S.S. Godara ORDER
A. Mohan Alankamony, Member (A)
1. This appeal is filed by the assessee against the final assessment of the Ld. Deputy Commissioner of Income Tax, Circle-3(1), passed U/s. 143(3) r.w.s. 144C(13) of the Act, dated 30/07/2018 for the A.Y. 2014-15.
2. The assessee has raised several grounds in its appeal however, the cruxes of the issues are that:-
(i) The ld. Members of the DRP have erred in confirming the order of the lower authorities who had added an amount of Rs. 99,626/- towards notional interest on receivables from the assessee's AEs while arriving at the Arm's Length Adjustment U/s. 92CA of the Act.
(ii) The Ld. AO has erred in disallowing the club expenditure amounting to Rs. 2,41,139/- by stating that it is not for the purpose of the business of the assessee.
(iii) The Ld. AO has erred in making an ad hoc disallowance of Rs. 10 lakh towards expenditure incurred on freight and Rs. 2 lakhs towards expenditure incurred on repairs.
3. The brief facts of the case are that the assessee is a Private Limited company engaged in the business of manufacturing steel rods filed its return of income on 28/11/2014 admitting total income of Rs. 9,03,08,870/-. Thereafter, the case was taken up for scrutiny and the assessment was completed u/s. 143(3) 144C(13) of the Act on 30/07/2018 wherein the ld. AO made the above mentioned additions.
4. Ground No. 1: Arm's Length Price Adjustment of Rs. 99,626/- towards notional interest on receivables from Associated Enterprises:
5. At the outset, the Ld. AR submitted that the Ld. Revenue Authorities have added the notional interest on receivables from the assessee's AEs at PLR rate of the State Bank of India. The ld. AR argued that since the transactions are with the AEs outside India Libor Rate may be adopted. The Ld. AR further submitted that the benefit of netting off notional interest on transaction with the same AEs may be granted with respect to the debit and credit transactions. The Ld. AR further argued that the notional interest may be computed after giving allowance for a period of 90 days with respect to the debit and credit transaction with the AEs considering the nature of the business of the assessee. The Ld. DR on the other hand, relied on the orders of the Ld. Revenue Authorities on this issue.
6. We have heard the rival submissions and carefully perused the materials on record, and we find merit in the arguments advanced by the Ld. AR. Since, the transactions are cross-border, it would be appropriate to adopt LIBOR rate of interest while computing the notional interest on receivables from the AEs. This Bench of the Tribunal has held so on various earlier occasions with respect to the same issue. Further, it will also be appropriate for netting off the notional interest with respect to the debit and credit transaction with the assessee's AEs because when notional interest is charged on receivables the same should also be charged on payables. Therefore, in the case of the assessee we hereby hold that LIBOR rate of interest shall be adopted while computing the notional interest on receivables and payables for the transaction with AEs. Further, on considering the nature of trade of the assessee, we find it appropriate to fix the grace period of 30 days while computing the notional interest towards the debit and credit transaction with the AEs. It is ordered accordingly.
7. Ground No.: 2: Disallowance of club expenditure of Rs. 2,41,139/-:
8. The ld. AO has disallowed the club expenditure incurred for Rs. 2,41,139/- by stating that the same was not justified as business expenditure by the assessee in the Form-3CD. Even before us, the assessee has not substantiated that the expenditure was incurred for the purpose of the assessee's business. Hence, we hereby confirm the addition made for Rs. 2,41,139/- by the ld. AO.
9. Ground No.: 3: Adhoc disallowance of Rs. 10 lakh towards expenditure incurred on freight and Rs. 2 lakhs towards expenditure incurred on repairs:
10. On verifying the Bills and Vouchers with respect to the expenditure claimed by the assessee towards freight/transportation charges of Rs. 3,34,05,000/- and repairs & other expenditure of Rs. 23,97,087/-, the Ld. AO observed that there were several self-made vouchers which were not accessible for verification. Therefore, the Ld. AO estimated the disallowance of freight/transport expenses at Rs. 10 lakh and Rs. 2 lakhs with respect to repairs and other expenditure. Considering the facts and circumstances of the case, we do not find it necessary to interfere with the order of the ld. AO on the issue because it is an admitted fact that several Bills and Vouchers were not verifiable.
11. In the result, appeal of the assessee is partly allowed.
Pronounced in the open Court on 07th May, 2021.
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