TMI Blog2019 (10) TMI 1563X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer pricing adjustment. Appeal of the Revenue is dismissed. - ITA No.55/Kol/2018 - - - Dated:- 4-10-2019 - Shri J. Sudhakar Reddy, Accountant Member and Shri S.S. Viswanethra Ravi, Judicial Member For the Appellant : Dr. P. K. Srihari, CIT(DR) For the Respondent : Shri Ravi Tulsiyan, FCA ORDER PER Shri S.S. Viswanethra Ravi, JM: This appeal filed by the Revenue against the order dated 16.10.2017 passed by the Commissioner of Income Tax (Appeals)- 22, Kolkata [ CIT(A) ] for Assessment Year 2013-14. 2. The only issue to be decided is as to whether the CIT(A) is justified in deleting an upward adjustment of Rs.2,72,43,632/- made by the TPO in respect of payment of interest on loan in the facts and circumstances of the case. 3. The brief facts relating to the issue are that the assessee is engaged in the business of development of residential and commercial complex for the relevant Assessment Year. The assessee filed its return of income on 30.11.2013 declaring total income of RS.4,27,96,480/- . According to AO, the assessee entered into Specified Domestic Transaction i.e. interest payment @12.5% to M/s South City Projects (Kolkata) Ltd. fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... length price (ALP). Accordingly, the Ld TPO, as has been reproduced in the order supra suggested an upward adjustment of Rs.2,72,43,632/ -. 2. The main contention of the appellant-company in this appeal is that while so doing, the Ld.TPO has overlooked and disregarded the fact that cost of funds to the subsidiary itself was 12.5% and therefore according to the appellant, it could not have lent funds to the assessee @ 9.5% as contended by the Ld. TPO/ AQ, I have carefully examined the action of the Ld, AO/ TPO as well as examined the various contentions of the appellant-company taken before the Ld. AO/TPO as well as in appeal. 3. In appeal, the main contention of the appellant is that the ALP in a loan transaction may be determined under the Cost Plus Method (CUP) and as the cost of funds to the lender was 12.5% the loan transaction with M/s SCPKL was at arm's length and hence no transfer pricing adjustment was warranted, In order to support such a contention, the appellant has brought to notice the sanction letter from SBI, the loan creditor of SCPKL, and it has been pointed out by the appellant-company that on examination of the same (at pages 63 to 70 of the Paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly, there is merit in the contention of the appellant-company that the interest paid @ 12.5% to SKPCL 10.5% to Shri Halwasiya was clearly at arm's length and does not warrant any TP Adjustment. It has also been argued by the appellant-company that it, the assessee-company has during the year has charged an interest of 16% p.a. from its wholly owned subsidiary Indocean Developers Pvt. Ltd, and this matter has not been disputed by the Ld.TPO. A sum of Rs.16,84,01,277/- has been offered to tax as interest received from its subsidiary in its return in the computation enclosed at page 16 of the Paper Book. This being the factual position, there is strength in the contention by the appellant that as the interest received @16% from its subsidiary has been accepted as ALP, the Ld. TPO/AO could not be permitted to adopt a different Arm's length interest rate for the purposes of interest paid to its holding company, and that therefore the interest rate of 16% can also be held to be the arms length price. 6. As regards, the interest paid @ 9.5% to M/s. Silver Cross Marketing Pvt. Ltd. (Silver Cross) treated as ALP by the Ld. TPO has been argued by the appellant-compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as per the rate prevailing in the market through a letter which is at Page 34 and 39 of Paper Book. Thereafter the rate of interest was fixed at 12.5% p.a by M/s SCPKL and 10.5% p.a by Jaydeep Halwasiya. The assessee in order to determine the arm s length price of the transaction had taken the interest rate charged by the State Bank of India from M/s SCKPL on the credit facility provided by the bank. Sri Ravi Tulsayan Ld.AR submits that during the year, M/s SCPKL had availed loans from State Bank of India (SBI) as is evident from the sanction letter placed at Page 67-74 of Paper Book. It is clear from the letter, that SBI was charging interest at base rate+ 2.75%. Admittedly the base rate during the year was 9.75% + 2.75%. which comes to interest @ 12.05% was paid to SBI during the year. Further, he argued that since the cost of fund to the M/s SCKPL (holding company) was itself 12.5% and it cannot advance loans at a lower rate of interest than 12.5%. He submits, the interest charged @12.50% p.a. by M/s SCKPL against loan to assessee is to be considered at arm s length. 6. In the present case, in our opinion, the rate charged by SBI is to be considered as the interest rate tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to notice that the interest rate of 12.5% was charged by 3rd party i.e. a bank [SBI, in the case at hand] from its unrelated borrower i.e. SCPKL, and therefore as a third party in an independent transaction has charged interest rate of 12.5% from its borrower it can safely be adopted as the ALP and benchmarked against the loan transaction between the assessee and its holding company. 9. A reading of aforementioned para clearly shows that M/s SCPKL had borrowed funds from SBI and paid interest @12.5% p.a and charged interest at the same rate without identifying any mark up, since the cost of fund to the related party was only 12.5%. had opined by the TPO and AO to grant loan at a rate below the rate of 12.5% i.e @ 9.5% then there would have been a loss of 3% interest to M/s SCPKL. 10. Coming to the comparable, i.e M/s Silver Cross Marketing Pvt. Ltd, the assessee availed loan from Silver Cross Marketing Pvt. Ltd. in earlier years and the rate of interest @ 9.5% was fixed in the year itself. We find the loan was Rs.9.5 crores which according to assessee is small as compared to loan in the present appeal is of Rs.115 crores, interest rate was not revised and continued to re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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