Transfer pricing on ECB interest and TDS credit verification were remitted for fresh examination under the proper benchmarking method.

Benchmarking interest on an ECB loan to an associated enterprise should be done under the Comparable Uncontrolled Price method, with a Libor plus spread where foreign currency lending conditions are the relevant comparables; the transfer pricing adjustment was therefore remitted for fresh computation by the TPO. The assessee's alternative method was treated as acceptable on the facts noted, and the rejection of that approach was considered erroneous. On the TDS credit issue, the assessment record showed a mismatch between the credit claimed and credit allowed, so the Assessing Officer was directed to verify the claim and grant credit in accordance with law.

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Issues: (i) Whether the transfer pricing adjustment on interest paid on the ECB loan required to be set aside and reworked by adopting the Comparable Uncontrolled Price Method with the Libor plus approach; (ii) Whether the assessee was entitled to verification and grant of full credit of TDS claimed in the return.

Issue (i): Whether the transfer pricing adjustment on interest paid on the ECB loan required to be set aside and reworked by adopting the Comparable Uncontrolled Price Method with the Libor plus approach.

Analysis: For benchmarking interest on a foreign currency loan, the price is directly measurable and the Comparable Uncontrolled Price Method is the most appropriate method. The arm's length credit spread must be determined with reference to the relevant inter-bank lending rate and comparable lending conditions. The assessee's alternate request to benchmark the transaction on a Libor plus basis ought to have been accepted, and the rejection of that contention was held to be erroneous. The matter therefore required fresh computation of arm's length price by the Transfer Pricing Officer.

Conclusion: The transfer pricing adjustment was set aside to the file of the Transfer Pricing Officer for reworking under the Comparable Uncontrolled Price Method on a Libor plus basis, in favour of the assessee.

Issue (ii): Whether the assessee was entitled to verification and grant of full credit of TDS claimed in the return.

Analysis: The assessment record showed a mismatch between the TDS claimed in the return and the credit granted during assessment. The Assessing Officer was directed to verify the claim and allow credit in accordance with law.

Conclusion: The TDS issue was remitted for verification and consequential allowance, in favour of the assessee.

Final Conclusion: The appeal succeeded only to the extent of remand and verification, and the impugned assessment was not finally affirmed on merits.

Ratio Decidendi: In benchmarking interest on an ECB loan from an associated enterprise, the Comparable Uncontrolled Price Method with a Libor plus spread is the appropriate framework, and an assessee may validly adopt an alternate benchmarking method where the earlier approach is found unsuitable.

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