TaxTMI 
TaxTMI 
2021 (10) TMI 276
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....ed in assessing the income of the Appellant at Rs. 15,32,52,150/- as against the returned income of Rs. 13,76,59,264/-. 3. That on the facts and in circumstances of the case and in law, the Learned Assessing Officer/Learned Transfer Pricing Officer and Learned DRP has grossly erred in making an addition of Rs. 26,23,286 on account of the interest received by assessee on loans extended to its associated enterprises ('AEs') and in doing so the Ld. DRP has erred in: a. not considering the economic analysis performed by the assessee for benchmarking such interest rates; and b. proposing the addition based on arbitrary selection of arm's length interest rate without any basis. 4. That on the facts and in circumstances of the case and in law, the Learned Assessing Officer and Learned DRP has grossly erred in disallowing a sum of Rs. 72,23,773/- out of total interest expenses of Rs. 10.78 crores on account of lower interest charged @ 6% instead of 16% from its wholly owned subsidiary company whereas the appellant company had actually paid interest on borrowed funds at much lower rates. 5. The Learned Assessing Officer and Learned DRP has wr....
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.... "13.2 As discussed above, the interest rate for the loan given in different currencies is not the same and for the purpose of transfer pricing, the interest rate on a loan in a particular currency should be benchmarked against the prevailing interest rate for loan denominated in' that currency only and not against that for loan denominated in other currencies i.e., the interest rate for Dollar loan should bench marked again the prevailing interest rate for Dollar loans such as LIBOR or EURIBOR for US Dollar loan and not against the interest rates for Rupee loan. Even the India Public sector Banks charge different interest rate for foreign currency loans and peg the interest rates on such loans to LIBOR or EURIBOR, i.e., charge interest rate of 2.5% to 5% above LIBOR/EURIBOR depending upon the tenure and credit rating of the borrower etc. The contention of the assessee is accepted that the US LIBOR will be taken for calculating the rate of interest charged by the assessee on loans advanced to the AE." 13.2 Therefore in light of the above facts each foreign currency loan will be benchmarked using libor/Euribor rate and as the loan is fixed and not floating, the rate....
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....arged interest @ 8.138% and quarrel is restricted to 2%. 11. The ld. counsel for the assessee has heavily relied upon the decision of the Hon'ble Delhi High Court in the case of Bharti Airtel ITA No. 606 of 2014. The following observations of the Hon'ble High Court would make the facts of the case under consideration totally distinguishable: "8. The ITAT has also taken note of the fact that two specific comparables of USD borrowings i.e. L&T and Seri Infrastructure, on the interest rate of Libor had been taken into consideration. There is no material whatsoever, save and except for vague observations about weak financials of the subsidiaries - which are not supported by any specific facts and proceed on sweeping generalizations and assumptions, to reject the comparables taken by the assessee. When a Transfer Pricing Officer rejects comparables taken by the assessee, he has to set out specific, cogent and legally sustainable reasons for doing so. On this point, therefore, the stand of the Assessing Officer cannot be accepted." 12. It can be seen from the above that the Hon'ble High Court has not accepted the contention of the revenue because no supporting ....
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....ebt loan upto US$ 7 million. The above facts have to be considered alongwith the fact that UUL has its Registered Office in the State of the Delaware, USA and in its fourth year of operations, it employed four employees for managing its warehousing operations. 15. Relevant clauses of the agreement with UBV are as under: "1. AMOUNT The Borrower agrees to borrow from UIL and UIL agrees to lend to the Borrower for the purpose of operational needs (the "Purpose"), a junior debt funding not exceeding EUR 7,10,000/- ("the Loan"). The Borrower shall not use the Loan provided under the Agreement for any illegal purposes. 2. INTEREST The Borrower shall pay to UIL interest on the principal amount of die Loan outstanding form time to time quarterly in each year. The rate of interest shall be Euribor plus 2.00 Bps pa. Interest shall accrue from day to day and shall be computed on the basis of 365 days year and the actual number of days elapsed. However, Lender agrees that in case of non-payment merest by Borrower, the same shall be accumulated and be added in its principle amount. 3. REPAYMENT Notwithstanding anything to the contrary con....
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.... 16% per annum and paid of Rs. 10.78 crores to the banks. The Assessing Officer further found that the assessee has given loan to its wholly owned subsidiary company M/s Unilink Engineering Company Pvt Ltd @ 6% only and total interest recovered from subsidiary company was Rs. 43,34, 264/-. 20. When the assessee was asked to explain why commercial interest rate was charged from subsidiary company, the assessee stated that since the subsidiary company was incurring losses, the management decided to charge lesser rate of interest. 21. The Assessing Officer was not convinced with this explanation of the assessee and made addition of Rs. 72,23,773 out of interest expenses of Rs. 10.78 crores being shortage in interest recovered from subsidiary. 22. Objections were raised before the DRP and the following submissions were made: * "M/s Unilink Engineering Pvt. Ltd. is a wholly owned subsidiary of the asseseee company which is holding 100% Equity Shares of M/s Unilink Engineering Pvt. Ltd. and both the companies are engaged in the same business of manufacturing of tractor parts and accessories. * M/s Unilink Engineering Pvt. Ltd is continuously running into losses....
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....e has also been one through. The arguments of assessee that in earlier years no disallowance has been made out of interest expenses on charging interest from subsidiary at lower rate is not relevant as principle of res-judi-cata is not applicable to income tax proceedings. As regards assessee's argument that the loan advanced to M/s Unilink Engeering Pvt. Ltd. can be presumed out of accumulated profits and reserves is also not acceptable as the accumulated profits and reserves has already been invested in the form of other assets. The assessee arguments that effective rate of payment of interest by it comes to 6.61% is mathematical statement only which cannot change the fact that it is paying interest to Bank @15-16% which has not been disputed. As regards assesses justification for charging substantially lower rate of interest from M/s Unilink Engineering pvt. Ltd. being its wholly subsidiary which is engaged in same business is not acceptable again as the assessee and it wholly subsidiary are two different and distinct assessable: entities. Therefore, assessee has to justify the expenses claimed by it and allowability thereof as per provisions of Income tax act. As regards as....
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....er found that an amount of Rs. 1149.16 lakhs was claimed during the year as against Rs. 488.74 lakhs claimed last year under the head Ocean/Airfreight and Marine Insurance. 29. On comparing the financials of FY 2007-08 and FY 2008-09, the Assessing Officer was of the opinion that Air/ocean freight charges are highly unreasonable compared to the performance of the company. The assessee was asked to justify the increase in Air/ocean freight and marine insurance. 30. On receiving no plausible reply, the Assessing Officer made adhoc disallowance of 10% amounting to Rs. 1,14,91,649/-. 31. Objections were raised before the DRP and before the DRP, the assessee furnished documentary evidences. 32. The DRP called for report from the Assessing Officer who, in his report dated 18.11.2013 mentioned that the details of Ocean/air freight marine insurance with copies of air freight bills have been filed but no justification for increase in expenses was given. 33. The report was forwarded to the assessee and in its rejoinder, the assessee explained that it is receiving export orders from almost all of its customers on the CIF at port of delivery. It was explained that the cost of fr....