The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) held that the AO(Assessing Officer) /TPO(Transfer Pricing Officer) is not required to make the adjustment on notional basis when the assessee Extended Credit Period to Non-AE (Associated Enterprise) without charging interest on delayed payment
The assessee company M/s. Tech Mahindra Ltd filed miscellaneous application on the issue of transfer pricing adjustment with respect of charging interest for extended credit period to the associated enterprises of the assessee and on the issue relating to claim of deduction under Section 10A of the Income Tax Act, 1961.
The TPO has made adjustment in respect of granting extended credit periods to the associated enterprises of the assessee without charging any interest on delayed payments and further the TPO had taken the stand that for extending credit period to its associated enterprises the assessee was required to charge the interest.
Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals) [CIT(A)],which partly allowed the grounds of appeal of the assessee, holding that USD LABOR rate at that point of time being 3.40% with a mark up of 80 basis point would be adequate for determining ALP interest for trade credit which can reasonable to charged to the Associates Enterprises.
The Counsel of the assessee submitted that assessee has also extended credit period to its non-associate enterprises without charging any interest for delayed payment and on the same issue on similar facts, the AO/TPO has not made any adjustment for assessment year 2002-03 and assessment year 2003-04.
Further, the counsel submitted that no AO/TPO adjustment shall be made in respect of extended credit period granted by the Assessee to its associated enterprises as assessee has also not charged any interest on such credit period extended to its non-associated enterprises.
The Departmental Representative supported the order of AO/TPO.
The bench comprising of Amit Shukla, Judicial Member and Amarjit Singh, Accountant Member observed that the assessee has extended credit period to its non-associated enterprises without charging any interest on delayed payment.
Hence, the ground of appeal of the assessee was allowed that in such circumstances the AO/TPO is not required to make the adjustment on notional basis.
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