TaxTMI 
TaxTMI 
2026 (8) TMI 1331
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....we are inclined to condone the delay and admit the appeal for hearing. 3. The issue raised in ground no.1 to 4 and 8 is against the order of ld. CIT(A) deleting the Arm's Length Price adjustment of Rs. 3,97,99,637 as made by the ld. AO/Transfer Pricing Officer on account interest on loan. 3.1. The facts in brief are that the assessee is a public limited company engaged in processing of coal tar & coal tar pitch to produce various products of coal tar pitch and valuable products like Oil, Naphthalene, etc. The company filed the return of income on 30.11.2012, declaring total income at Rs. nil under normal provisions and book profit of Rs. 80,89,27,608/- u/s 115JB of the Act. The case of the assessee was selected for scrutiny and the notices along with questionnaire duly issued and served upon the assessee. The assessee company has also two Windmills in Maharashtra having capacity to produce wind energy of 2.5 MW. The assessee entered into international transactions with its associated enterprise M/s Himadri Global Industries Ltd. (HGIL) and accordingly, the matter was referred to the ld. Transfer Pricing Officer for determining the Arm's Length Price (ALP), who computed the ad....
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....k. The id. TPO finally noted that Arm's length interest would be calculated by applying credit spread to the cost of funds to the assessee. For the brought forward loan he calculated the weighted average cost of funds for assessee at 4,47% and the credit spread for CCC rated borrower at 600 basis points and computed the Arm's length interest at 10.47%. He further noted that the assessee converted the past year loan of Rs. 44,48,36,000 into equity of HGIL towards investment of 70,000,000 shares of HGIL w.e.f. 01-01-2011. The Id. TPO treated this entire investment as interest free loan, In respect of fresh loan given during the year by the appellant to HGIL, the id. TPO calculated the Arm's length interest by adding LIBOR plus 63 bps i.e. 1.15% to the credit spread of 600 basis points at 7.15% 4.6 The appellant, objecting to the observations made by the TPO, has relied on several judicial precedents which have consistently held that the domestic prime lending rate is not applicable in the context of international transactions. Instead, the international rate, such as LIBOR, should be used as the benchmark rate for evaluating such as LIBOR, should be used as the b....
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.... the assessee is to be seen and considered and not effect on the cost or income of the AE. Therefore, the tested party is always the taxpayer and not the AE. None of the factors under the Transfer Pricing Regulations require to consider whether the AEs would have incurred or earned more or less, but it is always considered whether the assessee had earned more or less by doing a similar transaction with an unrelated party. 8.11 Even under Rule 10B of the IT Rules, the factors prescribed for inclusion or exclusion of comparable to determine the ALP are also based on the comparison of the assessee with the chosen entities and the AE has no rule in the exercise of selecting the comparable. Thus, in our view, the interest that would have been earned by the assessee by advancing or placing the said amount with unrelated parties would be the Arm's Length interest in relation to the interest free loans/advances to the AE. The safest comparable, which can be taken as Arm's Length interest rate in such a case would be the interest on FD with the bank for a term equivalent to the term for which the loans given to the AEs. 8.12 It is pertinent to note that in case of ....
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....nt exceeds the benchmark interest rate in Hong Kong, which was approximately 0.5%. The appellant also highlighted that HGIL had secured a loan from HSBC Bank in Hong Kong during the current year at LIBOR + 275 basis points, serving as an extremal comparable. In contrast, the assessee charged interest at LIBOR + 350 basis points. This indicates that the interest rate charged by the assessee was higher than the local lending rate in Hong Kong. Applying the CUP (Comparable Uncontrolled Price) method, it is evident that the lending rate applied by the assessee was at arm's length, as even an external comparable, HSBC Bank, had charged a lower rate than the assessee. The Ld. TPO's approach does not reflect comparable prices charged by independent lenders, making it less appropriate than the methodology employed by the assessee, 4.9 In view of these facts, no upward adjustment is warranted in this case, as the transaction is demonstrably at arm's length. Accordingly, the AO is directed to delete the TP adjustment of 3,97,99,637/-. This ground of appeal is therefore allowed. 4.5. Addition u/s 92CA on Arm's length price of SBLC fee - Rs. 9,92,126/- For the....
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....om the following decisions:- a). Commissioner of Income-tax-2 vs. Tata Autocomp Systems Ltd. [2015] 56 taxmann.com 206 (Bombay)/[2015] 230 Taxman 649 (Bombay)/[2015] 374 ITR 516 (Bombay)/[2015] 276 CTR 481 (Bombay)[03-02-2015], wherein it has held as under: "7. We find that the impugned order of the Tribunal inter alia has followed the decisions of the Bombay Bench of the Tribunal in cases of VVF Ltd. v. Dy. CIT [IT Appeal No. 673 (Mum.) of 2006] and Dy. CIT v. Tech Mahindra Ltd. [2011] 12 taxmann.com 132/46 SOT 141 (Mum.) (URO) to reach the conclusion that ALP in the case of loans advanced to Associate Enterprises would be determined on the basis of rate of interest being charged in the country where the loan is received/consumed. Mr. Suresh Kumar the learned counsel for the revenue informed us that the Revenue has not preferred any appeal against the decision of the Tribunal in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra) on the above issue. No reason has been shown to us as to why the Revenue seeks to take a different view in respect of the impugned order from that taken in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra). The Revenue not having filed any app....
