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2016 (9) TMI 1456 - AT - Income TaxInter-corporate loan for determination of interest rate for loans provided to other associated enterprises - Held that:- With respect to credit spread, TPO mentioned that the same needs to be based upon the creditworthiness of the borrower, citing detailed explanation about credit rating, the agencies determining the same and Standard & Poor's Corporate Rating Criteria as provided by them in a booklet issued in 2006 (S&P Criteria). TPO erred in applying the same in a biased manner and came to a conclusion that the rating of Tega US and Australia would not be more then 'B'. TPO has only placed reliance on four out of seven ratios as prescribed by the S&P Criteria to arrive at the credit rating for AEs even after acknowledging the fact that S&P prescribes all seven ratios. ld. TPO has identified a single loan transaction as comparable from 'Loan Connector' having 'B' rating commanding a spread of 3% for the risks associated with its rating therefore, we find that the methodology adopted by the TPO may be wrong. However, the assessee has submitted before us some additional evidence pertaining to credit rating. As we noticed in the additional evidences that the assessee has computed credit rating of Tega Australia at "BBB" and Tega US at "AA" by applying scientific and logical method, as explained above, and submitted before us additional evidences, accordingly, we are of the view that this issue requires fresh examination at the end of the TPO/AO, therefore we restore this issue to the file of the TPO/AO with the direction to ascertain, the arm's length price of the loan. Appeal filed by the assessee on this ground is allowed for statistical purposes. Corporate guarantee provided by the assessee for loans taken from ICICI bank, U.K. - Held that:- As the assessee's expectation from provision of loan and guarantee are not that of a lender or guarantor i.e. to earn a market rate of interest or guarantee fee, rather, the expectation was of a shareholder to protect its investment interest, help it to achieve acquisition of Tega Beruc for furtherance of its own business and get return in terms of appreciation in value and dividends. It can be verified from the fact that no third party would have agreed to grant loans, on an independent basis, to the tune of ₹ 5 crores to Tega Bahamas given its skewed debt-equity ratio reflected in the balance sheet, as equity funding is mere ₹ 23 Lakhs, therefore in the present case the guarantee is a shareholder activity hence no TP adjustment on account of corporate guarantee should be required. Accordingly, we direct the ld. DRP AO to delete the addition. In the result, the appeal of the assessee is allowed.
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