IN THE ITAT MUMBAI BENCH ‘K’
Medusind Solutions India (P.) Ltd.
Versus
Assistant Commissioner of Income-tax
IT Appeal No. 6703 (Mum.) of 2010
[Assessment year 2006-07]
DECEMBER 5, 2012
ORDER
Dinesh Kumar Agarwal, Judicial Member
This appeal preferred by the assessee is directed against the order dtd. 18-8-2010 for the A.Y. 2006-07 passed by the A.O. u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 (the Act) after considering the directions dtd. 25-6-2010 of the Dispute Resolution Panel (DRP).
2. Brief facts of the case are that the assessee company is engaged in the business of I.T. enabled services. The return was filed declaring total income of Rs. 60,130/- after claiming exemption u/s 10A of the Act. However, the assessment after making certain dis allowances and addition was completed at an income of Rs. 2,20,958/-, vide order dtd. 18-8-2010 passed u/s 143(3) r.w.s. 144C of the Act.
3. Being aggrieved by the order passed by the A.O., the assessee is in appeal before us.
4. Ground No. 1 and 5 are general in nature and in the absence of any specific plea, the same are, therefore, rejected.
5. Ground Nos. 2 to 2.4 are against the sustenance of dis allowance u/s 14A of the Act.
6. At the time of hearing the ld. Counsel for the assessee submits that he does not want to press the above grounds which was not objected to by the ld. D.R.
7. That being so and in the absence of any supporting material placed on record by the ld. Counsel for the assessee, the grounds taken by the assessee are, therefore, rejected being not pressed.
8. Ground No. 3 and 3.1 read as under:-
“That on the facts and in the circumstances of the case and in law, the Learned Assessing Officer has erred in adding back a sum of Rs. 35,561/- being the notional interest computed for the purposes of arriving at the arm’s length pricing on account of a delay in realization of the dues from Medusing Solutions, Inc (an associated enterprise), pursuant to the order passed by the Transfer Pricing Officer, Jt. Commissioner of Income-tax, Transfer Pricing – 1(5) under the provisions of section 92CA(3) of the Act.”
9. Brief facts of the above issue are that the A.O. made reference u/s 92CA(1) of the Act to the Transfer Pricing Officer (TPO) for computation of Arms Length Price (ALP) in respect of international transactions for the purpose of arriving at the Arms Length Price on account of delay in realizing the dues from Medusind Solutions Inc. (an Associate Enterprise). The assessee was asked by the TPO as to why interest should not be considered for determining the ALP as adopted in the A.Y. 2005-06. In response, the assessee submitted that as per the understanding between the assessee and the AE, the A.E has to remit the amount to the assessee only after it recovers from its (AE’s) debtors. The assessee further submitted the details of average debtor days of the assessee and its AE. According to the assessee, the AE recovers the dues from its customers within 61 days whereas the assessee is realizing the dues from the AE within 127 days and the difference is only 66 days. It was further submitted that as a part of normal business practice, interest is neither charged nor paid as the parties intend to continue to maintain a lasting business relationship with each other. Further, the agreement between the assessee and the AE also does not specifically provide for interest to be charged on overdue payments. It was further submitted that it is a zero debt company i.e. it does not have any borrowings from external sources and it has also not paid any interest on delayed payments made by it to third parties, hence, it was claimed that there was no need for it to charge any interest to its AEs. The assessee also submitted details of convertible loan provided by the AE to Health wave Inc. (customer) as follows:
“Convertible loan to Health wave : US $ 2,50,000
And interest earned from Health wave and third party customer, during FY 2005-06 to US $ 37,203″.
The TPO after examining the assessee’s submission, however, was of the view that there was abnormal delay in recovering the dues from the AE and, hence, he considered the interest at the average rate of MIBOR of 5.68% and loaded on the debit balances from the AE as under:-