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....following were the relevant observations of CIT(A): "4.2 I have considered the facts of the case. The assessee had advanced a loan in foreign currency to its subsidiary ZAO Classic, Russia on which it was charged interest at the rate of 8% p.a. The TPO was of the view that price of the loan i.e. the interest charged has to be worked out on the basis of taking two parties as separate and bench-marking the price of the loan on the basis of what an independent third party would charge from ZAO Classic, Russia based on its analysis of risk associated with the loan. The assessee stated in reply to show cause notice issued by the TPO, that foreign currency loans are given by banks bearing UBOR based rate as a global practice. The average of LIBOR based rate for the year under consideration was 4.68%. Thus the rate of 8% charged by the assessee was higher than the LIBOR rate. The assessee also relied upon a number of decisions, in particular the decision of ITAT, Chennai in the case of Siva Industries and Holdings Ltd. v. ACIT, Central Circle-6(1) Chennai 46 SOT 112. In the appellate proceedings the assessee has cited some more decisions such as Four Soft Ltd. v. DCIT in ITA No. ....
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....wherever the transaction of loan between the associated enterprises is in foreign currency then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. Therefore the domestic prime lending rate would have no applicability and the international rate LIBOR would come into play. It has therefore been held that LIBOR rate has to be considered while determining the arms length rate of interest in respect of transactions of loan in foreign currency between the associated enterprises. This view has also been accepted by the Hon'ble Delhi High Court in the case of CIT v. Cotton Naturals (I) Ltd. 276 CTR 445 (Delhi) and by the Hon'ble Bombay High Court in the case of Tata Auto Comp System Ltd. approving the decision of ITAT in the case of Tata Auto Comp Vol.52 SOT 48 (Mum). In view of the above settled legal position we find no merits in ground no. 1 and dismiss the same." 14. Respectfully following the above binding precedent, we uphold the contention of the assessee, since the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench in ITA No. 2149/Kol/2014 for Assessment....
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....cedents, which established that for a corporate guarantee to qualify as an international transaction under Section 92B of the Income Tax Act, 1961, it must be issued primarily for the benefit of the AE, incur a cost to the assessee and have a direct impact on the profits, income, losses, or assets of the enterprise. 4.7 The Ld. TPO, however, held that the guarantee was given by SBI out of the sanction limit of Himadri India and thus, the assessee had incurred certain cost in creation of liability with SBI. Accordingly, arm's length price of SBLC fee was computed @ 1.62% by the learned Ld. TPO at Rs. 9,92,126. 4.8 In the case of Tega Industries Ltd. I.T.A. No. 539/Kol/2022, the hon'ble Kolkata ITAT vide order dated 08-04-2024 held that corporate guarantee fee constitutes an international transaction subject to ALP and 0.5% as the appropriate rate for the same. The relevant extract is as follows: "so far as the Ground relating to calculation of corporate guarantee fee is concerned, we find that this issue has come up before various judicial forums and corporate guarantee fee range of 0.2% to 0.5% has been found to be justified. We find support from ....
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....t authority i.e. DSIR under the Ministry of Science and Technology, Govt. of India. The assessee also produced the copy of audited report in respect of claim of expenses of Scientific Research and Development. The ld. AO noted that in the said report the auditor had indicated that deduction u/s 35(2AB) of the Act on in-house Research and Development expenditure was Rs. 258.44 lacs as per DSIR, guidelines. The ld. AO noted that the assessee had claimed deduction on account of expenditure u/s 35(2AB) of the Act of Rs. 885 lacs comprising 156.64 lacs as revenue expenditure and Rs. 728.36 on account of capital expenditure. Therefore, the assessee has claimed the excess deduction to the tune of Rs. 626.56 lacs being difference of Rs. 885.00 lacs and 258.49 lacs. The ld. AO noted that since the assessee has claimed 200% of 626.56 which comes to 1253.12 lacs and the same was added to the taxable income. 5.2. During the appellate proceedings, the ld. CIT(A), allowed the appeal of the assessee on this issue by observing and holding as under:- "4.10 The appellant-company Incurred certain expenditure on In-House Research & Development at Mahistikry Unit, Haripal, Dist. Hooghly, wh....
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.... & D facility is approved by the prescribed authority, i.e.. DSIR by issuing Form No.3CM, the expenses Incurred by the assessee have to be allowed u/s 35(2AB) of the Act. Reliance was also placed on the judgment of Hon'ble ITAT, Delhi in the case of Eicher Motors Limited vs JCIT (ITA Nos.133 & 8739/DEL/2019) wherein it was held that expenditure eligible for deduction under section 35(2AB) of the Act cannot be restricted to the amount of expenditure certified by Department of Scientific and Industrial Research ('DSIR') in Form 3CL. 4.13 The Ahmedabad Bench of the hon'ble Tribunal in the case of M/s. Sun Pharmaceutical Industries Ltd., reported in (2017) 162 ITD 484 (Ahmedabad Trib.) had held that Form No.3CL is merely a report in the form of an intimation regarding approval of in-house R & D facility to be sent from prescribed authority to the Department and once the facility is approved in Form No.3CL, the expenses incurred within the notified period have to be allowed u/s 35(2AB) of the I.T.Act. The said order of the Tribunal was affirmed by the Hon'ble Gujarat High Court in the case of CIT v. Sun Pharmaceutical Industries Ltd. reported in 250 Taxman 2....