2024 (2) TMI 1336 - AT - Income Tax

TP Adjustment - interest charged on foreign currency loan - HELD THAT - As comprehensible that interest has been earned by assessee at arm s length rate and accordingly, no adjustment on account of arm s length rate is required to be carried out. Therefore the addition sustained is hereby directed to be deleted. Decided in favour of assessee.

Summary

Issues involved:
The issues involved in this case include transfer pricing adjustment on interest charged on foreign currency loan, consideration of internal comparables for interest rates, rejection of additional evidences filed by the assessee, and the arm's length rate for interest earned.

Transfer Pricing Adjustment on Interest Charged:
The assessee challenged the transfer pricing adjustment of Rs. 5,81,986 made by the TPO on interest charged on a foreign currency loan extended to the Associated Enterprise, Jindal Pipes (Singapore) Pte. Ltd. The CIT(A) confirmed the adjustment, computing the interest at a rate of 6 months LIBOR plus 350 basis points, as against the 1 month LIBOR plus 320 basis points charged by the assessee. The Tribunal found that the interest charged by the assessee was at arm's length, considering JPSPL, the Associated Enterprise, as the internal comparable, and directed the deletion of the sustained addition.

Consideration of Internal Comparables for Interest Rates:
The TPO rejected the internal comparable provided by the assessee, citing reasons such as the difference in tenure of loans and the guarantee involved in the agreement between JPSPL and Citibank, Singapore. However, the Tribunal noted that both loans were short-term and comparable, and the guarantee provided by the assessee was a commercial prudence measure. Additionally, the Tribunal found that both transactions pertained to the same period, thus dismissing the TPO's argument of different financial years as baseless.

Rejection of Additional Evidences:
The CIT(A) rejected the additional evidences filed by the assessee under rule 46A of the Income Tax Rules, 1962. The Tribunal found that the rejection was unjustified as the interest earned was at an arm's length rate, and no adjustment was required. Consequently, the sustained addition of Rs. 5,81,986 was directed to be deleted.

Arm's Length Rate for Interest Earned:
After considering the arguments of both parties and the material on record, the Tribunal concluded that the interest earned by the assessee was at an arm's length rate. Relying on various judgments, the Tribunal found no basis for the adjustment and allowed the appeal of the assessee. As a result, the addition of Rs. 5,81,986 was deleted, and the appeal was allowed.