TaxTMI 
TaxTMI 
2023 (4) TMI 884
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..... CIT (A) has erred in deleting the arm's length price adjustment of Rs. 1,49,23,786/- made by the AO TPO on account of Interest Income on Loan forwarded to AEs. 2 That the Ld. CIT (A) has erred on facts & law by not determining the arm's length rate of interest in accordance with Section 92C of the Income tax Act 1961 (the Act) read with Rule 10B & 10C of Income Tax Rules 1962 (the Rules). 3. That on the facts and the circumstances of the case and in law, the Ld.CIT(A) has erred in stating that the manner of determining the credit rating by the TPO was flawed and erroneous ignoring the fact that the credit rating was determined on the basis of various key elements and by applying the credit rating scale of Standard & Poor. 4. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in applying LIBOR since LIBOR is not the rate of consideration for loans where currency is to be bought and rate of interest to be charged from AE should have factored risk elements like exchange rate fluctuation, entity risk etc. 5. That on the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowances u/s 40(a)(ia) for ....
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....d the credit quality of the borrower i.e. Novenor SAS and benchmarked the interest rate against the comparative interest rates/bond yields of the EURO denominated currency bonds of similar credit quality. From the detailed Economic Analysis set out in the Transfer Pricing Study Report, I find that the appellant had ascertained the credit rating of the borrower at Moody Ba2 (S&P BB+) and ascertained the comparative arm's length interest rate on EURO bond yield curve in the range of 3.52% to 4.22% during the year. Accordingly the equivalent arm's length interest was determined at Rs.37,53,144/- and since the appellant had actually derived interest of Rs.15,47,050/- on loan, the differential sum of Rs.22,06,094/- was suo-moto offered by way of transfer pricing adjustment in the computation of income. 2. On the other hand, upon examination of the transfer pricing order, I find that the Ld. TPO was not in agreement with the TP study of the appellant. From the show cause notice ('SCN') and the transfer pricing order passed by the Ld. TPO, it is noted that according to the Ld. TPO the loans should have been benchmarked at the cost of funds in the hands of the appellant ....
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....P Method, without pointing out the defect in the method applied by the appellant, was not only unsustainable on facts but in law as well. 5. As far as the methodology followed by the Ld. TPO for determination of ALP is concerned, I find that it did not have sanction or support of the five methods set out in Rule 10B or any judicial precedent on this subject. In the impugned order the methodology followed by the Ld. TPO for determining the arm's length interest rate comprised of the following steps viz., (a) determination of cost of funds in the hands of the appellant and (b) credit spread based on the credit rating of the borrower on independent basis. I find force in the submissions of the Ld. AR that the aforesaid methodology applied by the Ld. TPO suffered from numerous infirmities. In fact the manner in which the Ld. TPO determined the ALP was sketchy and unscientific. 6. The Ld. TPO had determined the base rate with reference to the cost of the funds of the appellant i.e. in Indian currency. On the other hand it is Ld. AR's contention that the base rate should be the relevant currency denominated LIBOR rate viz., Euro LIBOR in the instant case. In this regard, I ....
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....s based on sound logic and scientific basis. Unlike the rating methodology of S&P which is based on manual computation of ratios thereby leaving a scope for human intervention and manipulation, I find that the appellant's credit rating report generated from Moody's RiskCalc for Novenor SAS was objective and reasonable. From the TP study I find that the appellant had arrived at the credit rating of the AE at Ba2. Thereafter the appellant has further undertaken a search on Loan Connector database for the said ratings to identity comparable uncontrolled EURO denominated loan instruments and arrived at interest rates of 3.52% to 4.22%. In my considered view the aforesaid method applied by the appellant to determine the ALP interest of the loan advanced to the AE was scientific and logical. I therefore hold that the arm's length interest of Rs.37,53,144/- as determined by the appellant was justified and is upheld. 9. I also find merit in the Ld. AR's alternate contention that it isby now a well-settled view foreign currency denominated loans advanced to AEs should benchmarked against the relevant currency denominated LIBOR rate. Some of the relevant judicial precedent....
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.... rate in that foreign country. In view of catena of judgements relied upon by the CIT(A), further in the decision of the Coordinate Bench of the Tribunal in the case of Russell Credit Ltd. vs. DCIT in ITA No.33/Kol/2018 & 1090/Kol/2017 vide common order dated 17.01.2020 and further of the Coordinate 'C' Bench of the Kolkata ITAT in the case of DCIT vs. M/s Britannia Industries Ltd. ITA No.1390 to 1392/Kol/2017 vide common order dated 22.11.2017, we hold that the ld. CIT(A) rightly applied the case laws and deleted the impugned loan interest arm's length price adjustment made by the Assessing Officer. Ground Nos.1 to 4 are accordingly dismissed. 7. Ground No.5 - Vide Ground No.5, the Revenue is aggrieved by the action of the CIT(A) in deleting the disallowance, made by the Assessing Officer u/s 40(a)(ia) of the Act for non-deduction of TDS on payment of Rs.2,94,000/- paid to St. Xavier's Alumni Association. 8. The Assessing Officer held that the aforesaid payment on account of advertisement was made without deduction of TDS. He therefore made the impugned disallowance, however, the ld. CIT(A) deleted the disallowance so made by the Assessing Officer observing that in the appellant....