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2016 (12) TMI 1551 - DELHI HIGH COURTInapplicability of transfer pricing exercise with respect to loans advanced to subsidiary/AE - provisions of Chapter X of the Income Tax Act and Rule 10A of Income Tax Rules applicability - Held that:- In this case, while examining the sum advanced in question, especially the rate of interest, the DRP and later the ITAT closely scrutinized not only the prevalent LIBOR rates but also the risk assessment. The Tribunal – as is evident from the extracted part of its reasoning, held that when the DRP itself stated that since Indian banks were charging 250 basis points above LIBOR on similar loans, there was no good reason for holding that the loan advanced to a subsidiary at 247 basis points above the LIBOR rate to be not at arm’s length. These findings are essentially factual and based upon the choice of either accepting in entirety the DRP reasoning which itself had found the TPOs approach incorrect or substituting it with the ITAT’s reasoning. In other words, as between the views of the DRP and that of the ITAT, this court is being asked preferred that of the former. Ipso facto this does not constitute a question of law, however this Court finds some merit and substance in the revenue’s grievance with the ITAT’s observations that advances to foreign subsidiaries per se may not constitute international transactions. This court clarifies that such observations should not be treated as binding and that it is up to the concerned Transfer Pricing Officer to undertake the necessary scrutiny having regard to the facts of each case to discern whether indeed the terms of any given loan are at arm’s length or not. To that extent the wide observations of the ITAT are not approved but are confined to the facts of the present case. On the first issue, no question of law arises. Disallowance under Section 14A - Held that:- The findings of the ITAT that the kind of disallowance made could not be sustained, was entirely fact dependent inasmuch as application of Rule 8D in this case was wronged upon. The assessee had contended successfully that the funds deployed to derive the tax exempt income were its own and were not borrowed. These findings too are factual and cannot constitute questions of law.
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