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2015 (6) TMI 319 - AT - Income TaxDetermining arm’s length adjustment in respect of loan given to its wholly owned subsidiaries - Held that:- The assessee has given advance to 100% wholly owned foreign subsidiaries on which no interest has been charged. Since the advance was given to its AE without charging interest, the transaction comes under the purview of international transaction requiring adjustment on account of arm’s length price u/s 92. It does not matter even if advance is given out of interest free funds available with the assessee. The issue with regard to determining arm’s length adjustment in respect of loan given to its wholly owned subsidiaries is covered by the decision of Hon’ble jurisdictional High Court in the case of CIT vs. Tata Autocomp Systems Ltd., (2015 (4) TMI 681 - BOMBAY HIGH COURT ) wherein held that the rate of interest was to be determined by applying the Euribor rate of interest i.e. rates prevailing in Europe. Similarly the decision of Tribunal in the case of VVF Ltd. vs. DCIT (2010 (1) TMI 781 - ITAT, Mumbai|) and DCIT vs. Tech Mahindra Ltd. (2011 (6) TMI 140 - ITAT, MUMBAI ) also supports this issue. Respectfully following the above decisions we direct the A.O. to make arm’s length adjustment by applying the LIBOR rate of interest. From the record we found that part of loan was subsequently converted into equity. To the extent of loan converted into equity, no transfer pricing adjustment is required with effect to the date of such conversion, in view of decision of Hon’ble jurisdictional High Court in the case of Vodafone,[2014 (10) TMI 278 - BOMBAY HIGH COURT]. We direct accordingly. Disallowance of interest on amounts spent on acquiring premises at Bharat Diamond Bourse - BDB - Held that:- From the record we also found that the assessee had huge amount of interest free funds at its disposal as well and that it is normally rational that owned funds in the form of accumulated undistributed profits are utilized for acquisition of capital assets - particularly an asset which has been under construction for more than a decade. The total non-interest bearing funds available with the assessee as of 31st March 2006 are ₹ 141.56 crores and after excluding the current year's profit, the same are ₹ 123.19 crores. The expenditure on capital assets till the year end is only ₹ 5.77 crores. Hence it would be rational to state that the same has been funded from owned funds. Accordingly we do not find any justification for the disallowance of interest expense as made by lower authorities. - Decided in favour of assessee. Disallowance arising out of purchases from subsidiary company - Held that:- From the record we found that the said materials were sold at cost and no profit was made on the same. It was also submitted that even if the assessee follows a FIFO system of valuation, cost of these diamonds would also be worked on a FIFO basis. There was no evidence to show that the sale has actually been done at a higher amount. This issue is also covered by the decision of the Tribunal in assessee’s own case for assessment years 2002-03 to 2005-06 as the facts and circumstances of the case during the year under consideration are same, respectfully following the order of Tribunal we do not find any merit in the action of the lower authorities for the disallowance made arising out of the sales to subsidiary company. - Decided in favour of assessee.
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