9911796707
TMI Blog2018 (6) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... n 10B of the Income-tax Act, 1961 (Act) for Strides Technology & Research Division' ("STAR") unit for Rs. 142228,544/- 1. The Honorable Dispute Resolution Panel (Hon'ble DRP") and the Learned Assessing Officer (Ld. AO') erred in disallowing deduction under section 1OB of the Act on export profits earned by the STAR unit on the basis that the Appellant is merely granting the license to manufacture products by utilizing the Dossier' and the activity of preparation of dossier cannot be treated as manufacture or production of an article or thing' without appreciating facts of the case. Without prejudice to the above, the Hon'ble DRP and Ld. AO failed to appreciate the fact that the activities of STAR unit fall under information technology enabled products or services for the purpose of deduction under section 10B as notified by CBDT vide Notification No SC 890(E) dated 26/09/2000." 3. Brief facts are that the assessee is engaged in the business of manufacturing & trading of pharmaceuticals. The assessee claimed deduction under section 10B of the act on three EOU units eligible. The AO during the course of assessment proceedings required the assessee to expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of an article or thing and export thereof.' Hence the assessee's claim of deduction u/s 1OB of Rs. 14,22,28,544/- in respect of its Conti-act Manufacturing & Research Division' (STAR unit), was proposed to be disallowed." 4. The DRP also rejected the objection of the assessee vide Para 3.3. and 3.3.1 as under: - "3.3 We have considered the draft assessment order and the assessee's submissions. As we see, the assessee has sought to establish that the preparation of the dossier tantamount to production of article or thing in terms of Section 10B of the Act. The Assessing Officer has on the other hand examined the issue on the template of the immediate source of the fee in question and has then held that the immediate source of the free being for granting of the license and the dossier being only a process and not the source of the receipt of the fee, deduction is not allowable. Considering these two positions, we agree with the Assessing Officer. As we see, the preparation of the dossier is only a regulatory and intermediary process and not an end - product in itself in so far as the assessee's main obligation is concerned. As the contracts indicate, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake shape only after the dossiers are filed. This is a lame justification as the contract right at the beginning makes it clear that the assessee is obligated to sell the rights or license. Once the contract stipulates this, it only becomes a matter of procedure and process when ultimately the customer can become the owner of the license. The fact remains that the customer is compensating the assessee for the license and not for the intermediary regulatory procedures and processes. Taking into account the foregoing, we find the denial of deduction u/s. 10B justified." Aggrieved, now assessee is in second appeal before Tribunal. 5. Before us, the learned Counsel for the assessee explained that the assessee is registered and approved EOU and he referred to Page 38 of assessee's paper book, wherein license issued by customs department is enclosed. This approval is issued vide order No. 176/2004 dated 15.09.2004 under section 65 of the customs Act, 1962 and unit is permitted to manufacturer as under: - "1. The unit is permitted to make use of imported capital goods viz., Plant and Machinery Components, Consumables etc. required for the manufacture of Pharmaceutical Business Proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al method development, analytical method validation, packaging development, scale up from lab scale, stability studies, bioequivalence studies, preparation and submission of technical dossier amongst others. Dosage form capabilities at STAR include tablets, soft gel capsules, hard gel capsules, lyophilized injectable, dry powder parenteral, liquid injectable, ointments and liquids. The unit was setup as a 100% EOU and registered with the Office of the Development Commissioner, Cochin Special Economic Zone. The Unit has been registered as an EOU w.e.f. 01.09.2004. We are enclosing the following documentary evidence in support of our claim: d. Letter of Permission - LoP No. 01/42/2004 :PER: EOU:KR:CSEZ/6819 dt. 18/08/2004 e. Green card No 770 dt. 01.09.2004 The Unit has not been formed by splitting up, or the reconstruction, of a business already in existence. Further, facility was setup with new machinery / equipment, which was not used previously for any purpose. The unit commenced operations in March 2005. The deduction us 1OB is available for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ossier would not be complete without manufacture of exhibit botches. The Dossier is prepared for a particular product for certain markets or all. For each market, a separate Dossier is prepared and is generally required to be supported by additional activity and data besides manufacturing of exhibit/commercial batches. Although the broad parameters for preparation and approval of 'Dossiers' are same for various countries / territories, there could be some changes in the preparation of 'Dossiers' in view of Regulatory requirements for the countries involved. Further, the assessee may sell the Dossiers to customers. With the sale of Dossier, the ownership passes on to the Buyer. Based on the approval of Dossier, the Buyer has to approach the Regulatory authorities to sell the Product in the Territory. The right to manufacture continues with the facility/entity which has manufactured the Product, as stated in the Dossier. It is incorrect to state that selling of Dossier is 'license to manufacture'. As explained above, the right to manufacture continues with the facility/entity which has manufactured the Product, in this case the assessee itself. In case the rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income is