IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `I-2'NEW DLEHI
BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT
AND
SHRI K. NARSIMHA CHARY, JUDICIAL MEMBER
ITA.No-1516/Del/2016
Assessment Year: 2011-12
BTR Packaging Pvt. Ltd., vs ITO,
18, Commercial Centre, Ward-5(2),
PanchsheelPark, New Delhi-110017. New Delhi
PAN- AACCB6465B
(Applicant) (Respondent)
Appellant by: Sh.Mukesh Aggarwal, FCA
Respondent by: Sh. Rakesh Kumar, Sr.DR
Date of hearing: 25/07/2019
Date of order : 31 /07/2019
ORDER
PER K. NARSIMHA CHARY, J.M.
Aggrieved by the Order dated 27.01.2016 passed by the Ld.
Assessing Officer, New Delhi, M/s BTR packaging private limited
("Assessee") preferred this appeal.
2. Brief facts of the case are that the assessee was
incorporated on 18/07/2005 as 100% export oriented unit
ITA.No-1516/Del/2016
Assessment Year: 2011-12
and has been engaged in manufacturing and exporting of
high-quality polyethylene retail carrier bags, including
merchandise bags, box-bottom bags, insulated bags, hand-
strung shoulder totes, draw cord bags, duffle bags, rope
handle bags with a turnover tops having cardboard inserts
and other custom strung bags. For the assessment year 2011-
12, they have filed their return of income on 21/09/2011
showing NIL income.
3. During the year, the assessee entered into following
international transactions:-
(i) Export of finished goods
(ii) Import of raw materials
(iii) Import of spare parts
(iv) Charge for cylinder cost
(v) Loan conversion to the equity shares
(vi) Issue of share capital.
4. The assessee had adopted Transactional Net Margin
Method ("TNMM") for determining the Arm's Length Price
("ALP") for principal amount of exports to Associated
Enterprise ("AE") and the same was accepted by the Ld. TPO.
Ld. TPO, however, passed an order dated 22/01/2015 by
suggesting adjustment under section 92 CA of the Income Tax
Act, 1961 ("the Act") to the tune of Rs. 5,27,706/-in respect
of the interest on receivables outstanding.
5. The assessee filed objections before the Ld. Dispute
Resolution Panel ("DRP"). Ld. DRP directed that the interest
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ITA.No-1516/Del/2016
Assessment Year: 2011-12
on receivables has to be computed in accordance with the
decision of the Hon'ble Delhi High Court in the case of CIT vs
Cotton Naturals (I) Private Limited [2015-TII-09-HC-DEL-TP]
and the period for which interest has to be calculated. It has
to be limited to the year under consideration as interest
accrued in other years, cannot be taxed in this year.
6. The assessee is, therefore, before us in this appeal
challenging the directions of the Ld. DRP and consequential
assessment order, stating that the credit period on sale of
goods is not a separate and distinct international transaction
and when credit period allowed to AE is already embedded in
the TNMM, there was no need for any separate
benchmarking. He placed reliance on the decision of the
Hon'ble Jurisdictional High Court in the case of Ld. CIT Vs.
Kusum Health Care Pvt.Ltd, (2017) 398 ITR 66 Delhi.
7. Ld. DR placed reliance on the orders of the authorities below.
8. We have gone through the record in the light of the
submissions made on either side. It remains an undisputed
fact that the assessee had adopted TNMM method for
determining the arm's length price for principal amount of
exports to AE and it was duly accepted by the Ld. TPO. No
adjustment under section 92 CA of the Act was suggested in
respect of the price for their exports to AE. Ld. TPO had
taken the notional interest on the outstanding receivables as
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ITA.No-1516/Del/2016
Assessment Year: 2011-12
a separate international transaction and suggested for the
adjustment, which the assessee has been assisting basing on
the decision of the Hon'ble jurisdictional High Court in the
case of Kusum HealthcarePvt.Ltd. (supra).
9. It is the settled principle of law, after the decision of the Hon'ble
Jurisdictional High Court in the Case of Kusum Healthcare Pvt.Ltd.
(supra), that in TNMM, the net margin earned was exposed with
appropriate working capital adjustment to comparable companies; that
the receivable mentioned in the Explanation to Sec.92B can be taken up
for transfer pricing scrutiny only when it is a standalone activity or a
demonstrated approach is adopted by the assessee to use Accounts
Receivable to have free working capital funding; and that if the impact
of extended credit period on working capital was factored in the pricing
/ profitability, then there is no tax leakage or evasive tactics adopted by
the taxpayer while transacting with the AE. With this view of the
matter, we find it difficult to countenance the argument that, had the
funds been received in time and deployed would have earned interest
income, which would have been relevant only when the original
transaction of sale or services provided to the AE was benchmarked
under CUP method.
10. In view of this settled position of law, we are of the considered
opinion that, if the impact of extended credit period on working capital
was factored in the pricing / profitability, then any credit period
allowed to AE gets subsumed in TNMM and there is no tax
leakage or evasive tactics adopted by the taxpayer while transacting
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ITA.No-1516/Del/2016
Assessment Year: 2011-12
with the AE, andthere is no need for a separate benchmarking.
Consequently, we find it difficult to sustain the addition and
accordingly, delete the same.
11. In the result, appeal of the assessee is allowed
Pronounced in open court on this 31st of July 2019.
Sd/- Sd/-
(PRAMOD KUMAR) (K. NARSIMHA CHARY)
VICE PRESIDENT JUDICIAL MEMBER
Dated: 31 /07/2019
*Amit Kumar*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
Draft dictated
Draft placed before author
Approved Draft comes to the Sr.PS/PS
Order signed and pronounced on
File sent to the Bench Clerk
Date on which file goes to the AR
Date on which file goes to the Head Clerk.
Date of dispatch of Order.
Date of uploading on the website
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