Transfer pricing on ECB interest requires FAR analysis and consideration of RBI-approved rates before benchmarking adjustment

Transfer pricing adjustment on interest paid for External Commercial Borrowing was found unsustainable without a proper FAR analysis for selecting comparables. The Tribunal noted that neither the TPO nor the DRP applied the FAR test and that RBI-approved interest rates were a relevant factor in determining the applicable borrowing rate. The matter was remitted for fresh examination on those bases, and the assessee obtained relief for statistical purposes.

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Issues: Whether the transfer pricing adjustment on interest paid on External Commercial Borrowing was sustainable without undertaking a proper FAR analysis and by ignoring RBI-approved interest rates.

Analysis: The Tribunal noted that neither the Transfer Pricing Officer nor the Dispute Resolution Panel dealt with the FAR test for selecting comparables for benchmarking the international transaction. It also noted that the assessee had obtained RBI approvals for the relevant payments, and that RBI-prescribed rates are a relevant factor in determining the interest applicable to commercial borrowings.

Conclusion: The matter was remitted to the Transfer Pricing Officer for fresh examination by applying the FAR test and considering the RBI interest rates applicable for the relevant period. The assessee obtained relief for statistical purposes.

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