sine-qua-non. He cited the case law of Hon'ble Supreme Court in the case Liberty India vs. CIT 317 ITR 218. Enumerating in the context of eligibility of DEPB income for deduction u/s. 80IB of the Act, the principle is that any income beyond the first degree nexus between the profits and the undertaking would constitute an independent source of income and would not be eligible for the deduction. While coming to this decision, the Court has taken into account various judicial precedents which have evolved from time to time in the matter. Accordingly, he argued that in the present case the relevant issue here is not whether or not dossier is a product or manufacture of article or thing but what is the final deliverable with which the fee received i.e. the eligible income has the first degree nexus. The assessee's arguments in this regard are deficient in that the assessee has sought to justify that the right that are created do not exist at the time of filing the dossier and take shape only after the dossiers are filed. This is a lame justification as the contract right at the beginning makes it clear that the assessee is obligated to sell the rights or license. Once the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existing innovator product. This re-formulated generic version of the product is initially produced/ manufactured in the R & D facility as a "prototype". Subsequently, all the technical and other data relating to such product is compiled in the form of a "dossier" and submitted to the regulatory authorities. On receipt of approval, the product is sold as a generic version in the market on commercial terms. The assessee reformulates an innovator product into generic version which involves compiling of the 'Dossier' and submitting the same to the Regulatory Authorities. The Product Development Activity is a process related activity. The final outcome of the said activity is in the form of a 'Dossier". The dossier is the culmination of various activities which are primarily manufacturing of development and exhibit batch duly supported by data collection, stability studies and bio-equivalence studies. The Dossier documents the detailed method followed in the manufacture of a product, right from sourcing the raw material to the final product manufactured. In other words, the dossier explains how the development activity is carried out along with details of production of a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial research work intended by both the parties. But the question is what would evolve out of the research. Is assessee's client paying only for doing the research or for the end results? If the payments are indeed for the end results can such results be classified as manufacture or production of article or thing? There is no dispute that the billings done by the assessee on its clients were based on the manhours spent by its chemists on the job, at agreed rates. That such payments were made only based on the contractual expectation of the end result is clear form clause B of the agreement reproduced above. The end result of the research work done by the assessee could be one among the following three alternatives (i) A speciality compound which is useful and to be used by the clients as a building block for other compounds of use in industry (ii) A speciality compound which turns out to be no good, due to lack of required properties (iii) No compound but only certain research documentation in the nature of experimental records and laboratory notebooks, showing the results of the research which in turn show what has been empirically achieved. In respect of the first t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edients that went to its making. 22. Though the term produce gets colour of the term manufacture as held by Hon'ble apex court in the case of N.C. Budharaja & Co.(supra), the next question is whether all the ingredients that are necessary to constitute manufacture should necessarily be there for production also. The obvious answer is no, since otherwise legislature would not have wasted their energy by adding that term in juxtapostition with the term manufacture. This is elucidated by the judgment of Hon'ble Calcutta High Court in the case of CIT v. Air Survey Co. of India (P.) Ltd. [1998] 232 ITR 707. The question before Hon'ble Calcutta High Court was whether business of surveying, mapping and aerial photography which resulted in photographs was production of article or thing. Revenue had rejected assessee's claim for investment allowance on the ground that the activity of the assessee could not be called as manufacture or production and that in the nature of the assessee's business no thing or article was produced as such. The Tribunal, in appeal, however, reversed the aforesaid finding and allowed the relief in favour of the assessee by holding that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article" in that provision includes movables. The data processing computers involves processing and therefore, capable of being regarded as part of process of production. The balance sheet, sales analysis, statements, etc. obtained as a result of processing are movables and are different from the data that was initially fed into the computer though based upon the data so fed in. The use to which end-product is put is different from the one to which raw data is put at the time it is fed into a computer. The end-product obtained as a result of data processing such as balance sheets etc. are therefore, capable of being regarded as new articles. 