TaxTMI 
TaxTMI 
2019 (6) TMI 530
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....nt of interest on loan given by Appellant to its AE, without appreciating the fact that the Appellant has charged interest at 6 months LIBOR + 400 bps on the advances given to the AE after considering the internal CUP of: a) LIBOR+200 bps being interest charged by SB! on foreign currency loans taken by MIL: and b) LIBOR+350 bps being interest charged by foreign bank to MDGM on line of credit advanced to AE 1.3 erred in making the interest adjustment on advances given to AE, without appreciating the fact that the said advances have been provided out of internal accruals of the Appellant and no cost is associated with the said advances: 1.4 erred in not accepting the fact that the advances given by the Appellant to its AEs (wholly owned subsidiaries), were in the capacity of the parent company, under commercial expediency and in business interest of the Appellant itself and hence, is a shareholder activity: 1.5 erred in conducting fresh search analysis using Bloomberg database and thereby converting the floating LIBOR based rate of interest charged by the Appellant into fixed rate of interest at 6.819% while determining the....
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.... No. of Days Opening balance 8,056,996.98 01.04.2011 31.03.2012 365 27.09.2011 (127,700.63) 01.04.2011 26.09.2011 179 01.10.2011 185,508.00 01.10.2011 31.03.2012 92 01.01.2012 99,305.00 01.01.2012 31.03.2012 40 Total USD 7,977,700.63 It was submitted by the assessee that the company has charged interest on the above loan at USD 6 months LIBOR plus 400 basis points. 4.1 In accordance with the decision of Hon'ble Bombay High Court in the case of Tata Autocomp Systems Ltd., it is proposed that the benchmarking of the interest on the said has to be done on the basis of LIBOR. A search 4. The assessee's objection in this regard was rejected by the DRP. The DRP's order is as under: 4.19 The submission made by the assessee has been considered. The assessee has relied on the judgement of Hon'ble ITAT wherein a six month LIBOR+200 bps has been held to be proper arms length interest rate. It has also relied on foreign currency loans obtained by itself at LIBOR+200bps from SBI as well as line of credit advanced to MGDM Inc. at LIBOR+350bps. It has ob....
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....at the TPO has computed interest for the entire year while the actual period of loan was 315 days. The TPO is directed to re-compute the interest based on the number of the days for which the loan was outstanding. 4.24 The assessee has also sought benefit of the safe harbour of 5% as contemplated under second proviso to section 920(2). Needless to say, the assessee would be eligible to the said benefit only if the adjustment is within the specified percentage of the international transaction (the actual interest charged by the assessee). In case the adjustment exceeds the specified percentage, the entire difference would be liable to adjustment. 5. Against the above order, the assessee is in appeal before us. The assessee's submissions are as under: 2.15 At the outset, the Appellant submits that the interest on loans advanced to MDGM at LIBOR+400bps is at arm's length since the Hon'ble Mumbai Tribunal in Appellant's own case for AY 2008-09 to AY 2010-11 has accepted the transaction to be arm's length at floating rate of LIBOR+2% (Copy enclosed at 169 to 182, 183 - 192 and 193204 respectively of the paper-book), In AY 2008-09 (....
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.... the AO/TPO to adopt LIBOR +2% as arm's length interest in respect of loan provided by the assessee to its AE." 2.16 Further, the Tribunal in Appellant's own case for AY 2009-10 in the order dated 13 April 2016 (Refer page no 183 to 192 of the paperbook) has held as under: 7. The line of reasoning adopted in this case, as evident from a reading of the orders of the authorities below, was materially similar to the reasoning adopted in the case of UFO Movies (supra) which has been rejected by the coordinate benches/ Respectfully following the views of the coordinate benches, we uphold the grievance of the assessee and direct the Assessing Officer to delete the impugned arm's length price adjustment of Rs. 1,35,05,896 in respect of interest on loan advanced to the AE. The assessee gets the relief accordingly. 2.17 Also, the Tribunal in Appellant's own case for AY 2010-11 in the order dated 16 September 2015 (Refer page no 193 to 204 of the paperbook) has held as under: "The applicability of interest rate based on LIBOR had come-up for consideration before the Tribunal in the case of the assessee in AY 2008-09 wherein, the Trib....
