Transfer pricing for intercompany interest upheld where LIBOR was accepted as the appropriate benchmark and arm's length pricing was found.

Interest on loans to associated enterprises was assessed under transfer-pricing principles, and the Tribunal applied LIBOR rather than the average yield rates used by the Transfer Pricing Officer. It found that the assessee had charged an interest rate above prevailing LIBOR, so the transactions were at arm's length and the transfer-pricing adjustment was not warranted. The HC held that this reasoning was not perverse and upheld the arm's length finding; no substantial question of law arose.

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Issues: Whether the Tribunal was justified in holding that the interest transaction with the associated enterprises was at arm's length by applying LIBOR and in setting aside the transfer-pricing addition.

Analysis: The parties agreed that the earlier questions were covered against the Revenue in the assessee's own case. On the remaining issue, the Tribunal found that the appropriate rate for adjustment was LIBOR and not the average yield rates adopted by the Transfer Pricing Officer. It further held that the assessee had charged interest at a rate higher than the prevailing LIBOR rate, and therefore the loan transactions with the associated enterprises were at arm's length. The Court found that this reasoning was not perverse.

Conclusion: The Tribunal's finding on arm's length pricing was upheld and no substantial question of law arose.

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