6. The data processing activity is an organised activity. The machines have to be operated by employing persons trained for that purpose. The employee and employer relationship in running a data processing company inevitably exists as between those who operate the system and the company which runs the business. The term "industry" is not defined in s. 32A of the Act, and is therefore, required to be understood in the sense in which the word is ordinarily understood. The term "industry" is a term of wide amplitude. "Industry" as used in s. 32 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the Apex court judgments in the case of N.C. Budharaja & Co. (supra) and CIT v. Oracle Software India Ltd. [2010] 320 ITR 546/187 Taxman 275. '31. Having analyzed the submissions of learned counsel of both the parties and the material available for our perusal and the cited case law, we find force in the submissions of Mr. Vohra, learned counsel for the assessee. No doubt, the raw material i.e. the primary input in the impugned activity is the "information" but can we equate this "information" with something which is being copied from there in toto. Whether the characteristics regarding which the information is being sent back to computers on surface from logging tools working inside the down hole can be compared to a characteristic which is available and readable without conducting highly technical scientific tests and calculations down inside the borehole. Even after the geo-physical and petro-chemical properties of the rocks have been measured, further scientific processing is required to be done by dedicated softwares on the computers. It is only after the abovesaid process, the readable and usable data in the form of logs is provided to technical experts to determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was manufacturing or producing an article or thing." 12. From the facts of the present case, it is clear that the fundamental requirement in all the agreement is creation of dossier, which is compilation of the relevant technical education to enable manufacture of product. Dossier has all the attributes of product being an article or thing and it is creation specifies the requirement of a production. In fact, creation of dossier entails the actual production of the formulation initially in the laboratory and therefore upto a batch size. In similar circumstances Hon'ble Supreme Court in the case of Scientific Engineering House Pvt. Ltd vs. CIT (1986) 157 ITR 86(SC) held that the compilation of technical knowhow is an article to be considered as capital asset eligible for deduction for depreciation. Similarly, the Mumbai Tribunal also in the case of ISBC Consultancy Services Ltd. Vs. DCIT (2002) 88 ITD 134 (Mum) held that the customization of software amounted to manufacture and entitled to deduction under section 10A of the Act. In view of the above given facts and circumstances, we are of the view that the assessee is entitled to deduction under section 10B as it has es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed hundred per cent export-oriented undertakings. 10B. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee : Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to the deduction referred to in this sub-section only for the unexpired period of aforesaid ten consecutive assessment years : Provided further that for the assessment year beginning on the 1st day of April, 2003, the deduction under this sub-section shall be ninety per cent of the profits and gains derived by an undertaking from the expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression "total income of the assessee" in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding the expression "total income of the assessee" in Section 10A as 'total income of the undertaking'. 18. For the aforesaid reasons we answer the appeals and the questions arising therein, as formulated at the outset of this order, by holding that though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. All the appeals shall stand disposed of accordingly." 16. Accordingly, the learned Counsel for the assessee argued that although the assessee company has made inadvertent error in the return of income for AY 2007-08, the same can be adjudicated by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Contract Manufacturing & Research Division (STAR). During the course of assessment proceedings AO required the assessee to finish the details of the unbilled revenue of STAR unit, and accordingly party wise details of the same were provided. It was also submitted that these represent 'Development Revenue recognized' for which no invoices have been raised. It was further submitted that the revenue has been recognized based on a technical estimates of the stage of work. During the course of assessment proceedings, the Assessee submitted a write up on how the units are eligible for 10B Deduction & also submitted a write up off activities done at R&D center, Copies of Agreements of Unbilled Debtors, list of debtors, Copies of EOU Agreements, were submitted and accordingly claimed deduction under section 10B of the Act. 20. The AO has considered the entire unbilled revenue as income and disallowed the claim of deduction under section 10B of the Act. According to AO, the export turnover as well as total turnover is unbilled Revenue recorded on the basis of internal accounting policy on reaching its own has created mile stones without raising invoices. According to AO, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration has been received within 6 months of raising of the invoices and allow the deduction as claimed for the year under consideration. The learned CIT Departmental Representative has made submissions that the DRP and the AO has rightly not allowed the claim of deduction but he agreed to the alternative submissions of the assessee that the income cannot be assessed in the absence of its accrual in the year under consideration and since the income has been assessed the AO can be directed to verify whether consideration has been received within 6 months of raising of the invoices and in that case, income can be considered and deduction can be allowed as claimed in the year. 22. We have considered the issue and are of the view that income has not accrued as agreed by both the sides. Hence, the assessee is not entitled for deduction under section 10B of the Act on unbilled Revenue recorded on the basis of internal accounting policy but we are also of the view that the income also cannot be assessed in the absence of its accrual. The AO is directed to delete the addition wherever income has not accrued but added by the AO, after verification of the factual position. The AO can als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the non-submission of Form 3CM arid Form 3CL. The DRP also confirmed the action of the AO. Aggrieved, assessee came in appeal before Tribunal. 