2016 (6) TMI 1386 - AT - Income Tax

TP Adjustment - TPO attributed 100 percent of the loan syndication fee income to the Appellant and Nil to the AE - assessee submits that in similar type of cases the Hon ble Tribunal held that only 20 to 25% loan syndication fee is attributable to the assessee but not 100% as was done by the Assessing Officer - HELD THAT - As relying on Calyon Bank Vs DDIT 2014 (3) TMI 1158 - ITAT MUMBAI and M/s. Credit Lyonnais Vs ADIT 2014 (7) TMI 1 - ITAT MUMBAI we restore this issue to the file of the Assessing Officer to follow the decisions and decide the issue in line with the above decisions for allocation of loan syndication fee between the assessee and its AE after giving opportunity of being heard to the assessee.

Issues Involved:
1. Adjustment of loan syndication fee and its allocation between the assessee and its Associated Enterprise (AE).
2. Application of the Comparable Uncontrolled Price (CUP) method for benchmarking the transaction.
3. Determination of Arm's Length Price (ALP) for the syndication fee.

Detailed Analysis:

1. Adjustment of Loan Syndication Fee and Its Allocation:
The primary issue in the appeal is the adjustment of the loan syndication fee and its allocation between the assessee and its AE. The assessee contested the attribution of 100% of the loan syndication fee income to itself by the Assessing Officer (AO) and Transfer Pricing Officer (TPO), arguing that this was done without considering the functions performed, assets employed, and risks assumed by both parties. The TPO's position was that the loan was possible only due to the efforts of the Indian entity, and the AE's activities were routine. The TPO also noted that the AE benefited from risk spread and favorable terms due to syndication, which justified the allocation of the entire fee to the assessee. The CIT(A) upheld this view, leading to an adjustment of Rs. 7,15,60,236.

2. Application of the Comparable Uncontrolled Price (CUP) Method:
The assessee argued that the CIT-A erred in applying the CUP method to benchmark the loan syndication transaction, stating it was applied erroneously. The TPO had used the CUP method to determine that the entire syndication fee should be attributed to the assessee, but the assessee contended that this approach was incorrect and did not reflect the actual functions and risks involved.

3. Determination of Arm's Length Price (ALP) for the Syndication Fee:
The Ld. Counsel for the assessee referenced previous tribunal decisions (Calyon Bank Vs DDIT and M/s. Credit Lyonnais Vs ADIT) where only 20-25% of the loan syndication fee was attributed to the assessee. These cases highlighted that the role of the Indian branch was crucial but not solely responsible for the syndication, thus justifying a lower attribution percentage. The tribunal in these cases determined that the ALP should be based on a reasonable allocation of the syndication fee, considering the services provided by both the Indian entity and the AE.

Tribunal's Findings:
The tribunal reviewed the rival contentions and relevant decisions. It found that in similar cases, the tribunal had attributed only 20-25% of the syndication fee to the Indian entity. The tribunal noted that the assessee's role was significant but not the sole contributor to the syndication process. It directed the AO/TPO to follow the precedent set in the earlier cases and allocate the syndication fee accordingly, ensuring a fair distribution based on the services performed by both parties.

Conclusion:
The tribunal restored the issue to the AO to follow the decisions in similar cases and decide the allocation of the loan syndication fee between the assessee and its AE in line with those decisions. The appeal was allowed for statistical purposes, providing the assessee an opportunity to present its case again.

Order Pronounced:
The order was pronounced in the open court on 24th June 2016.

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