Strides Pharma Science Limited Vs DCIT (ITAT Mumbai)
ITAT Mumbai held that as there is complete uniformity in not charging interest from AEs and Non-AEs for delay in realization of export proceeds, addition of notional interest in respect of transactions with AEs in the course of transfer pricing proceedings unwarranted.
Facts- Assessee has contended the action of charging interest on delayed realization of export proceeds from Associated Enterprises. It is mainly contended by the assessee that they are not charging interest on delayed realization either from the Associated Enterprises (AEs) or Non-AEs. In case of some of the AEs, average realization period is 311 days, on which no interest was charged. Similarly, in case of some of the Non-AEs there has been delay of over 300 days on which no interest has been charged.
Further, assessee also contended disallowance u/s. 14A of the Income Tax Act. Assessee submitted that they have not received any exempt income, nevertheless the assessee has made suo- motu disallowance of Rs.24,25,840/-. However, rejecting the submissions, AO made further disallowance of Rs.4,08,27,039/- u/s. 14A of the Act r.w. Rule 8D.
Conclusion- Hon’ble Jurisdictional High Court in the case of Indo American Jewellery has held that where there is complete uniformity in not charging interest from AEs and Non-AEs for delay in realization of export proceeds, the Assessing Officer was not justified in making addition of notional interest in respect of transactions with AEs in the course of transfer pricing proceedings.
Taking into consideration the facts on record and the decision by Hon’ble Jurisdictional High Court we hold that imputing of interest on delayed payment of receivables from AEs is unwarranted.
It is no more res-integra that no disallowance u/s. 14A of the Act is warranted where the assessee has not earned any exempt income during the relevant period.[ Re. PCIT vs. State Bank of Patiala, 99 taxmann.com 286(SC) & PCIT vs. Ballarpur Industries]. In light of undisputed facts and the settled legal position.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by the assessee is directed against the final assessment order dated 23/01/2017 passed u/s. 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 [in short ‘the Act’], for the Assessment Year 2012-13.
2. The assessee in appeal has raised as many as 12 grounds. Shri Nitesh Joshi, Advocate appearing on behalf of the assessee submitted at the outset that he is not pressing ground No.4, 5 & 9 of the appeal. In respect of other grounds ld.Counsel for the assessee submitted that the issues are squarely covered by the decision of Co-ordinate Bench in assessee’s own case in the preceding Assessment Years. The facts germane to the issues raised in different grounds of appeal for Assessment Year 2012-13 are identical to the facts in appeals for Assessment Year 2010-11 and 2011-12. The ld.Counsel for the assessee placed on record copy of the Tribunal order in assessee’s own case in ITA No.1903/Mum/2015 for Assessment Year 2010-11 decided on 23/05/2023 and copy of Tribunal order in ITA No.1992/Mum/2016 for Assessment Year 2011-12 decided on 28/06/2023.
3. Per contra, Shri Anoop Hiwase representing the Department strongly supported the findings of the Assessing Officer and Dispute Resolution Panel (DRP) in the impugned assessment year. However, he fairly stated that the issues raised in the present appeal by the assessee have been considered by the Tribunal in assessee’s own case in the preceding Assessment Year.
4. We have heard the submissions made by rival sides and have examined the orders of authorities below. We have also considered the decisions on which the assessee has placed reliance to contend that the issues raised in appeal have been decided by the Tribunal in preceding Assessment Years. Our findings on the grounds of appeal are as under:
Ground No.1 is general, hence, require no separate adjudication.
Ground No.2 : Interest on delayed realization of export proceeds from AEs – Rs.22,91,372/-:
5. The ld.Counsel for the assessee submitted that the assessee is not charging interest on delayed realization either from the Associated Enterprises (AEs) or Non-AEs. He pointed that in case of some of the AEs, average realization period is 311 days, on which no interest was charged. Similarly, in case of some of the Non-AEs there has been delay of over 300 days on which no interest has been charged. The ld. Counsel for the assessee referred to details of invoice wise realization during Financial Year 2011-12 in respect of AEs at pages 67 to 84 and in case of Non-AEs at pages 85 to128 of the Paper Book. The ld.Counsel for the assessee submitted that similar adjustments were made by the Transfer Pricing Officer (TPO) in Assessment Year 201112,2013-14 and 2014-15 and the same were deleted by the DRP in the respective Assessment Years. The ld. Counsel for the assessee referred to the directions of the DRP for Assessment Year 2011-12 at page 315, for Assessment Year 2013-14 at page 348 and for Assessment Year 2014-15 at page 418 of the compilation of Case Laws Paper book. The ld.Counsel for the assessee further submitted that the average period of realization of sale proceeds is 29 days. Except 2 AEs, there is no delay in realization of sale proceeds. Since, the assessee had not charged interest on delayed payment of invoices from AEs as well as Non-AEs, no notional interest can be imputed on the proceeds received by the assessee belatedly from AEs. To further buttress his submissions he placed reliance on the following decisions:
(i) CIT vs. Indo American Jewellery Ltd., 223 Taxman 8 (Bom)
(ii) Det Norske Veritas A/S vs. ADIT, 67 com 16 (Mum-Trib)
(iii) Sophos Technologies Pvt. Ltd.vs.DCIT,100 taxmann.com 374(Ahd- Trib)
6. Per contra, the Ld. Departmental Representative submitted that average realization period from AEs is far greater than average realization period from Non-AEs. There are stray incidence of delay in recovery from Non-AEs. He asserted that where there is disparity in period of recovery of receivables from AEs and Non-AEs, notional interest can be charged. In support of his submissions he placed reliance on the decision in the case of Parle Biscuits Pvt. Ltd. vs. Assessment Unit Income Tax Department, NFAC in ITA No.2484/Mum/2022 for Assessment Year 2018-19 decided on 30/06/2023.
7. We have heard the submissions made by rival sides. The assessee has furnished a chart giving average realization period from AEs. The same is as under:
