NM Agro Food Products Pvt. Ltd. Vs ACIT (ITAT Jaipur)
Own Funds, Own Choice: ITAT Rejects Interest Disallowance and Notional Loan Benchmarking
Substantial Relief on Three Disputed Adjustments
The Jaipur Tribunal granted substantial relief to an agricultural commodities trading company by deleting a transfer pricing adjustment of ₹3,64,380, an interest disallowance of ₹2,20,086 under Section 14A, and a disallowance of ₹24,73,296 under Section 36(1)(iii). However, it sustained ₹72,277 towards expenditure relating to exempt income, making the appeal partly allowed.
The company had filed its return declaring income of ₹50,31,660. The assessment included several additions, of which three remained disputed before the Tribunal. The decision addresses both the proper benchmarking of related-party borrowings and the presumption applicable when interest-free own funds exceed investments and advances.
An Alleged Agreement Cannot Close the Appellate Door
The first dispute concerned interest paid on unsecured loans from related parties. The Transfer Pricing Officer adopted the State Bank of India’s average prime lending rate of 9.83%, added 300 basis points, and arrived at an arm’s length rate of 12.83%. Interest exceeding that rate was adjusted.
The CIT(A) declined to examine the merits because the assessment order stated that the assessee had agreed to the addition.
The Tribunal found that neither the relevant note sheet nor any written concession was before it. The assessee had contested the rate before the TPO and promptly appealed against the assessment.
