2018 (3) TMI 1901 - AT - Income Tax

TP Adjustment - ALP determination - DRP applying Prime Lending Rates with respect to outstanding receivables from Associated Enterprises (AEs) rather than applying LIBOR rate of interest - HELD THAT - As relying on TECNIMONT ICB HOUSE MUMBAI VERSUS DCIT-9 (3) MUMBAI 2015 (7) TMI 602 - ITAT MUMBAI we hereby hold that in the case of the assessee also LIBOR rate may be adopted instead of Prime Lending Rate. It is ordered accordingly.

Summary

Issues:
Application of Prime Lending Rates vs. LIBOR rate of interest on outstanding receivables from Associated Enterprises (AEs).

Analysis:
The appeal was against an order by the Dispute Resolution Panel related to the assessment year 2012-13. The main contention was the use of Prime Lending Rates instead of LIBOR rate for interest on overdue receivables from AEs. The assessee, a private limited company providing telecom software solutions, initially declared nil income but later revised it. The assessment was completed with an upward adjustment by the Transfer Pricing Officer (TPO) based on prime lending rates. The DRP upheld this decision.

The assessee argued for the application of LIBOR rate instead, citing a Mumbai Tribunal decision in a similar case. The Tribunal agreed with the assessee, referencing previous cases where LIBOR was deemed appropriate for such calculations. The Tribunal directed the Assessing Officer to use LIBOR rate for interest calculations on delayed payments from AEs. The decision was based on the principle that LIBOR rate is more suitable for such transactions.

Ultimately, the Tribunal allowed the appeal of the assessee, ordering the use of LIBOR rate instead of Prime Lending Rates for interest calculations on outstanding receivables from AEs. The decision was in line with previous rulings and aimed at ensuring a fair assessment of interest on delayed payments.

This detailed analysis highlights the key issues, arguments presented by both parties, relevant legal precedents, and the final decision of the Tribunal favoring the assessee's appeal based on the use of LIBOR rate for interest calculations.