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2021 (10) TMI 1395 - AT - Income TaxTP Adjustment - rate the interest-free loans granted by the assessee to its associated enterprise in Mauritius should be benchmarked as at an arm s length - HELD THAT - This issue is no longer res integra. The issue in the appeal is squarely covered, in favour of the assessee, by a coordinate bench decision in assessee s own case for the assessment years 2009-10 and 2010-11 2019 (6) TMI 1691 - ITAT MUMBAI It is indeed disappointing that even after taking note of the above fidnings of the coordinate bench, the authorioties below have justified a higher ALP on the basis of some new arguments. Given the findings of the coordinate bench-as extracted above, the reference to the fixed rate of interest and swap variable, with reference to the LIBOR, as has been done by the authorities below to go beyond LIBOR plus 300 bps, is irrelevant. There is no point in making these efforts to circumvent the conclusions arrived at by the coordinate bench, and justifying the same on the basis of a new set of arguments. We direct the Assessing Officer to delete any arm s length price adjustment beyond the difference, if any, between 4.01% interest charged by the assessee and LIBOR plus 300 bps. If suo motu adjustment by the assessee, i.e. adopting an interest rate of 4.01%, is below this rate, obviously no further ALP adjustment is called for. With these specific directions, the matter is restored to the file of the Assessing Officer for giving such relief as may be admissible in the terms indicated above. Appeals are allowed, in principle, and in the terms indicated above.
Issues:
1. Transfer pricing adjustment under section 92CA(3) read with section 154 of the Income Tax Act, 1961. 2. Benchmarking interest rate for transfer pricing purposes. 3. Application of arm's length principle and comparability analysis. 4. Suo moto adjustment made by the appellant. 5. Judicial precedents on interest rate determination for associated enterprises. Transfer Pricing Adjustment: The appeals questioned the correctness of the orders related to transfer pricing adjustments for the assessment years 2012-13 and 2013-14. The primary issue was whether the Ld. CIT(A) erred in providing partial relief from the original transfer pricing adjustment. The Tribunal noted that the appeals involved a common issue and were disposed of together for convenience. Benchmarking Interest Rate: The key issue was to determine the interest rate for transfer pricing purposes concerning interest-free loans granted by the assessee to its associated enterprise. The Tribunal referred to a coordinate bench decision in the assessee's own case for the assessment years 2009-10 and 2010-11, which directed the arm's-length interest rate to be computed at LIBOR +300 bps. The Tribunal held that any adjustment beyond the difference between the interest rate charged by the assessee and LIBOR plus 300 bps was not justified. Arm's Length Principle and Comparability Analysis: The Ld. CIT(A) was criticized for not considering the arm's length character and economic substance of the international transaction. The Tribunal emphasized the importance of following precedents from ITAT and the jurisdictional High Court in determining the arm's length interest rate. The authorities were directed to adopt the interest rate of LIBOR +300 bps as determined in previous cases. Suo Moto Adjustment and Judicial Precedents: The Tribunal highlighted the failure of the authorities to appreciate the earlier year's order and the suo moto adjustment made by the appellant. It was noted that the authorities attempted to justify a higher ALP based on new arguments, contrary to the findings of the coordinate bench. The Tribunal reiterated the importance of following established precedents and directed the Assessing Officer to delete any arm's length price adjustment beyond the specified interest rate difference. Conclusion: Both appeals were allowed, and the Assessing Officer was directed to provide relief based on the specified terms. The judgment emphasized the importance of consistency with precedent and the application of the arm's length principle in transfer pricing matters.
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