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TMI Blog2016 (10) TMI 394X X X X Extracts X X X X X X X X Extracts X X X X ..... terest rate on India’s External Debt, which is unadjusted industrial average. As held by the Special Bench of the Bangalore Bench in the case of Aztec Software & Technology Services Ltd. v. ACIT (2007 (7) TMI 50 - ITAT BANGALORE), we are of the opinion that the unadjusted interest rate in respect of India’s External Debt cannot be applied in assessee’s case. Since the assessee charged interest to its AE at LEBORE ±2% which is appropriate the same is to be considered by TPO/AO and we are of the opinion that there is no adjustment required towards interest payment to its AE to determine ALP. X X X X Extracts X X X X X X X X Extracts X X X X ..... the price stated in the invoice can be held to have been loaded with interest up to the due date only and not up to the date of payment. Any interest paid on the delayed payment is over and above the invoice price. Based on this reasoning, the TPO computed the adjusted CUP price by loading the CUP price with interest attributable to credit period of 120 days at 11% rate of interest as mentioned in the invoice and worked out the ALP value of purchases of raw material at US$ 61,75,658.70 as against the actual purchase price paid by the assessee to its AE of US$ 62,52,633.29. Thus, TPO arrived at the excess purchase price paid to the AE at US$ 81,974/- which amounted to 32,88,820/- at the average exchange rate of 40.12 per USD. Further, as per the TP documentation, the assessee paid to its AE an amount of 3,08,57,511/- towards interest on 5 millions USD (ECB-1), 2 million Euros (ECB-ii) and 2.55 Million Euro (ECB-iii) from its AE. It was stated the rate of interest is LEBORE is 2% per annum. It was found from the detailed working that the effective rate of interest on the loans worked out to 6.43%, 6.63% and 6.72% per annum respectively. 3.2 The Ld. TPO restricted the adjustment cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered and actual period of credit to be considered. 5. On the other hand, ld.D.R relied on the order of lower authorities. 6. We have heard both the parties and perused the material on record. It is not disputed that the assessee is enjoying larger credit than printed in the invoice; it ranges 120 days to 240 days. In view of this, the price charged by AE to the assessee more than price charged to third parties. Hence, it is appropriate to be considered the extra credit period enjoyed by the assessee so as to determine the ALP. Further, it is also on record that for assessment year 2009-10, the TPO/AO had not made any adjustment towards this issue as there should be consistency in proceedings. Hence, in our opinion, the argument of ld.A.R to be upheld. Accordingly, we allow the ground taken by the assessee. 7. The next ground is with regard to the TPO/AO erred in determining an inappropriate ALP interest rate on the assessee's External Commercial Borrowing and by not providing an opportunity of being heard to the assessee. 8. The facts of the issue relating to the determining an inappropriate ALP interest rate on the assessec's External Commercial Borrowing, are that the TPO ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h marking for such transaction, for which he has placed reliance on the various judgements. According to him, the implicit interest rate on India's external Debt followed by the AO is an unadjusted industrial average, which cannot be considered in view of the OECD guidelines, which was considered by the Special Bench of Bangalore Bench of the Tribunal in the case of Aztec Software & Technology Services Ltd. Vs. ACIT 107 ITD 141(Bang.) wherein the Tribunal has held as under:- "163. The revenue has justified consideration of industrial average as comparable uncontrolled transaction. Before the Transfer Pricing Officer as also in proceedings before the Commissioner of Incometax (Appeals), the taxpayer had objected to adoption of average and objection is noted in para 7.13.1(page 42) of the Commissioner of Income-tax (Appeals)'s order as under: "As per OECD guidelines unadjusted industry averages cannot be taken to represent arms length conditions." 164. Transfer Pricing Officer could not meet above objection and gave round about answer. But objection raised on behalf of the assessee, in our view, is valid and justified and is required to be upheld. In Commentaries on Internati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... internationally competitive rates under the scheme of pre-shipment credit in foreign currency (PCFC) and Rediscounting of Export Bills abroad (EBR), has permitted banks to fix the rates of interest with reference to ruling LIBOR, EURO UBOR or EURIBOR, wherever applicable and thereto appropriate percentage ranging from 1% to 2%. The reference to the said circular is at page - 80 of the Assessee's paper book. In our view the claim of the Assessee to adopt EURIBOR rate as stated before the TPO is reasonable and deserves to be accepted. Following the ruling of the tribunal in the aforesaid cases, we are of the view that the claim made by the assessee in this regard has to be accepted. The AO is directed to work out the TP adjustment accordingly. Gr.No. 1 to 4 are thus partly allowed." 9.2 Further, it is to be noted that the Chennai Bench of Tribunal in the case of SIVA INDUSTRIES & HOLDINGS LTD. Vs. ACIT reported in [2012] 145 TTJ 497 (ITAT[Chen]) wherein it was held as under:- 11. We have considered the rival submissions. A perusal of the order of the TPO clearly shows that the assessee had raised the funds by way of issuance of zero per cent optional convertible preferential share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ote that CUP method is the most appropriate method in order to ascertain arms length price of the international transaction as that of the assessee. We agree with the assessee's contention that where the transaction was of lending money in foreign currency to its foreign subsidiaries the comparable transactions, therefore, was of foreign currency lended by unrelated parties. The financial position and credit rating of the subsidiaries will be broadly the same as the holding company. In such a situation, domestic prime lending rate would have no applicability and the international rate fixed being LIBOR should be taken as the benchmark rate for international transactions. 15. The above view is duly supported by following case laws relied upon by the assessee's counsel. In Siva Industries & Holdings Ltd. v. Asstt. CIT [2011] 11 Taxmann.com 404(Chennai) it was held by ITAT that the assessee had given the loan to the associate enterprise in U.S. dollars, and in such a situation when the transaction was in foreign currency, and the transaction was an international transactions, then the transaction would have to be looked upon by applying the commercial principles in regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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