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TMI Blog2016 (6) TMI 1386X X X X Extracts X X X X X X X X Extracts X X X X ..... subject international transaction. 3.2 The learned CIT-A erred in fact and law by upholding the order of the AO / TPO which stated that the loan was possible only because of the Appellant's efforts and that activities performed and risks undertaken by the Associated Enterprise ('AE') were routine in nature. The AO / TPO has also erred on facts in holding that the Appellant was responsible for receipt / disbursal of loan funds, timely repayments, etc. 3.3 The learned CIT-A has erred in fact and law in stating that the approach adopted by the Appellant in bench marking the loan syndication transaction is adhoc. The learned CIT-A has erred in fact and law in applying the Comparable Uncontrolled Price ('CUP') method to benchmark the subject international transaction. Further, the CUP method has been applied in a completely erroneous manner". 3. The Ld. Counsel for the assessee submits that the main issue in the appeal of the assessee is regarding adjustment in respect of loan syndication fee and its allocation between assessee and its AE. The Ld. Counsel for the assessee submits that in similar type of cases, the Hon'ble Tribunal held that only 20 to 25% loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n altered. 5.2. The TPO has observed that splitting of fee between the AE and the assessee was actually not equal. The AE kept a higher amount of fees and that the AE by entering into syndication would have got favourable terms from the other members of the syndicate and benefited by spread of risk. All the functions other than the task of syndicate forming are routine tasks for a loan giver and by forming a syndicate the AE had benefitted in terms of spread of risk and in obtaining beneficial terms compared to others. The TPO has mentioned that the business of AE, M/s. ABN Amro Bank NV Hongkong Branch office was to give loans and normal risks undertaken by the loan giver are underwriting risk, marketing risk, counter party of the credit risk and operational risk. Forming of syndicate was a means of sharing risks and any loan giver would like to share risks and this was a normal instance in such a situation. 5.3. TPO held that loan was possible only because of Indian entities efforts in identification of the client and preliminary discussions with the client. Since the AE may be involved in syndicate formation it gains in the form of spread of risks and having beneficial terms fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in these transactions of foreign currency loan under ECB was to provide financial analysis of the borrowers, general market conditions and regulatory environment. The learned AR has vehemently argued that as per para 4 of Protocol, profit cannot be attributed to the PE on account of facilitation of conclusion of loan agreement or mere singing thereof. We do not agree with the contention of the learned AR of the assessee because of the fact that the role of the assessee is not merely facilitation of conclusion of loan agreement or signing thereof but the services provided by the assessee are the core-basis for taking the decision of granting the loan by the syndicate. The assessee provided the services regarding clients creditability analysis, its capacity so as to consider the capacity to repay the loan and risk involved in the loan transaction. Therefore, the role of the assessee in providing such a crucial service is inevitable for taking the decision of providing loan and as such cannot be said to be a mere facilitation of conclusion of the loan agreement or signing thereof. At this stage, para 4 of the Protocol between the India and France is quoted for ready refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee for foreign currency loan arranged for its existing clients by taking into account only the fee and other charges received by the foreign branches from the borrowers in question. Since none of the parties have come out with the suitable comparables, therefore, we find that the estimation made by the CIT(A) at the rate of 20% is just and proper, however, the same would be only in respect of the fee and charges other than interest received by the foreign branches. Thus, these grounds of the assessee are partly allowed". 8. Similarly following the said decision the Co-ordinate Bench in the case of Calyon Bank Vs DDIT held as under: - Ground No.9 disallowance of interest and commission by the TPO in respect to ECB advance to Indian borrowers. 24. We have heard learned AR as well as learned DR and considered the relevant material on record. The TPO made an adjustment of 25% of interest and commission received by overseas branches in respect of ECB advance to Indian borrowers. The CIT(A) granted relief of 5% and restricted the adjustment to 20% of interest and commission. At the outset, we note that an identical issue has been considered by the Tribunal in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave discussed above that the assessee's role in providing the services is the core-basis of taking the decision of granting loan, therefore, the nature of services provided by the assessee do not fall under the terms facilitation of conclusion of loan agreement or signing thereof as stipulated under para 4 of the Protocol. 8.8 Having held that para 4 of the Protocol does not apply to the case of the assessee, now, the question arises as to whether the adjustment made by the authorities below is justified. For making the adjustment, the authorities below have taken into consideration, the income towards interest as well as the fee charged by the foreign branch from the clients. It is pertinent to note that when the loan is provided by the syndicate and the assessee has not contributed to the loan amount then as regards the income of interest, the same cannot be attributed to the assessee for providing the services of the financial analysis of the borrowers, market condition and regulatory environment in India. Since the assessee has provided certain services for that arms length charges can be determined as per the provisions of transfer pricing regulation. The TPO as well as C)T( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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