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2014 (9) TMI 610 - AT - Income TaxExemption of interest income earned u/s 10B – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that, the assessee is a 100% Export Oriented Unit (EOU) registered under Software Technology Park Scheme for the development and export of computer software - The assessee had earned interest income and had also claimed deduction u/s 10B in respect of interest income - the interest income was derived from the business activity of the eligible unit and that it had consistently offered such income as Profit and gains of business and profession - The AO did not accept the contentions raised - deduction u/s 10B was allowable in respect of profit and gains derived from a 100% export oriented undertaking from the export of article or things or computer software - interest income had not been derived from export of article or things or computer software - the assessee was not entitled to deduction u/s 10B in respect of interest income - CIT (A) also rejected the claim of the assessee of netting of interest against the interest paid – the order of the CIT(A) is upheld – Decided against assessee. Assessability of interest under income from other sources – Held that:- As decided in assessee’s own case for the earlier assessment year, the Tribunal has rightly directed the AO to allow the expenses incurred for earning interest income - the assessee itself submitted that the interest had been earned from surplus funds generated which had been deposited in sort term deposits with banks - since the interest had been earned from the surplus funds, the AO assessing the interest income as income from other sources is justified - while computing the interest income as income from other sources all expenses incurred for earning of interest income have to be deducted - This aspect has not been examined either by the AO or by the CIT (A) – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of assessee. Determination of the Arm’s Length Price based on LIBOR – Held that:- The LIBOR has to be accepted as the basic rate for bench marking the interest to the AE’s - The assessee has adopted the interest rate of 250 basis point above the LIBOR for making the TP adjustment - CIT (A) has followed the RBI circular as per which all-in-cost ceiling of 350 basis point over the LIBOR has been prescribed in respect of loans of maturity period for more than 5 years - CIT (A) held that the arm’s length interest rate would be at LIBOR + 350 basis point. We however note that 350 basis point in the ceiling provided in the RBI circular - CIT(A) has just referred and followed the decision of the Tribunal - the issue has been decided by CIT(A) in accordance with the order of the Tribunal in assessee’s own case for immediate preceding assessment year – the order of the CIT(A) upheld – Decided against assessee.
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