Appeal allowed by ITAT: LIBOR + 2% for interest, dividend tax credit, TDS credit granted

The appeal by the assessee was allowed by the ITAT. The ITAT directed authorities to adopt the floating rate of LIBOR + 2% for benchmarking interest on loans to Associated Enterprise, grant credit for the dividend distribution tax, and consider the short grant of TDS credit as per law. The order was pronounced on 04.02.2019.

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Issues Involved:
1. Adjustment of Rs. 96,08,615 on account of interest on loans advanced to Associated Enterprise (AE).
2. Interest under Section 234B and Section 234C of the Income Tax Act.
3. Non-grant of credit of dividend distribution tax of Rs. 74,01,125.
4. Initiating penalty under Section 271(1)(c) of the Act.

Issue-Wise Detailed Analysis:

1. Adjustment of Rs. 96,08,615 on account of interest on loans advanced to Associated Enterprise (AE):
The Transfer Pricing Officer (TPO) proposed adjustments after considering the assessee’s response. The TPO's order stated that the interest on the loan should be benchmarked using the LIBOR rate. The assessee objected, citing previous ITAT judgments that accepted a floating rate of LIBOR + 2% as the arm's length interest rate. The Dispute Resolution Panel (DRP) upheld the TPO's decision, stating that the TPO used reliable Bloomberg data to determine the interest rate of 6.819%. The DRP directed the TPO to recompute the interest based on the actual number of days the loan was outstanding. The assessee appealed, arguing that the interest rate of LIBOR + 400 bps was at arm's length, as previously accepted by the ITAT in earlier assessment years. The ITAT found that the floating rate of LIBOR + 2% had been consistently accepted in previous years and that the TPO's adjustment was not justified. The ITAT upheld the assessee's rate and directed the authorities to recompute the interest based on the actual loan period.

2. Interest under Section 234B and Section 234C of the Act:
The assessee challenged the levy of interest under Section 234B and Section 234C of the Act. However, the judgment does not provide a detailed discussion on this issue, indicating that the primary focus was on the transfer pricing adjustment.

3. Non-grant of credit of dividend distribution tax of Rs. 74,01,125:
The assessee argued that the dividend distribution tax paid was not credited due to an incorrect assessment year mentioned in the challan. The ITAT directed the Assessing Officer (AO) to grant credit for the dividend distribution tax paid, as the error was inadvertent.

4. Initiating penalty under Section 271(1)(c) of the Act:
The initiation of penalty proceedings under Section 271(1)(c) was challenged by the assessee. The judgment does not provide specific details on the outcome of this issue, implying that it was not a primary focus of the appeal.

Additional Grounds:
The assessee raised additional grounds regarding the short grant of TDS credit of Rs. 11,90,046. The ITAT directed the AO to consider the issue as per law and factual verification, despite the issue not being raised before the DRP.

Conclusion:
The appeal by the assessee was allowed, with the ITAT directing the authorities to adopt the floating rate of LIBOR + 2% for benchmarking the interest on loans to AE, grant credit for the dividend distribution tax, and consider the short grant of TDS credit as per law. The order was pronounced in the open court on 04.02.2019.

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