TaxTMI 
TaxTMI 
TaxTMI 
2013 (11) TMI 806
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....ut looking into the facts of the case. 3. On the facts and circumstances of the case the learned Assessing Officer erred in making the addition of Rs. 6,75,000/- being payment made by the Appellant to M/s Credence Analytics (I) Pvt. Ltd. at the end of the year and the same recorded by them on receipt of the same in F.Y. 2007-08. On the facts and circumstances of the case the learned Assessing Officer erred in making double addition of Rs. 8,93,198/- by disallowing Purchase and also by making disallowance u/s 40(a)(ia). 3. Ground no.1 is general in nature and therefore, no specific finding is required. 4. During the course of hearing, the ld AR of the assessee has stated that the assessee does not press ground nos. 3 & 4 and the same may be dismissed as not pressed. The ld DR has no objection, if the ground nos.3 & 4 are dismissed as not pressed. 5. Accordingly, ground nos. 3 & 4 of the appeal of the assessee are dismissed, being not pressed. 6. The only ground left for our consideration and adjudication is ground no.2 which relates to transfer pricing adjustment of Rs. 53,43,272/- being interest on advances given to the Associated Enterprises (AEs). 6.1 The assessee is eng....
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....interest rate on outbound loan with LIB0R. The DRP was of the view that only inbound loans i.e;. ECBs (External Commercial Borrowings) taken by the Indian entities from outside India are to be bench marked with LIBOR. In the case of outbound loan, as in the instant case, it is not appropriate to benchmark the interest with LIBOR, as interest applicable would be prevalent in Indian financial system. Thus, the DRP held that while lending money by Indian entity to outside Indian, the interest rate would be benchmarked against those prevailing in India for investing in corporate bonds without security. The DRP has given the reason that since the tested party is taxpayer, the prevalent interest that could have earned by the taxpayer by advancing a loan to an unrelated party in India with the same financial health as that of the taxpayer's AE is to be considered. Hence, the DRP took interest rate prevailing in India on corporate bond for benchmarking the loan transaction in question. The DRP treated the AE of the assessee equal to unrated bonds having very high risk. The yield on BBB rate accordingly was considered by the DRP at 11.40% for the Financial Year 2006-07. Thus, taking the....
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....assessee are not in any tax heaven country and therefore, the decision of the Delhi Benches of the Tribunal in the case of M/s Perot Systems TSI, relied upon by the TPO is not applicable in the facts of the assessee's case. 7.2 Alternatively, the ld AR of the assessee has submitted that while applying the transfer pricing principles and determining the ALP interest rate prevailing in the country, the borrower should be taken and used for benchmarking. He has further submitted that the interest rate to be used for benchmarking shall be the rate of interest in respect of the currency in which underlining transaction has taken place in consideration of economic and commercial factors around the specific currency. In support of his contention, he has relied upon the following decisions: (i) Tata Autocomp Systems Ltd v Asstt. CIT ITA No.7354/M/2011 (ii) Siva Industries & Holdings Ltd. v Asstt. CIT 145 TTJ 497(Chennai)Trib) (iii) Dy. CIT v. Tech Mahindra Ltd. 7.3 Thus, the ld AR of the assessee has submitted that the Tribunal in these decisions has held that in the case of transfer pricing, the rate of interest to be applied should be LIBOR and accordingly pleaded that in the....
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....lls within the meaning of international transaction as per section 92B. Even otherwise, the Tribunal in the case of Tata Autocomp Systems Ltd (supra) as relied upon by the assessee held in paras 16 & 17 as under: 16. Interest free loan extended to the associated concerns as at arm's length lending or borrowing money between two associated enterprises comes within the ambit of international transaction and whether the same is at arms length price has to be considered. The question of rate of interest on the borrowing loan is an integral part of arms length price re-determination in this context. The fact that the loan has the RBI's approval does not put a seal of approval on the true character of the transaction from the perspective of transfer pricing regulation as the substance of the transaction has to be judged as to whether the transaction is at arms length or not. The Delhi Bench of ITAT in the case of Perot Systems TSI (India) Ltd. v. DCIT (supra) had considered identical argument and held as follows: "9. Before us, the ld. Counsel of the assessee contended that income means real income and not fictitious income and since the assessee has not earned any income, th....
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....C). 9.1 The ld. DR for the revenue on the other hand relied upon the orders of the ld. CIT(A), he claimed that the ld. CIT(A)'s order was a speaking order and it has rebutted all the arguments of the assessee. 10. We have carefully considered the submissions and perused the records. The primary contention before us, as submitted by the ld. Counsel of the assessee is that it was commercially expedient for assessee to advance interest free loans to the AEs and that since no interest has actually been charged, there is no real income exigible to tax. As observed by the ld. CIT(A) the agreements show that these are loan amount given by the assessee to Associated Enterprises (AEs). This in fact is an admitted position. There is no case that any special feature in the contract make the transaction as capital in nature. It is also an admitted proposition that the assessee has extended the loan to its AE's who are 100% subsidiaries. The Assessee's case is that it has actually not earned any interest and it was commercially expedient to extend these interest free loans. Now it is noted that this is not a case of ordinary business transaction. The question relates....
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....most appropriate method for determining the ALP is concerned, the same is also settled by the various decisions as relied upon by the assessee wherein it has been held that in case of benchmarking of interest on the loans to the AEs, CUP is the most appropriate method for determining the ALP. Even, the assessee has not challenged the method adopted by the authorities below for determination of the ALP in the case of the assessee. 8.6 Now, the question arises whether LIBOR rate or prevailing market rate in India could be considered for determining the Arm's Length interest rate in respect of the loans advanced by the assessee to the AEs. The TPO had adopted LIBOR plus 3% as ALP for the rate of interest on the loan transaction in this case; whereas the DRP took the bond rate prevailing in Indian market and treated the AE as below BBB rating bond and accordingly, determined the rate at 14% as ALP in para 3.8 to 3.11 as under: 3.8 Since the taxpayer has extended loans to its AE without charging interest, similar uncontrolled transaction would have provided for interest and in view of this fact the international transaction representing loans without charging interest are not at ....
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....considered reasonable and representative of the market after considering the corporate bond market and the financial health of the AE. 3.11 So keeping all the above issues in consideration, it is considered view of the Panel that a reasonable interest rate of 14% appears appropriate in the facts and circumstances of the taxpayer. Hence, the interest on the loans facility extended by the taxpayers to its AE should be computed at the rate of 14% p a on the monthly closing balance for the period from 1.4.2006 to 31.3.2007. The Assessing Officer is directed to re-compute the arm's length interest, TP adjustment and addition on account of TP adjustment in view of the above direction, which may result in enhancement of TP adjustment and addition of Rs. 30,80,035/- as made by the TP/TPO." 8.7 Under the Transfer Pricing Regulations, an international transaction has to be compared with an uncontrolled transactions between unrelated parties which means that an international transaction is tested with the transaction, if the assessee could have entered into a similar transaction with unrelated third party and thereby the income of the assessee would have earned from a similar transacti....