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TMI Blog2017 (12) TMI 197X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 - - - Dated:- 30-11-2017 - SH . AMIT SHUKLA, JUDICIAL MEMBER AND SH . O . P . KANT, ACCOUNTANT MEMBER For The Department : Sh . Sanjay Kumar Yadav, Sr . DR For The Assessee : Sh . Tarun Rohatagi, CA ORDER PER O . P . KANT, A . M .: This Appeal by the Revenue is directed against order dated 15/08/2014 of the Ld. Commissioner of Income-tax (Appeals)-XX, New Delhi for assessment year 2009-10, raising following grounds: 1 . On the facts in the circumstances the case has erred in directing to charge the LIBOR rate of interest instead of interest rate of 16 % on receivable for determining the adjustment in respect of delayed receipts from AEs . 2 . The appellant craves to leave, to add, alter or amend any ground of appeal raised above at the time of hearing . 3 . The order of the learned CIT ( A ) , being contrary to the facts on record and the settled position of law, be set aside and that of the Assessing Officer be restored . 2. The facts in brief of the case are that the assessee company was engaged in providing call Centre services to companies outside India. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The learned Sr. DR, relying on the order of the learned AO/TPO, submitted that loan has been deemed to be granted by the Indian entity and therefore, the rate of interest on loans applicable in Indian market has rightly been applied by the learned TPO for determining arm s length price of the transaction. 5. The Ld. counsel of the assessee on the other hand relied on the finding of the learned CIT-A and submitted that LIBOR rate has been accepted as arm s length price in case of interest on overseas receivables pending for a period more than the period agreed. In support of his contention he relied on the decision of the Mumbai Tribunal in the case of Dy. CIT Vs. Tech Mahindra Ltd., (2011) 12 taxmann.com 13 (Mum.) and decision of the Hon ble Delhi High Court in the case of CIT Vs. Cotton Naturals (I) (P) Ltd, (2015) 55 taxmann.com 523 (Delhi). 6. We have heard the rival submission and perused the relevant material on record. In this case, the only dispute raised before us is in respect of the rate of interest for the purpose of computation of arm s length price. There is no dispute on the issue whether the receivables more than the period agreed is an international transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble for the relevant periods and being reasonable and scientific uncontrolled comparable to be applied to the assessee s loan transactions . We direct the AO / TPO to work out the TP adjustment accordingly depending on the LIBOR rate applicable to year from year . In view thereof, the grounds raised by the assessee on this issue are partly allowed . 8. Similar finding has been given by the Tribunal in following decisions: 1 . Siva Industries Holdings Ltd ( ITA No . 2148 / Mds / 2010 ) , 2 . Four Soft Ltd . ( ITA No . 1495 / HYD / 2010 ) 3 . Varroc Engineering Pvt . Ltd . ( I . T . A No . 2482 / PN / 2012 ) 4 . Tricorn India Ltd . ( TS - 266 - ITAT - 2014 ( MUM )- TP ) 9. When we advert to the fact of the instant case, we find from the order of the Ld. TPO that the assessee has raised invoices in Australian dollar as well as in US dollar and thus, the money which was due from the associated enterprises was in currency of Australian Dollar and USA Dollar. In the case of Tech Mahindra (supra), it has been held by the Tribunal that arm s length interest rate should be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rency agreed upon ( BFH BSt . B1 . II 725 ( 1994 ) , re . 1 AStG ). A differentiation between debt - claims or debts in national currency and those in foreign currency is normally no use, because, for instance, a US $ loan advanced by a US lender is to him a debt - claim in national currency whereas to a German borrower it is a foreign currency debt ( the situation being different, however, when an agreement in a third currency is involved ). Moreover, a difference in interest levels frequently reflects no more than different expectations in regard to rates of exchange, rates of inflation and other aspects . Hence, the choice of one particular currency can be just as reasonable as that of another, despite different levels of interest rates . An economic criterion for one party may be that it wants, if possible, to avoid exchange risks ( for example, by matching the currency of the loan with that of the funds anticipated to be available for debt service ) , such as taking out a US $ loan if the proceeds in US $ are expected to become available ( say from exports ). If an exchange risk were to prove incapable of being avoided ( say, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N . Transfer Pricing Manual, relevant portion of which reads :- 10 . 4 . 10 . Financial Transactions 10 . 4 . 10 . 1 . Intercompany loans and guarantees are becoming common international transactions between related parties due to the management of cross - border funding within group entities of an MNE group . Transfer pricing of inter - company loans and guarantees are increasingly being considered some of the most complex transfer pricing issues in India . The Indian transfer pricing administration has followed a quite sophisticated methodology for pricing inter - company loans which revolves around : * Examination of the loan agreement; * A comparison of terms and conditions of loan agreements; * The determination of credit ratings of lender and borrower; * The identification of comparable third party loan agreements : and * Suitable adjustments to enhance comparability . 10 . 4 . 10 . 2 . The Indian transfer pricing administration has come across cases of outbound loan transactions where the Indian parent has advanced to its associated entities ( AE ) in a foreign jurisdiction ei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns would require examination of the loan agreement, comparison of the terms and conditions of loan agreements, the determination of credit rating of the lender and the borrower, identification of comparable third party loan agreements and suitable adjustments should be made . In addition to the aforesaid factors, the comparability analysis should also take into account the business relationship and the functions performed by the subsidiary AE for the parent company . In the present case, we are not concerned with paragraph 10 . 4 . 10 . 3 of the United Nations Transfer Pricing Manual . However, we are unable to agree with the position set out and asserted in paragraph 10 . 4 . 10 . 2 of the Manual . The reasoning given therein is contrary to the accepted international tax jurisprudence and the rules adopted and applied . There is no justification or a cogent reason for applying PLR for outbound loan transactions where the Indian parent has advanced loan to an AE abroad . Chapter 10 of the United Nations Practical Manual on Transfer Pricing relates to country practices . The said Chapter sets out an individual country's view point and its experie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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