CLR Editorial Notes: There was a delay in payment of credit between an Organization and its Associated Enterprise (AE). The Organization (assessee) raised invoices on its AE and gave 30 days of credit for the payments. There was a delay by the AE in making the payments beyond the given credit period. The Transfer Pricing Officer then held that the assessee must have charged notional interest at the rate of 1% per month and hence a notional addition towards this interest was made. This decision to add interest was upheld by the Revenue department. However, the assessee appealed to the IT Tribunal Bench of Mumbai which reversed the decision by the Assessing officer (Transfer Pricing Officer) and the Revenue. The Ratio of the case is mentioned below:
“The assessee has no borrowings and so there is no interest liability. Even if the payments have been made by the AE beyond the normal credit period, there is no interest cost to the assessee. Moreover, there is no such agreement whereby interest is to be charged on such a delayed payment. The assessee does the billing on a quarterly basis and accordingly, the payment is being received. Therefore, the delay is not wholly on account of late payment by the AEs only. Moreover, the Transfer Pricing adjustment cannot be made on hypothetical and notional basis until and unless there is some material on record that there has been under charging of real income. Consequently, an addition an account of notional interest relating to alleged delayed payment in collection of receivables from the A.Es is uncalled for.”
Main Case File:
Evonik Degussa India P. Ltd vs. ACIT (ITAT Mumbai)
