9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (10) TMI 1621 - AT - Income TaxTP Adjustment - interest rate for loan advanced to foreign subsidiary by Indian company - HELD THAT - We find that there is no dispute that the interest paid by the assessee on ECB is within the range of interest payment sanctioned by RBI in its master circular being LIBOR 500 basis points. As per two tribunal orders cited by ld. AR of assessee, it was held that this is a valid basis to determine the ALP of interest payment on ECB. Regarding judgment of in the case of CIT vs. Cotton Naturals (I) (P.) Ltd 2015 (3) TMI 1031 - DELHI HIGH COURT cited by ld. DR of revenue, we find that as per this judgment also, interest rate for loan advanced is to be determined as per market rate applicable on the basis of interest payable on currency in which the loan has to be repaid. In the present case, loan has to be repaid in EURO and therefore, EURIBOR 500 basis points is proper for determining the ALP of interest payment as per this judgment also. Thus the revenue gets no help from this judgment rather this judgment of Hpn ble Delhi High Court supports the case of the assessee. Hence we delete the addition made by the AO and TPO. Appeal filed by the assessee is allowed.
Issues:
1. Assessment order and Transfer Pricing Order validity 2. Determination of arm's length price by the TPO 3. Interest under section 244A of the Act 4. Directions issued by the Ld. DRP 5. Penalty proceedings Assessment order and Transfer Pricing Order validity: The appeal was against the assessment order dated 13.10.2016 for Assessment Year 2012-13 passed by the AO under section 143(3) r.w.s. 144C of the IT Act, 1961 as per the directions of DRP. The grounds raised by the assessee challenged the validity of the Assessment Order and Transfer Pricing Order. The issues included errors in making adjustments to the arm's length price with respect to interest paid on External Commercial Borrowing (ECB), violation of natural justice principles, lack of opportunity for the appellant to be heard, rejection of ECB benchmarking analysis by the DRP, and rejection of the Transfer Pricing Study without providing cogent reasons. The Tribunal considered these grounds and ultimately allowed the appeal, deleting the addition made by the AO and TPO. Determination of arm's length price by the TPO: The TPO's errors in disregarding EURIBOR as the basis for benchmarking arm's length price of interest paid on ECB, computing the effective rate of interest paid on ECB at 7.90% instead of 6.65%, and adopting the foreign AE as the tested party were highlighted. The TPO also erred in adopting the Spanish PLR as the external benchmark rate and not considering the internal CUP data furnished by the appellant. The Tribunal, after considering the submissions and relevant judgments, found that the interest paid by the assessee on ECB was within the range sanctioned by RBI in its master circular. The Tribunal referred to tribunal orders and a judgment of the Hon'ble Delhi High Court to support the validity of using EURIBOR + 500 basis points for determining the arm's length price of interest payment on ECB. Consequently, the addition made by the AO and TPO was deleted. Interest under section 244A of the Act: The learned AO was found to have erred in computing interest under Section 244A of the Act following a refund due to the appellant. Directions issued by the Ld. DRP: The Ld. DRP was found to have erred in not considering the objections filed by the appellant in relation to the draft assessment order issued by the AO/TP order and confirming the draft order of the AO. Penalty proceedings: The appellant argued that there was no basis for the AO to initiate penalty proceedings under Section 274 read with Section 271 of the Act. However, the Tribunal's judgment did not elaborate further on this issue. Overall, the Tribunal allowed the appeal filed by the assessee, emphasizing the validity of using EURIBOR + 500 basis points for determining the arm's length price of interest payment on ECB and ultimately deleting the addition made by the AO and TPO.
|
