TaxTMI 
TaxTMI 
2010 (1) TMI 781
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....ng adjustment, in respect of interest free loans advanced by the assessee to its wholly owned foreign subsidiaries, and in adopting 14% p.a. as arms length interest on the sum advanced; and (ii) second, that the Commissioner was not justified in declining deduction under section 80HHC on the ground that there was loss before taking into account incentives from export activities. 3. So far as the first issue is concerned the relevant material facts are like this. The assessee is a company incorporated in, and resident in India and its entire share capital is equally held by Mr Rustom Joshi, Mr Faraz Joshi, and M/s Interred Products Ltd, Bahamas. The assessee company has two wholly subsidiries namely. VVF lnc, Canada, and ....
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....isfied and is in second appeal before us. 4. The basic thrust of learned counsel's submissions is that since the assessee had sufficient interest free funds the assessee was fully justified in not charging any interest on advances given to the wholly owned subsidiaries. Reliance is also placed on the judgment of Hon'ble Supreme Court in the case of S.A. Builders Ltd. vs CIT (288 ITR 1), and it is contended that advances having been given to the wholly subsidiaries and on account of commercial expediencies, no adjustment in respect of notional interest on such interest free advances is needed. On the other extreme, the contention of the learned Departmental Representative is that since the cost of incremental borrowing to the asses....
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.... which the transactions have been actually entered in such cases, the hypothetical arms length prices, at which these associated enterprises, but for their relationship, would have entered into the same transaction, are taken into account. Whether the funds are advanced out of interest bearing funds or out of funds on which 14% interest is being paid, or whether such interest free advances are commercially expedient for the assessee or not, is wholly irrelevant in this context. The transaction in the present case is of lending money, in foreign currencies, to its foreign subsidiaries. The comparable transaction therefore is of foreign currency lending by unrelated parties. 7. We have noted that as was also noted by the Transfer Pricing O....
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....vely vague as the adjustments on account of 'spread of 150 to 300 points over LIBOR' is specified but there is no way to reasonably ascertain as on which end of this spectrum will the subsidiaris of assessee will fit in. In such a situation, and for the reasons we have discussed earlier, internal CUP is more reliable. Since we are able to find internal CUP based on the material produced before us, it is not really necessary to deal with other arguments of the assessee and the ALP of interest free loans worked out by the TPO himself in the later years. 8. In view of the above discussions, we uphold the grievance of the assessee, though in the limited terms indicated above so far as the question of determination of ALP of interest f....