27. The learned Counsel for the assessee stated that it has fulfilled all the conditions to claim weighted deduction in respect of expenditure claimed under section 35(2AB) of the Act. The assessee submitted following details before the lower authorities and even now before us:- 1. Copy of letter issued by department of scientific and industrial research renewing the recognition of In-house R & D unit upto 31.03.2010 and extension upto 31.03.2015. 2. Copy of application made to the secretary, DSIR for certification of the expenditure under section 35(2AB) of the Act. 3. Auditors certificate certifying the R& D Expenditure 4. R & D expenses certified by Managing Director. 28. It was stated that the delay in issuing Form No. 3CM and report in Form No. 3CL by the DSIR' due to their administrative reasons and Tribunal in assessee's own case for AY 2002-03 in ITA No. 1727/Mum/2006 vide order dated 16.12.2015 allowed the claim of the assessee after following the decision of Gujarat High Court in the case of CIT vs. Claris Lifescienc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit of the aforesaid provisions of weighted deduction to the assessee on the ground that recognition and approval was given by the DSIR in February/September 2006, i.e., in the next assessment year and, therefore, the assessee was not entitled to the benefit. The CIT(Appeal) accepted this view of the Assessing Officer and dismissed the appeal, however, the Income Tax Appellate Tribunal (hereinafter referred to as "the Tribunal") has come to the conclusion that the assessee would be entitled to weighted deductions of the aforesaid expenditure incurred by the assessee in terms of the Section 35(2AB) of the Act and in coming to this conclusion, the Tribunal has relied upon the judgment of Gujarat High Court in Commissioner of Income Tax v. Claris Lifesciences Ltd., 326 ITR 251(Guj). We have gone through the aforesaid judgment of the Gujarat High Court and find that Gujarat High Court detailed in nouncertain terms that the cut-off date mentioned in the certificate issued by the DSIR would be of no relevance. What is to be seen is that the assessee was in indulging in R&D activity and had incurred the expenditure thereupon. Once a certificate by DSIR is issued, that would be sufficient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity, intention of the legislature by making above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weighted deduction. 10. We are in full agreement with the reasoning given by the Tribunal and we are of the view that there is no scope for any other interpretation and since the approval is granted during the previous year relevant to the assessment year in question, we are of the view that the assessee is entitled to claim weighted deduction in respect of the entire expenditure incurred under Section 35(2AB) of the Act by the assessee." 3. We are in full agreement with the aforesaid approach of the Gujarat High Court. No substantial question of law, therefore, arises. The appeal is dismissed." 3.5. It is noted by us that similar view has been taken by Hon'ble Madras High Court in the case of CIT vs. Wheels India Ltd. (supra). Thus, keeping in view the clear position of law and the facts of this case, stand of the Revenue on this issue is rejected. The other issue raised by the AO in disallowing the deduction was that no agreement has been entered as contemplated by section 35 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed parties is unreasonable in term of section 40A(2)(b) of the Act and therefore, disallowed the same. The assessee explained before the lower authorities that the differential rent paid to Chayadeep properties Pvt. Ltd. and K Narayanraju & K Bhaskaraju was based on quality of construction and further Chayadeep properties Pvt. Ltd. to whom the assessee paid this rent was declared as rental income, on the same amount and there is no tax evasion. The assessee before us explained that the fact that the rentals in 1995 in Bilekahalli, Bannerghatta Road, Bangalore was very low. The Bilekahalli area with no significant development was generally considered as an outskirt of Bangalore. The development in this area took place with the coming up of Wockhardt (now Fortis) and Apollo Hospitals from 2004 onwards and the rentals started rising in the area. Subsequently, Bilekahalli became part of Bangalore Municipal limit. In case of Chayadeep, the entire cost of building was borne by lessor, whereas only cost of bare structure was borne by Mr. Narayan Raju / Mr. Bhaskar Raju. The rest of the cost of building was borne by the assessee. The cost of construction in 2005 (Chayadeep) was far higher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to any third party without any modification. This can as it is be rented out to any third party without any modification this had a central superior quality construction and utilization for corporate office structure of related party building compared to outside party building which is used for manufacturing plant. The rental agreements with outside party were entered into in May 2001 and the rents were fixed for initial 7 years. Whereas, the rental agreement with related party were entered into during August 2004 in case of one property and June 2006 in case of two other properties. 34. In view of the above facts, we are of the view that the rent paid is not falling within the mischief of section 40A(2)(b) of the Act and seems reasonable. We allow the claim of the assessee and this issue of assessee's appeal is allowed. 