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...., mode of assessment cannot be changed without reasons in view of the principle of consistency and accordingly, no disallowance is warranted in the instant year: * Radha Saomi Satsang v CIT (193 ITR 321). * CIT v Berger Paints (266 ITR 99 (SC)) * DhansiRam Aggarwalla v CIT (217 ITR 4 (Gau)) * CIT V Shree Ram Memorial Foundation (158 ITR 3 (Del)) * CIT v Neo poly Pack (245 ITR 492 (Del)) * UDI v Kuomidini Narayan Dalal and Another (249 ITR 219 (SC)) * UOl v Satish Panna Lal Shah (249 ITR 221 (SC)) * CIT v J.K. Charitable Trust (308 ITR 161 (SC)) * Racold Thermo Limited (ITA No.1454/PN/2010) dated 11 September 2015 * Affinity Express India Pvt Ltd (ITA No.595/PN/2013) dated 29 April 2015 2.21 In light of the above decisions, it is respectfully submitted that the floating rate charged by the Assessee at 6 months LIBOR+400 bps charged by the Assessee based on Internal CUP available is at arm's length in respect of transaction of loans provided by the Assessee to its AE and thereby the adjustment made by the TPO of Rs. 98,08,615/- should be deleted. Wit....
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....bps. Accordingly the rate adopted of LIBOR+400 bps in the present case is adequate on the fact and circumstance of the case and precedents referred above. The assessee succeeds on its alternative ground also. The DRP has given a direction that the period computed by the TPO for application of interest on loan was to be verified and interest was to be computed for the actual period the loan was outstanding. The A.O./TPO has failed to address this issue. So the amount of adjustment made by the A.O./TPO being erroneous is not sustainable. In any case, this issue is of academic consequence since we have already upheld the rate adopted by the assessee. Hence, we set aside the orders of the authorities below and decide the issue in favour of the assessee. Apropos ground relating to non grant of credit of dividend distribution tax of Rs. 74,01,125/-. 9. The assessee's submissions are as under: 3.1 The Appellant received a notice of demand under section 156 of the Act of Rs. 1,30,75,990/- for the year under consideration. The said demand includes Rs. 74,01,125/- being additional income tax payable on distributed profits. 3.2 In this connect....
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.... floating rate to fixed rate incorporating the period of 5 years (since the loan was not repaid within 5 years and subsequently converted into equity), the rate comes out to 6.819%. Screen shots of the search process are as below: 91) Actions 10 Build/Edit Search: 1. Select Universe Asset Classes 12 Sources 92) Settings 20 3 Example Loans (Tranches) (Include Preliminary Securities) All Securities 2. Select Search Criteria 32) And 33) And 3) And 35) And And Field Security Status Currency Issue Date Loan Spread at Close Is Secured SE RAZER Boundatio Include Include taplecks or by Car Loans Allia (United States Dollar) In the range of 04/01/2007-03/31/2008 Has Data) 2 Actions Search Name 1D Results 20 All (1,673) 3) Analysis Settings Countrywise USD loans in 2011-12 23 Bonds (D) 20 Loans (1,673) 2 Peferreds (0) MAREGIMENS SHOES ROE Group by Country Bath By See Short Descu Loan spread at closejissuer Name 99) UNITED STATES (1049 Average Fixed Income Search Countrywise USD loans in 2011-12 184,988 securities Loan JyE 184,988 102,130 ....
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.... OD 04/01/2007 SY 3M 170.640 04/01/2012 US0003M 1.000000 5.34938 Quarterly Quarterly ACT/360 bp Swap Mana 13) Send to EMIR 17) Matrix Tickers SWAP Properti Valuation Settings Curve Date 04/01/2007 Valuation 04/01/2007 CSA Coll Cey N/A OTS DC Stripping -762,593.62 0.00 -7.63 -446.18 -22 Calculators 10.00000 0.00000 POOT 3224 DV01 4,463.40 Gamma.(1bp) 2.4. The search process and the results were given to the assessee along with show cause notice dated 17.12.2015, wherein it was asked that why the ALP interest on loan should not be computed on basis of the same. a. b. C. d. 4.2 The assessee has submitted its reply vide letter dated 07.01.2016 and an earlier submission dated 10.12.2015 was also filed. The contentions of the assessee are summarized as under: The company is in the business of manufacturing and servicing of web offset printing machinery. The loan was given to the wholly owned subsidiary with a view to enable them to overcome the temporary financial difficulties. The company has given loan out of internal accrual of the....