2013 (6) TMI 420 - ITAT MUMBAI

Deduction u/s 10A disallowed - in respect of Unit No. II and Unit No. III set up in Software Technology Park - reallocation of certain common head office expenses amongst various units - matter was referred to DRP - Held that:- Even ground No. 3b is without prejudice to the claim of deduction under section 10A i.e., the reallocation of expenditure should be done only after adding back the common expenses as originally allocated by the assessee. It appears that the AO has not properly appreciated the issue. Since ground of disallowance u/s 10A is already set aside as mutatis mutandis identical to those of the immediately preceding year, it fair and reasonable to set aside this issue also with a direction to the AO to reconsider the matter in accordance with law. Needless to observe that the assessee shall be given an opportunity of being heard and if the assessee has already allocated the expenditure the same has to be added back to the profits of the units and then only the reallocation process should begin.

Adjustments recommended by the TPO and DRP with regard to the interest receipts shown on loan given to AE - as per TPO as per the CUP method if it is benchmarked against LIBOR the interest rate declared by the assessee is higher and hence no adjustment is required - whether it is not in accordance with law - Held that:- The case of the assessee was that LIBOR as on 31.03.2008 was 2.49% against which the assessee has charged interest @ 6% p.a. Interest charged by the assessee is much higher than the corresponding arm's length LIBOR even from an Indian transfer pricing perspective. It is not in dispute that the loan has been denominated in US dollars. Though the D.R., for the first time, raised a contention that the assessee might have taken loan in the earlier year to advance the same to its AE in the earlier year, in fact neither the TPO nor the DRP has considered the aspect from that angle and the assessee consistently prayed before the tax authorities that the assessee has not incurred any interest cost on funds given to the AE as the source of fund is surplus available with the assessee. In the absence of any material to prove to the contrary, merely because some interest has been paid in the immediately preceding year, it cannot be assumed that the assessee borrowed funds in the immediately preceding year was the source for the purpose of advancing loans to its AE. Having regard to the overall circumstances of the case the issue stands squarely covered by the decision of Cotton Naturals (I) P. Ltd. [2013 (6) TMI 174 - ITAT DELHI] wherein observed that the CUP method is the most appropriate method in order to ascertain arm's length price of the international transaction i.e., where the lending of money was in foreign currency to its AE the domestic prime lending rate would have no applicability and the interbank rate fixed should be taken as benchmark rate for international transactions. Therefore, hold that LIBOR rate has to be adopted in the instant case since the interest charged by the assessee from its AE is higher than the LIBOR rate in the year under consideration no transfer pricing adjustment in that regard is warranted - set aside the order of the AO and allow the grounds urged by the assessee.

Interest u/s 234B - Held that:- As charging of interest under section 234B is mandatory but it is consequential in nature depending upon the additions/adjustments upheld. The AO is directed to compute the interest. chargeable under section 234B