Case Law Details
Brief of the Case
ITAT Ahmedabad held In the case of Micro Ink Limited. Vs. ACIT that such interest is includible in operating income and the operating income itself has been accepted as reasonable under method TNMM, there cannot be an occasion to make adjustment for notional interest on delayed realization of debtors. The very conceptual foundation, for separate adjustment for delayed realization of debtors and on the facts of this case, is thus devoid of legally sustainable merits. An adjustment for notional interest on excess credit allowed on sales to AEs will vitiate the picture, inasmuch as what has already been factored in the TNMM analysis, by taking operating profit figure which incorporate financial impact of the excess credit period allowed, will be adjusted again separately as well.
Facts of the Case
ALP Adjustment on account of excess credit period
The assessee is a leading ink manufacturer in India. The assessee has a wholly owned subsidiary in Austria, by the name of Micro Inks GmbH which, in turn, owns Micro Ink Co USA. This step down subsidiary manufactures printing ink by using the base material supplied by the assessee. The inks meant for US markets thus are mixed, and given finishing touches, by Micro USA. The assessee company also has trading subsidiaries in China and Hong Kong. During the relevant previous year, the assessee sold goods worth Rs 215.51 crores to Micro USA. The Transfer Pricing Officer, in the course of proceedings before the TPO, it was noted that the assessee has sold goods worth Rs 215.51 crore to Micro USA and allowed it an average credit period of 186 days as against average credit period of 130 days allowed to independent enterprises, i.e. non AEs.
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