charging interest @5.5%. The TP further noticed that the outstanding interest receivables from AEs is as per details given below:- AEs Interest receivable - in INR Arctic Biscuits 34,54,098 Parlite Foods 75,60,565 Equator Foods 18,82,50,255 Antarctic Biscuits 1,27,14,832 10. The Assessing Officer treated the interest receivable as a separate international transaction and accordingly charged interest as given below - The working of interest as has been done by the TPO extracted below:- Arctic Biscuits Pvt. Ltd Description of transaction Date of invoice Currency Net amount ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount (in INR) No. of days outstanding for the FY 2017-18 Interest @5.5% Loan interest 31/03/2013 NPR 29,16,974 18,21,402 365 100177 Loan interest 31/03/2014 NPR 28,95,682 18,08,106 365 99446 Loan interest 31/03/2015 NPR 33,30,137 20,79,388 365 128442 Loan interest 31/03/2016 NPR 37,40,000 23,35,312 365 128442 Loan interest 31/03/2017 NPR 37,40,000 23,35,312 265 128442 Total (B) 5,70,873 EQUATOR FOODS GHANA LTD Description of transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been loss making over the years. Arctic Biscuits has operating loss of TAKA 27,058,369 during FY 2017-18 and TAKA 37,202,479 during FY 2016-17. The same can be seen from the snapshot of the financials of Arctic Biscuits for FY 2017-18: Further, the assessee also submits the snapshot of the Balance sheet of Arctic Biscuits for FY 2017-18, which shows that Arctic Biscuits had accumulated losses of TAKA 263,701,887 and TAKA 235,616,183 during FY 2017-18 and FY 2016-17 respectively. SHAREHOLDER S EQUITY AND LIABILITIES Shareholder s equity Share capital 190,000,000 150,000,000 Share money deposit 32,047,45 40,050,618 Share money deposit (263,701,887) (235,616,183) Total shareholder s equity (41,654,433) (5,565,565) In spite of the above financial position of Arctic Biscuits, PBPL has diligently charged interest from Arctic Biscuits on year on year basis. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... __ _______________________________________________________________________________________________ With reference to Application filed on 19.06.2014 towards obtaining approval for repayment of loan amount and interest on loan to Parle Biscuits Pvt. Ltd.. we were waiting for approval from NRD sine long time and we were waiting under impression thatit; is likely to be received with in one or two months, but now we ere informed by Mr. Vimal that our submitted file has been lost at NRB and we will have to initiate whole process again from beginning, I have seen asked about status of approval from our corporate office regularly and I have extended time line for obtaining approval according to feedteack received from your side. Now J do not understand how I would inform to our senior managementt that after wasting tor approval from more than five years, we will have to Start all the processes again from beginning, Kindly advise me, Prom: From: Poorcm S. Negi To: Glenn M. Fonseca / Finance / Mumbai / PARLE@PARLE Cc : antarcticnp@gmail.com,Hardevsinh H. Jadeja/Finance/Bhuj/PARLE@PARLE, Maria R. Iyer/Finance/Mumbai/PARLE@PARLE Date: Tuesday,July 16, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest receivable and, therefore, the AEs are benefitted by not making the payment of interest which needs to be compensated. The Ld.DR further submitted that in a similar circumstances, the third party would have definitely charged interest on the interest outstanding. The Ld.DR also submitted that the TPO has correctly benchmarked the transaction separately and has applied the same rate of interest as has been applied by the assessee while lending the loan to its AE. 15. We heard the parties and perused the material on record. It is noticed that the assessee is charging interest @5.5% as per the terms of agreement with its AE. It is also noticed that the interest has been provided as receivable in the books of account of the assessee, but the same has been outstanding for a long time, i.e. more than 14 years in certain cases. The assessee contending charging of interest on interest receivables on 3 grounds, namely, the said transaction is not a separate international transaction; the interest is a notional income and that there are entity specific reasons for the delay; and on perusal of entity specific reasons. We notice that the loss is incurred by the AEs has been quoted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee had given following directions:- 7.3 Discussions and Directions of DRP We have carefully considered the rival contentions on the above objection. The assessee has contended that this addition is actually a double addition. That, this amount is included in the amount of Rs 4,02,57,2457- which is shown in the ITR form at Sr no A(23). The amount of Rs 4.02.57.245/ includes this amount of Rs 3,26,32,2457- as well as a donation of Rs 76,25,000/-. That, the AO has added it without giving any opportunity to the assessee. The assessee has stated that the amount of Rs 3,26,32,2457- has already been added to the total income in the ITR form at Sr No A (23) of the Schedule BP- Computation of Income from Business or Profession. These being the facts of the matter, this objection of the assessee is being allowed, subject to the AO verifying the ROI and the annexures. 17. However, in the final assessment order, it is noticed that the Assessing Officer had retained the disallowance without any detailed discussion on the directions of the DRP. We, in this regard direct the Assessing Officer to verify the submissions of the assessee in this regard and allow the claim in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee submits that as the effect for the prior period income/expense is not credited/ debited to the profit and loss account of the year in which the same is realized and the same is routed through retained earnings, the same is reflected under statement of changes in equity of notes to financial statements of assessment years 2019-20 and 2020-21. 5) As per statement of changes in equity forming part of notes to financial statements of assessment year 2019-20, an adjustment for the net of prior period expense of Rs. 1,93,69,580 is made in the retained earnings. The net amount of prior period expense of Rs. 1,93,69,580 consists of income aggregating to INR 26,64,680 and expenses aggregating to INR 2,20,34,260 pertaining to earlier assessment years which were recognised in assessment year 2019-20. A copy of the extract of the financial statements as at 31 March 2019 is enclosed herewith at page 686in the paper book volume IV. 6) The assessee company submits that prior period income of INR 26,64,680 pertaining to assessment year 2018-19 has been offered to tax in assessment year 2019-20.Out of the total prior period expenses of INR 2,20,34,260, tax was deducted and paid in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution to ESIC 1,522 Contribution to Provident Fund 1,192 Excise expense 59,988 Legal and professional expense 5,32,531 Other general expense 17,500 Sales incentive 8,783 Travel expense 75,48,826 VAT/CST expense 1,68,779 Discount / refund on account of shortage and damage of goods supplied given at the time of settlement of sales invoice 49,68,363 1,33,10,398 Expenses booked in assement year 2020-21 Contractor wages 21,21,578 Water charges 42,000 Annual Maintenance charges 49,459 Travel and conveyance expense 34,798 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtage ; legal professional expenses, contractors wages, to electricity charges, building repairs and consultancy charges etc . As a concept, prior period expenses are allowable provide the assessee furnishes satisfactory reasons for not claiming it in the relevant year but in a subsequent year or years. Accordingly, the AO is directed to verify these claims and the reasons for their delayed claim and allow if found satisfactory. This objection is disposed off in these terms. 20. The Ld.AR submitted that the Assessing Officer did not consider the directions of the DRP and has retained the same income as in the draft assessment order. 21. We heard the parties and perused the material on record. We notice that the asessee has submitted additional evidences before the DRP and the DRP after perusing the details submitted, has given a clear direction to the AO to verify and allow the expenditure in accordance with law. However, the AO in the final assessment order did not consider the said directions of the DRP. We, therefore, remit the issue back to the AO with a direction to consider the evidences submitted and allow the claim of the assessee in accordance with law after giving ..... X X X X Extracts X X X X X X X X Extracts X X X X
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