TaxTMI 
TaxTMI 
TaxTMI 
2016 (10) TMI 394
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....ponsible for internal and external sourcing of components used by its group companies in manufacturing of chargers. Salcomp Plc., also provides extended credit period of 180 days to 270 days to the assessee, while the credit period received by Salcomp Plc., from its third party vendors was 30 to 60 days. Salcomp Plc., is a sourcing agent for all the group entities and procures these components from unrelated suppliers, and applies a mark-up of 5% on the third party purchase price for its supply chain management services. For the purpose of substantiating the Arm's length nature of international transaction, the assessee made adjustment for the actual credit period availed by the assessee and demonstrated the ALP using Comparable Uncontrolled Price (CUP) Method. The TPO vide her order dated 27.10.2011 examined the TP documentation and proposed downward adjustments on account of excess payment on purchases (Rs. 32,88,820/-), excess interest paid on ECB Cash-I(Rs. 23,15,746/-) and excess interest paid on ECB Cash II(Rs. 49,58,113). The AO in his draft assessment order dated 29.11.2011 made the corresponding additions based on the TP order. 3.1 For benchmarking the transactions, the a....
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.... Ld. TPO. 3.3 In the assessment order, ld. Assessing Officer observed that the assessee's claim of +/-5% variation is rejected since the benefit is available only in cases where more than one ALP is determined and the mean of them is considered for comparison. In assessee's case, only one price is taken as ALP for comparison. Since the ALP value of purchase is less than the actual purchase, an adjustment to the international transaction is warranted. The summary of actual purchase price paid by the assessee and the ALP value of purchase is as follows:- US$ Actual purchase paid by assessee to its AE 6,257,633.29 ALP value of purchases 6,175,658.70 Excess paid to AE by assessee 85,974.59 Average annual exchange rate = Rs. 40.12 /USD Excess payment made by assessee in INR=81,974.50X 40.12 = Rs. 32,88,820.55. Hence, a downward adjustment to the expenditure of the assessee to the tune of Rs. 32,88,820.55.was made u/s.92CA(3) of the Act by the AO. Aggrieved with the order of the AO, the assessee is in appeal before us. 4. ld.A.R submitted before us that the AO had not made any adjustment on similar purchases from the same AE in next assessment year 2009-10 vid....
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....dering critical factors which are an essential pre-requisite in determining, the interest rate for a loan. It is found from the record that the TPO had issued a notice u/s 92(CA)(2) to the assessee on 28-12-2010 to furnish the details called for in enclosed Questionnaire in response to which the Authorized Representatives of the assessee' have attended before him and furnished the details called for. Therefore, the DRP observed that opportunity which was required to be given statutorily was given to the assessee by the TPO. Further, after receiving the T.P.O order, the AO has given the assessee an opportunity of being head by discussing the contents of the TPO order with assessee's Authorised Representatives. Therefore, DRP held that there was no merit in the assessee a objection that no opportunity of being heard was given Though the assessee states that the TPO has relied on an inappropriate source to erroneously bench mark the ECB, in its submissions, the asscssee also relied on 'India's External Debt - a Status Report - FY 2010-11 issued by the Ministry of Finance. It has not stated as to what was wrong with the usage of data contained in the Status report on India's External D....
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....nsaction with those of independent transactions. The Guidelines allow the use of inexact comparables that are 'similar' to the controlled transaction but not the use of 'unadjusted industry average returns'. The factors that should be considered when assessing the comparability of a transaction, include: - the specific characteristics of the property or services; - the functions that each enterprise performs, including the assets used and, most importantly, the risks undertaken; - the contractual terms; - the economic circumstances of different markets, for example, different countries, wholesale versus retail; and - business strategies, for example, market penetration schemes when a price is temporarily lowered." 9.1 In our opinion, there is a force in the argument of the Id. AR. The Assessing Officer cannot apply the implicit interest rate on India's External Debt, which is unadjusted industrial average. As held by the Special Bench of the Bangalore Bench in the case of Aztec Software & Technology Services Ltd. v. ACIT (supra), we are of the opinion that the unadjusted interest rate in respect of India's External Debt cannot be applied in assessee's case. Before us, t....
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....ng interest from the AE in Indian rupees. Once the transaction between the assessee and the AE is in foreign currency and the transaction is an international transaction, then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. If this is so, then the domestic prime lending rate would have no applicability and the international rate fixed being LIBOR would come into play. In the circumstances, we are of the view that it LIBOR rate which has to be considered while determining the arm's length interest rate in respect of the transaction between the assessee and the AEs. As it is noticed that the average of the LIBOR rate for 1st April, 2005 to 31st March, 2006 is 4.42 per cent and the assessee has charged interest at 6 per cent which is higher than the LIBOR rate, we are of the view that no addition on this count is liable to be made in the hands of the assessee. In the circumstances, the addition as made by the AO on this count is deleted. 9.3. Further, Co-ordinate Bench of Mumbai in the case of Aurionpro Solution Ltd. reported in 33 Taxmann.com 187 "9. On principle, we do concur with the view of the co-o....