35. The next issue in this appeal of assessee is against the order of DRP and AO in disallowing the expenditure of premium of redemption of foreign currency convertible bonds (FCCB). For this assessee has raised the following ground No. 7:- "9. The Hon'ble DRP and Ld AO erred in disallowing the expenditure of premium on redemption of FCCB on the ground that: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 19th 2010 with a redemption premium of 68% p.a. As on 31' December 2005 the additional amount (including exchange fluctuation) which is payable on redemption was provided for under Debenture Redemption Reserve with a corresponding adjustment to Securities Premium. Further, none of the bonds were offered for conversion as on 31st March 2007. Further, the FCCB issue expenses have been allowed as a deduction in the Company's own case for the AY 2006-07. Based on GAAP principles, the premium needs to be accrued; consequently the liability has been accrued in the books in the year of receipt of FCCB funds. Premium on redemption amounting to USD 16 Million has been accrued in the financials for the year ending 31 December 2005 based on the office circular. The liability is crystallized in the year of issue; however, it is discharged in the year of redemption. 38. In view of these facts, we are of the view that when a Company issues FCCB, it incurs a liability to pay a larger amount than what is borrowed and such higher amount payable by the Company will be for the purpose of its business in order to generate funds for its business activities. The amounts so obtained are used b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sence of factual matrix, we have no option but to confirm the judgment of the Tribunal. In our view, the judgment of this Court in the case of Taparia Tools Ltd. (supra) is applicable to this case. In our view, the judgment of the Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. (supra) is also applicable." 39. In view of the above facts, we are of the view that the assessee has rightly claimed the liability as expense and we allow the same. This issue of assessee's appeal is allowed. 40. The next issue in this appeal of assessee is against the order of DRP and AO in disallowing the expenses relatable to exempt income under section 14A of the Act. For this assessee has raised the following ground: - "10. The Hon'ble DR and Ld AO erred in disallowing 5% of total interest and salary expenditure under section 14A of the Act without appreciating the fact that the Appellant has not incurred any such expenditure and there is no separate administrative set up for earning such exempt income and Investments were made out of internal accruals and not out of any borrowings, The Hon'ble DRP and Ld AO ought to have appreciated the fact that the substantial portion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest under section 234D of the Act Rs. 1,688755 12. The Hon'ble DRP and Ld AO erred in levying interest under section 234D of the Act which is consequential in nature." 44. He stated that charging of interest under section 234B and 234D is consequential in nature and AO will charge interest as per the provisions of the Act at the time of giving appeal effect to the order of the Tribunal. As the issue is consequential, we direct the AO to charge interest as per law. 45. The next issue in this appeal of assessee is against the order of DRP and AO upholding the transfer Pricing adjustment amounting to Rs. 23,03,061/- made by the TPO under section 92CA of the Act. For this assessee has raised the following ground No. 12:- "Ground No 12: Transfer pricing adjustments 13.1. The Dispute Resolution Panel (DRP) and the Assessing Officer (AO) have erred in upholding the transfer pricing adjustment amounting to INR 2303,061 made by the learned Transfer Pricing Officer (TPO) u/s 92CA of the Income Tax Act (the Act). 13.2. The DRP. TPO and AO have erred in imputing notional interest on the outstanding advance balances and upholding the above transfer pricing adjustment. 14. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty including building, transportation vehicle, machinery, equipment, tools, plant, furniture, commodity or any other article, product or thing; (b) the purchase, sale, transfer, lease or use of intangible property, including the transfer of ownership or the provision of use of rights regarding land use, copyrights, patents, trademarks, licences, franchises, customer list, marketing channel, brand, commercial secret, know-how, industrial property right, exterior design or practical and new design or any other business or commercial rights of similar nature; (c) capital financing, including any type of long-term or shortterm borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business; (d) provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service; (e) a transaction of business restructuring or reorganisation, entered into by an enterprise with an associated enterprise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ple of commercial expediency would not come into play. Therefore, in our view, as the assessee has not charged interest on outstanding receivables from the overseas subsidiaries, arm's length price of the same has to be determined. Having held so, it is necessary to quantify the rate of interest of such transaction. It is observed, the Transfer Pricing Officer has applied the average interest rate of domestic credit facility availed by the assessee. However, it is seen from the material on record, the entire expenditure incurred by the assessee on behalf of the overseas subsidiary are on foreign currency (dollar), therefore, domestic PLR rate in terms of Indian rupee cannot be applied. It has been brought to our notice through the working submitted before the Departmental Authorities that the average cost of borrowings to the assessee is 4.84%. The learned Authorised Representative has also submitted a working showing the average LIBOR rate of financial year 2002-03 at 1.698%. In a number of decisions, different benches of the Tribunal have consistently held that in such type of international transaction, domestic PLR rate cannot be applied and the rate of interest has to be qu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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