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2015 (5) TMI 970 - AT - Income TaxTransfer pricing adjustment - TPO benchmarking the transaction of interest due on amounts outstanding from its AEs at LIBOR plus 300 basis points - Held that:- The assessee in the present set of facts was carrying on its business with its AEs and the majority of business receipts were receivable from the AEs. Once the transaction between the assessee and its AEs was in foreign currency, then the same part takes the nature of international transaction and the said transactions have to be looked upon by applying the commercial principles with regard to an international transaction. If that is so, then the domestic lending rates cannot be applied in order to benchmark the transaction of the assessee with its AEs and the international rates fixed by LIBOR would come into play. There was substantial delay in receipt of payment from AEs and substantial amount stood unrecovered from the AEs beyond the stipulated periods. The assessee initially did not charge interest from the AEs and subsequently, charged interest from AEs at AFR i.e. America n Federal Rate @ 2.98%. The amount is in the character of loan or borrowing after the stipulated credit period and consequently, such recovery of dues in the international transaction with its AEs is to be benchmarked by applying CUP method of international bank rates. Accordingly, we hold that LIBOR plus rates have to be applied to the amounts due from the AEs beyond the period of 25 days, which was the weighted average number of days delay allowed to the third parties. After excluding the period of 25 days, interest is to be charged on the balance number of days of delay by applying LIBOR plus rates. We find that the TPO had applied average rate of LIBOR plus 300 basis points as the reasonable rate of interest, which the assessee should have charged to its AEs. The TPO had also charged plus 200 basis points as guaranteed commission. The CIT(A) has given a finding that in the absence of any expenditure having been incurred by the assessee on such guaranteed commission, there was no merit in including the same. The Revenue is not in appeal against the said finding of the CIT(A) and in the totality of the above said facts and circumstances, where it has not been established that the assessee has not paid any commission, there was no merit in charging plus 200 basis as guaranteed commission. However, we uphold the order of TPO in benchmarking the transaction of interest due on amounts outstanding from its AEs at LIBOR plus 300 basis points. The Assessing Officer / TPO shall determine the adjustment, if any, to be made in the hands of assessee on account of interest chargeable on the amounts due from its AEs beyond the credit period of 25 days after allowing the benefit of interest recovered by the assessee from its AEs
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