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2021 (10) TMI 1327 - AT - Income TaxTP Adjustment - benchmarking of interest at LIBOR + 700 points in assessment year 2008-09 holding that assessee is not a banker and in view of credit rating and transaction cost, the LIBOR needs to be marked up by 700 basis points - markup of 700 basis point in assessment year 2008-09 and markup of 500 points in assessment year 2009-10 over the LIBOR rate applied by the Assessing Officer for determination of arm’s-length price of international transaction of interest - HELD THAT:- In the instant case, the AE was a relatively new entity in the year under consideration and credit rating of the same being not good, the assessee has advanced loan to the AE, so if in comparable situation, a bank in India sanction a loan to any entity in USA in uncontrolled manner transaction, then credit rating of the loan recipient entity should be taken into account. AO has followed earlier AY 2007-08 and has not taken into consideration credit rating of the AE in the year under consideration, which has to be based on specific information and not on the basis of assumption. Before the Ld. CIT(A), the assessee has cited the RBI Master Circular and submitted that interest rate on foreign currency working capital loan for a period in excess of 180 days. We are of the opinion that no markup for transaction cost should be applied on LIBOR rate for benchmarking of the international transaction; however, appropriate markup for credit rating should be applied depending on credit rating of AE. The Assessing Officer in assessment year 2008-09 and 2009-10 has not given any justification for applying markup of 400 points for credit rating and, therefore, in the interest of justice, the issue in dispute is restored to the file of the Learned Assessing Officer for deciding limited issue of markup for credit rating over LIBOR rate of interest after taking into consideration criteria for credit rating during relevant period. The grounds of the appeal of the assessee for both the assessment years are accordingly allowed for statistical purposes.
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