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2018 (11) TMI 1703 - AT - Income TaxTP Adjustment - interest charged by the assessee from AE on the loan advanced to it which is not at arm length price which was borrowed by the assessee from ICICI Bahrain - HELD THAT:- The assessee has advanced loan to its subsidiary Golden Harvest to set up a plant at Fujairah by borrowing the same from the ICICI Bank abroad . The assessee has charged the same rate from the AE at which the loan was borrowed from ICICI Bank i.e. LIBOR plus 250 basis points. In our view the issue is squarely covered by the various decisions as referred to hereinabove wherein it has been held that loan transactions to the AR have to be benchmarked on the basis of LIBOR. In the present case the transaction is benchmarked by the assessee by following CUP method by charging LIBOR plus 250 basis points i.e. the same rate of interest which is charged by the ICICI Bank from the assessee and it is for this reason we are not in agreement with the direction of the DRP on this issue. The case of the assessee is squarely covered by the decision of co-ordinate bench of the Tribunal in the case of Everest Kanto Cylinder Ltd. v. ACIT [2015 (12) TMI 683 - ITAT MUMBAI] - We set aside the DRP direction and direct the AO to delete the addition. The ground no. 1 is resultantly allowed. Disallowance of hedging loss for hedging transaction with the AE - HELD THAT:- The undisputed fact is that the contract is between the assessee and ICICI Bank, Mumbai and not with the AE , therefore we find merit in the contention of the assessee that the this is not an international within the meaning of section 92C - loan was taken for the purpose of advancing it to the foreign subsidiary. Therefore, any expense or loss incurred in connection with that transaction would not be an international transaction between the assessee and the AE as the said loss or expense was incurred under a contract between the assessee and the third party - DRP has taken a incorrect view of the matter in upholding the order of AO on this issue. We definitely feel that the expenses in not in connection with the business of the assessee or out of commercial and business expediency of the business but disallowance by making TP adjustments is not correct . The AO could made the disallowance u/s 37 of the Act as not wholly and exclusively for the purpose of business Addition on account of notional interest by TPO on share application money invested by the assessee in overseas subsidiary - HELD THAT:- The undisputed facts are that the assessee has advanced money as share application money to Golden Harvest a foreign AE to set up a plant in free trade zone in Sharjah. It is also undisputed that the AE could not convert the share application money into share capital by issuing shares to the assessee as the permission from the free trade zone authorities with whom the AE was registered was pending and this was the only sole reason for not issuing the shares in favour of the assessee. Now the issue before us is whether the share application money could be treated as loan and could be subjected to the transfer pricing provisions. After perusing the facts on record and going through the decision relied on by the Ld. A.R., we find that no income has accrued from the share application money to the assessee and therefore such transactions could not be subjected to transfer pricing provisions. In the case of Shell India Markets Pvt. Ltd. vs. ACIT [2014 (11) TMI 897 - BOMBAY HIGH COURT] held that the provisions of chapter 10 of the Act would apply only when income arises from the international transactions.
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