TaxTMI 
TaxTMI 
TaxTMI 
2021 (10) TMI 276
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....2,150/- 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 wrongly, arbitrarily and without appreciating the facts of the case, erred in disallowing 5% of....
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...., 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 of libor/Euribor will be the rate on the day the loan was taken by the assesses. Additional markup of 4% shall be added as the credit rating of the loan ....
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....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 facts have been given for assumption of weak financials of the subsidiaries, whereas, in the case in hand, the TPO has given specific reasons for adopting credit rating of BB, which prompted him to adopt the LIBOR rate with add on of 400 basis points. 13. A perusal of the loan agreement between the appellant and UUL show t....
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....rees 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 contained in the Loan Agreement, the UIL agrees mat the Loan shall be repayable by the Borrower when sufficient funds are available with the Borrower. In no event UIL shall force to the Borrower to pay the Loan amount. The Loan amount shall be treated as subordinate to any loan, existing or future, taken by the Borrower from any bank or financial institutions. 4. CONVERSION OF LOAN Notwithstanding anything to the contrary co....
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....s, 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 due to heavy capitalization in machineries equipments etc. and it was in need of money to meet its day to day requirements. * Since, M/s Unilink Engineering Pvt. Ltd was not able to get the required bank loans the assessee company being the owners of 100% Equity Capita! of M/s Unilink Engineering Pvt Ltd was miorally bound to help M/s Unilink Engineering Pvt Ltd in the situation of financial crises and accordingly extended the loans. * As the financial conditions of M/s Unilink Engine....
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....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 assessee's claim of applicability or decision .of the/apex court in the case of S.A. Builders Ltd. (Supra) we are of the opinion that commercial expediency of assessee in advancing loan to its subsidiary at lower Rate could not be established by the assessee either before AO or before DRP. We are therefore of the opinion that AO has rightly - proposed this disallowance. The same is, therefore, upheld and this objection of the assessee is rejected." 24. Before us, the ld. counsel for the assessee explained the commercial expediency of gi....
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....% 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 freight as per terms of delivery was sole responsibility and liability of the assessee company. 34. Once again, a report was called from the Assessing Officer by the DRP and in his report, the Assessing Officer mentioned that the assessee has not furnished any documentary evidence to substantiate the claim about teething problems faced by it or the shifting of production facility from Visakhapatnam to Noida on account of non- availability of castings, etc. 35. After carefully perusing the submissions, rejoinder and report from the AO, the DRP was of the view ....