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Shakti Hormann Private Limited vs. Dy. Commissioner Of Income Tax - (Income Tax Appellate Tribunal) (07 May 2021)

LIBOR rate of interest is applicable while computing the notional interest on receivables from the associated enterprises (AEs)


Direct Taxation

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 admitting total income of Rs, 9,03,08,870. Thereafter, the case was taken up for scrutiny and the assessment was completed under Section 143(3) of the Income Tax Act, 1961 (IT Act) wherein the learned Assessing Officer (AO) made the additions. It is submitted that, Revenue Authorities have added the notional interest on receivables from the assessee's AEs at PLR rate of the State Bank of India. Since, the transactions are with the AEs outside India Libor Rate may be adopted.

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. 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, 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, present Tribunal 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.

The learned 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. The assessee has not substantiated that, the expenditure was incurred for the purpose of the assessee's business. Hence, the addition made for Rs. 2,41,139 by the ld. AO are confirmed.

Further, 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 Learned AO observed that, there were several self-made vouchers which were not accessible for verification. Therefore, the Learned AO estimated the disallowance of freight / transport expenses at Rs. 10 lakh and Rs. 2 lakhs with respect to repairs and other expenditure. In facts and circumstances of the case, present Tribunal do not find it necessary to interfere with the order of the learned AO on the issue because it is an admitted fact that several Bills and Vouchers were not verifiable. Appeal of the assessee is partly allowed.


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