TaxTMI 
TaxTMI 
2026 (2) TMI 1133
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....ttling and distribution of beverages of Pepsi brand in geographically pre-defined territories during the financial year under consideration. During the course of assessee proceedings, it was noticed that the assessee company has entered into various International Transactions & specified domestic transactions with its Associated Enterprises during the year under consideration. Accordingly, the case was referred to Transfer Pricing Officer on 17/09/2019 u/s 92CA of the Act. Thereafter, the TPO-3(3)(1), New Delhi passed the order dated 31/01/2021 u/s 92CA(3) of the Act by proposing the income of the taxpayer to be enhanced by Rs. 57,86,557/- as arm's length price of the international transaction on account of Interest on receivables Rs. 7,68,229/- made on account of interest on loan to Varun Beverages Mozabique Limited Rs. 20,87,676/- made on account of interest on loan to Varun Beverages (Zambia) Ltd and Rs. 2,55,89,316/- on account of Interest on loan to Varun Beverages Morocco SA. Thus, enhanced the basis of arm's length price of the international transaction by determining at Rs. 3,42,31,778/-. 3. A draft assessment order came to be passed u/s 144C of the Act on 12/04/....
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.... the learned CIT(A) erred both on facts and in law in confirming addition/ adjustment of Rs. 57,86,557/- to Arm's Length Price by charging notional interest on outstanding receivables from AEs by disregarding the law settled by the Hon'ble jurisdictional Delhi High Court in the case of PCIT v Kusum Healthcare (ITA 765/Del/2016). 5. That on the facts and in the circumstances of the case, the learned CIT(A) erred both on facts and in law in confirming addition/ adjustment of Rs. 57,86,557/- to Arm's Length Price by charging notional interest on outstanding receivables from various Associated Enterprises for delayed period by relying upon various case laws which are distinguishable on the facts of the appellant's case. 6. That on the facts and in the circumstances of the case, the learned CIT(A) erred both on facts and in law in confirming addition/ adjustment of Rs. 2,84,45,221/- in determining arm's length price in relation to international transaction of Interest on loan extended to Associated Enterprises in foreign currency by arbitrarily rejecting (i) the arm's length price used by the appellant for benchmarking interest income o....
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....ing profit margin of 11.36% & OP/OC of 12 82% at entity level which is higher than the OPM & OP/OC of comparable companies of (5.13% to 10.74%) & (5.40% to 12.04%) respectively of 35th and 65th percentile of comparable companies. Further submitted that, in respect of transactions of management and technical & know how services provided, the appellants OP/OC is above 100% which is more than the OP/OC range earned by the comparable companies which is between 3.84% to 11.99%. The Ld. Counsel has also relied on order of the Co6 ordinate Bench of the Tribunal in the case of Dabur India Ltd. v. DCIT Circle 7(1) (2024) 160 taxmann.com 595 (Delhi) (Trib.) (AY 2012-13 to AY 2014-15). Thus, sought for allowing Ground No. 1 to 5 of the Assessee. 8. Per contra, the Ld. Department's Representative vehemently submitted that charging of interest is a separate transaction just be benchmark separately and the TPO has rightly charged LIBOR + 400 basis points which requires no adjudication at the hands of the Tribunal. 9. We have heard both the parties and perused the material available on record. It is the specific case of the Assessee that the transaction of outstanding receivables is ine....
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....does not charge interest from both Associated Enterprises and Non-Associated enterprises on outstanding receivables. Thus the Assessee has not made any distinction between AE and non AE in charging the interest made on outstanding received, therefore, the adjustment made on account of Arm's length adjustment is not sustainable as held in the following decisions. a) CRM Services India Pvt. Ltd. Vs. ACIT, Circle 6(2) [15.07.2019] ITA No. 432/del/2016; A.Y 2011-12 (ITAT-Delhi) b) Toshiba Technical Services International Corporation Vs. ACIT, International Taxation [2022] 145 taxmann.com 474 (Ahmedabad-Trib.) c) Vinod Kumar Diamonds. Ltd. vs. Dy. CIT (2020) 81 ITR 46 (SN) (Mum) (Trib.) 12. In view of the above, we find merit in the Grounds of Appeal No. 1 to 5 of the Assessee, accordingly, the adjustment made by the A.O./TPO to Arm's Length Price on notional interest on outstanding receivable from various Associated Enterprises are hereby deleted. Thus, the Ground No. 1 to 5 of the Assessee for Assessment Year 2017-18 are allowed. 13. Ground No. 6 & 7 are regarding the adjustment of Rs. 2,84,45,221/- made in in Arm's Length Price in relation to inte....
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....ged by the appellant is quite justified 16. As per the Ld. Assessee's Representative the AO made arbitrary upward adjustment amounting to Rs. 2,84,45,221/- to Arm Length Price of interest on loan extended to various Associated Enterprises on the basis of 6 months average LIBOR rate of calendar year 2017 plus 400 basis points. Further, it is contended that no adjustment in ALP is warranted when transaction is benchmarked as per internal CUP. The Assessee has taken foreign currency loan from bank @ 6Months Libor + 2.65%, which has not been disputed by the Revenue. 17. The Hon'ble High Court of Rajasthan in the matter of CIT v. Vaibhav Gems Ltd. [2017] 88 taxmann.com 12 (Raj.), wherein Assessee therein advanced loan to associated enterprise in foreign currency on which no interest was charged. The TPO proposed ALP adjustment at the rate of LIBOR plus 2% credit spread in respect of the aforesaid loan. The Tribunal confirmed the adjustment prevailing at the rate of LIBOR plus 2% on account of interest free loans provided by Vaibhav Gems Ltd (Assessee therein) to its associated enterprise for the relevant assessment year. The Hon'ble High Court of Rajasthan held that th....