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2022 (3) TMI 1448 - AT - Income TaxTP Adjustment - adjustment in the arm's length price in respect of the interest charged on the advances by the appellant companies to its AE Virgo Europe SPA - whether LIBOR is to be taken as the basis of interest benchmarking for foreign currency denominated loans or whether Indian PLR will be relevant? - HELD THAT:- In the case of CIT Vs Tata Autocomp Systems Ltd [2015 (4) TMI 681 - BOMBAY HIGH COURT] concluded that ALP in the case of loans advanced to Associate Enterprises would be determined on the basis of rate of interest being charged in the country where the loan is received/consumed. The stand of the authorities below in replacing the LIBOR with Indian PLR cannot be upheld. It is not even the case of the revenue authorities that the basis points above the LIBOR are inadequate or too low. Accordingly, benchmarking by the assessee cannot be faulted with. We delete the impugned ALP adjustment. The assessee gets the relief accordingly. Adjustment value of the pledge of shares - HELD THAT:- We find that there is no dispute that the shares are pledged, at the instance of or and for the benefit of, an associated enterprises of the assessee, keeping this in mind, when we look at definition of “ transaction” in section 92F(v), it is clear that “transaction includes an arrangement, understanding or action in concert-(A) whether or not such arrangement, understanding or action in concert is formal or in writing; or (B) whether or not such arrangement, understanding or action is concert is intended to enforced by legal proceedings”. It cannot, therefore, be said that pledging shares for the benefit of an associated enterprises is not a transaction between the associated enterprise. It is akin to a corporate guarantee and is, therefore, required to be benchmarked as such. What is the rate at which such corporate guarantee is to be benchmarked, and whether a corporate guarantee constitutes international transaction at all? - As relying on case of Siro Clinpharm Pvt. Ltd [2021 (10) TMI 754 - ITAT MUMBAI] we uphold the action of the authorities below in principle but we scale down the ALP adjustment to 0.5% of the correct value of shares and for the actual pledge period. To this extent, the assessee will get relief. Penalty u/s. 271(1)(c) - Issuance of corporate guarantees did not constitute an international transaction under section 92B, as it had no bearing on the profits, income, losses or assets of the enterprise giving such guarantee. This stream of decisions included decisions as in the cases of Micro Ink Ltd [2015 (12) TMI 143 - ITAT AHMEDABAD], Siro Clinpharm Pvt. Ltd [2016 (5) TMI 633 - ITAT MUMBAI], Bharti Airtel Ltd [2014 (3) TMI 495 - ITAT DELHI] In view of this position, it cannot be said that assessee's explanation that the guarantee given by the pledge of shares did not constitute international transaction was not a reasonable explanation. Accordingly, it was not a fit case for imposition of penalty u/s. 271(1)(c).
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