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2018 (9) TMI 1909 - AT - Income TaxUpward adjustment towards Arm’s Length interest on loan given to associated enterprises - CIT(A) while determining the ALP of interest on loan given to AE, held that (Comparable Uncontrolled Price) CUP is the Most Appropriate Method (MAM) - HELD THAT:- The matter is well covered by the general consensus among the Hon'ble ITAT Benches that international transactions involving cross- border country loans to AE can be bench marked against LlBOR, as also supported by the RBI's circular that a spread ranging from 1 % - 2% over LIBOR is reasonable {or advancing loans. Therefore, in deciding the matter, it is held that an interest rate of LIBOR plus 2% can be held to be Arm's length rate of interest, and as for the case at hand, the interest charged by the assessee from its AE is higher than LIBOR plus 2%, the adjustment made by the ld. TPO in the case is held to be unjustified and not sustainable. Ground No. 1 of the revenue is dismissed. Determination of ALP on corporate guarantee on loans availed by AE - International transaction - HELD THAT:- CIT(A) held that the TP Provisions do not apply to the transactions of providing corporate guarantee prior to the amendment brought in by way of an explanation to Section 92B of the Act, by Finance Act, 2012. Further at page 45 he held that the methodology applied by the TPO in computing the ALP of the transactions was without reasonable and justifiable basis. We find that the findings of the Ld. CIT(A), are in line with the decision of the Kolkata ‘C’ Bench of the Tribunal in the case of M/s. EIH Ltd. vs. DCIT [2018 (1) TMI 1372 - ITAT KOLKATA] - Ground No. 2 of the revenue is dismissed. Disallowance made u/s 14A r.w.r. 8D - excess of own funds - HELD THAT:- CIT(A) considered the disallowance u/s 14A r.w.r. 8D(ii) and came to a factual conclusion that the assessee has adequate interest free funds totalling to ₹ 49,367.68 Lakhs to justify the investment of ₹ 40.02 Lakhs. He applied the decision of CIT vs. HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT] and other decisions and held that no disallowance can be made u/s 14A r.w.r. 8D(ii). Ground No. 3 of the revenue is dismissed. Accrual of income - accrued interest - real income theory application - HELD THAT:- The amounts given to three parties, namely, Smt. Sadhna Bhagwat, Ranglal Modi & Sons and Durga Prasad Agarwal, have become non-realisable. Once these loans have become Non-Performing-Assets and when the realization of the principal itself is uncertain, the question of recognizing interest does not arise. CIT(A), in our view, rightly applied the ‘real income theory’ and deleted the addition. We find no infirmity in this action of the ld. CIT(A) and uphold the same. Accordingly, Ground No. 4 of the revenue is dismissed.
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