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TMI Blog2014 (1) TMI 1365X X X X Extracts X X X X X X X X Extracts X X X X ..... r fixed rate of interest - The LIBOR has been accepted as the most suitable bench mark for judging Arms' length price in case for foreign currency loan – The adjustment made by TPO is not correct – Decided in favour of assessee.Decided against assessee. - I.T.A .No.-3265/Del/2011 - - - Dated:- 30-10-2013 - SMT DIVA SINGH AND T.S.KAPOOR, JJ. For the Appellant : Ved Jain. For the Respondent : Mrs. Archana S. Awasthi and Vivek Kumar. ORDER:- PER : DIVA SINGH, J. This is an appeal filed by the assessee against the assessment order dated 25.04.2011 pursuant to the DRP's order u/s 144C(v) dated 06.04.2011 on the following grounds: "1. On the facts and circumstances of the case, the order passed by the learned AO under Section 143(3) read with Section 144C of the Act is bad both in the eye of law and on facts. 2. On the facts and circumstances of the case, the learned AO has erred, both on facts and in law in assessing the income of the appellant at Rs.60,68,130/- as against income of Rs.18,61,323/-declared by the assessee. 3. On the facts and circumstances of the case, the directions given by the DRP are not valid and bad in law as the same has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred both on facts and in law in making an adjustment of 300 basic points, as transaction cost over and above the adjustment of 400 basis points to the LIBOR rate. (iii) On the facts and circumstances of the case, the LIBOR rate applied at 5.224% is wrong. (iv) On the facts and circumstances of the case, Hon'ble DRP has erred both on facts and in law in ignoring the contention of the appellant that the loan being advanced by parent company to the subsidiary company there was no need to make adjustment on account of security. 6. That the appellant craves leave to add, amend or alter any of the grounds of appeal." 2. Right at the outset, Ld. AR submitted that the point at issue is fully covered in assessee's favour by virtue of the order of the Co-ordinate Bench in assessee's case for 2008-09 assessment years. Referring to the said order it was stated that the Co-ordinate Bench vide order dated 08.02.2013 in in ITA No-5855/Del/2012 allowed the appeal of the assessee on identical ground agreeing with the contention of the assessee that where the transaction was of money in foreign currency to its foreign subsidiary, the comparison had to be made with respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plies, horse supplements and riding helmets. The headquarter of CNIPL is stated to be located in Delhi, India and is stated to have been operating in the apparel market since 2002. In addition, CNIPL is also stated to have a presence at the relevant point of time in over 10 countries through designated channel partners and distributors. 3.1. The ownership structure as on 31.03.2007 as per record is as under : S. No. List of shareholders No. of share Percentage of holding 1. Varun Sharma 995000 50% 2. Tokie Sharma 995000 50% 3.2 The facts giving rise to the subject matter of dispute as per record is that a loan was given from September 2003 under a fixed term basis at 4%. It was also observed that the assessee had also invested its surplus funds in FDR's with bank at 5%. The loan as per record had been given by the assessee to its 100% subsidiary viz. M/s JPC Equestrian, USA. 3.3 A perusal of the record further shows that from the balance sheet for financial year 2006-07, the TPO observed that certain amounts given as loans by assessee to its AE were outstanding as on 31.03.2006. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity was offered by the subsidiary the main business of the assessee was not lending borrowing money, the TPO considered that a rate of 14% was reasonable in this context. 4.2. We find that the AE being new did not have adequate credit rating in USA so the Indian parent company gave the loan; hence addition of 400 basis point on this account is reasonable. Similarly there would be transaction costs, if the loan is taken from third party. This factor would have to be taken into account for computing arm's length price. Further, loan was given on fixed rate of interest out of shareholder funds. Thus, the loan has flown from one set of shareholders to another set of shareholders. In reality both sets of shareholders are same and security aspect is therefore embedded by default in this transaction. In the circumstances, there is no requirement for further addition on account of security. Also the PLR rate of RBI ranges from 10.25%-10.75% in April 2006 to 12.25%-12.50% in March 2007. So considering facts and circumstances, DRP finds that interest rate of 12.224% to be arm's length rate. The same is rounded off to 12.20%." 4.1 Accordingly the ALP was computed in the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... currency then he would not lend in foreign currency where the lending rate is not so attractive. The TPO further noted that it should not be forgotten that, had the AE of the assessee company would have got loan from any bank or financial institution in the place of residency at Libor rate, then why it did not avail of loan at such a rate. Assessing Officer observed that, no company in India would like to invest in the form of loan outside India and that also without security as the interest returns in India would be higher than those prevailing in developed markets. Finally, Assessing Officer held that interest rate at 17.26% would be fair and reasonable. 13. Before the DRP assessee inter-alia contended that comparison has to be made with respect of advance or loan in USA and not based on Indian conditions. The comparison could also be with rate of interest being paid by the multinational companies or banks in respect of money borrowed from India. However, the DRP agreed with TPO's point of view. But, it held that further addition on account of security is not needed. It opined that Arm's length interest rate may be taken as the PLR of RBI for the financial year 2007-08. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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