AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (4) TMI 107
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....e of assessee is that Uniparts Group has entered into a 50:50 Joint Venture agreement with Kavee Hydraulics in Holland in January 2007. Kavee Hydraulics was thereafter named as Uniparts Kavee B.V (UBV"). The core business of UBV is the development and production of high-quality cylinders, hydraulic power units, hydraulic hose and mechanical parts. It is also engaged in the distribution of products bought from UIL. 3. A brief background to proceedings before us is that in the impugned orders TP adjustment was made of Rs. 26,23,286/- alleging interest income received form AE on loan is not at arm's length. This is challenged by way of ground no. 3. 3.1 Disallowance of interest expense was made to the extent of Rs. 72,23,773, which was challenged by ground no. 4. 3.2 A disallowance of Rs. 57,45,825 was made on account of expenses incurred on ocean, air freight and marine insurance, covered by ground no. 5. 3.3 Then by order dated 30/09/2021 a co-ordinate bench had has partly granted relief to the assessee with regard to ground no. 4 and 5 but decided ground no. 3 against the assessee by following findings: "10. Insofar as the second loan given to UBV is concerned,....
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....nate to any loan, existing or future, taken by the Borrower from any bank or financial institutions. 3. CONVERSION OF LOAN Notwithstanding anything to the contrary contained in the Loan Agreement, the UUL agrees that the outstanding Loan (together with accumulated interest/if any) may be converted into common stock or preferred stock of the UUL at any point of time with the mutual consent of both the parties. 4. SECURITY FOR THE LOAN UIL agrees that the Loan together with all interest stipulated in or payable under the Loan Agreement shall be free from security. The Lender agrees that Borrower shall not be required to give any kind of security for the above Loan." 13.1 A perusal of the above show that UUL agreed to repay the loan as and when sufficient funds are available with it and if not repaid, then agreed that the outstanding loans, together with accumulated interest, to be converted into common stock or preferred stock of UL at any point of time. 14. We are of the considered view that these clauses in the loan agreement are nothing but eye-wash as the appellant company is the holding company of the borrower and have sancti....
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....ecision of the Hon'ble High Court of Delhi [supra] relied upon by the ld. counsel for the assessee. In all other decisions of the coordinate benches, relied upon by the ld. AR, the benches have followed the decision of the Hon'ble High Court of Delhi [supra], therefore, they are also distinguishable from the facts of the case. 17. Further, reliance was placed on the decision of the coordinate bench in the case of Aurionpro Solutions Ltd. v. Addl. CIT [2013] 33 taxmann.com 187/27 ITR [T] 276 (Mum.) wherein the coordinate bench, using its discretion, applied LIBOR + 2% whereas the TPO took the ALP LIBOR +3%. In our considered view, the coordinate bench; in its wisdom and discretion, took a particular view on the facts of that case in hand. 18. Considering the facts of the case in hand in light of the two loan agreements mentioned elsewhere, and considering the fact that the assessee itself has charged interest @ 8% in the case of UL and 6.138% in the case of UBV, we do not find any error or infirmity in the transfer pricing approach of the TPO upheld by the DRP. Ground No. 3 with all its sub-grounds is dismissed." 3.4 However, assessee succeeded before Ho....
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....773/- (1,15,58,037- 43,34,264) and to that extent interest expenses of Rs. 10.78 crores was proposed to be disallowed by AO. 5. The assessee challenged before DRP submitting that M/s Unilink Engineering Pvt. Ltd. is a wholly owned subsidiary of the assessee 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 Capital of M/s Unilink Engineering Pvt. Ltd. was morally 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 Engineering Pt. Ltd was not very positive and it was incurring continuous operating losses, the assessee company has decided to charge the interest @ 6% per annum to avoid further increase in operating....
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....see has to justify the expenses claimed by it and allowbility thereof as per provisions of Income tax act. As regards assessee's claim of applicability of 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." 7. Ld. AR has relied decision of Hon'ble Jurisdictional High Court in case of Bharti Airtel Limited in ITA 606/2014 where in Hon'ble High Court vide order dated 25 February 2015 has upheld a co-ordinate bench decision that the adjustment for risk and lack of security are not valid as the assessee has lent money to its subsidiary under its management and control. This factor reduces the risk rather than increasing it. 8. We find that the Hon'ble jurisdictional High Court, in para 10 of Bharti Airtel Limited (supra) has explicitly stated that lending to subsidiaries reduces risk and there is no rationale fo....