9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (10) TMI 1563 - AT - Income TaxTP upward adjustment - payment of interest on loan - MAM selection - assessee is engaged in the business of development of residential and commercial complex - HELD THAT - In the present case in our opinion the rate charged by SBI is to be considered as the interest rate that was prevailing in the market and interest rate of 12.5% charged by SBI from M/s SCKPL can be used as comparable in the assessee s case since the loan received SBI was advanced to the assessee without any mark-up. M/s SCPKL had borrowed funds from SBI and paid interest @12.5% p.a and charged interest at the same rate without identifying any mark up since the cost of fund to the related party was only 12.5%. had opined by the TPO and AO to grant loan at a rate below the rate of 12.5% i.e @ 9.5% then there would have been a loss of 3% interest to M/s SCPKL. The cost plus method is the most appropriate method for determination of arm s length price of the interest on loan and we find no infirmity in the order of CIT(A) and it is justified. Accordingly we delete the addition on account of transfer pricing adjustment. Appeal of the Revenue is dismissed.
Issues Involved:
1. Justification of the CIT(A) in deleting the upward adjustment made by the TPO concerning the payment of interest on a loan. Detailed Analysis: Background: The appeal was filed by the Revenue against the order dated 16.10.2017 passed by the Commissioner of Income Tax (Appeals)-22, Kolkata for the Assessment Year 2013-14. The primary issue was whether the CIT(A) was justified in deleting an upward adjustment of Rs.2,72,43,632/- made by the Transfer Pricing Officer (TPO) regarding the payment of interest on a loan. Facts of the Case: The assessee, engaged in the development of residential and commercial complexes, filed its return of income on 30.11.2013, declaring a total income of Rs.4,27,96,480/-. The Assessing Officer (AO) noted that the assessee paid interest at different rates to related parties and referred the matter to the TPO for determining the Arm's Length Price (ALP) of these transactions. The TPO suggested an upward adjustment based on a comparison with another party, leading to an assessed total income of Rs.7,00,40,112/-. CIT(A) Decision: The CIT(A) deleted the adjustment made by the AO/TPO, providing several reasons: 1. Cost of Funds Argument: - The assessee argued that the cost of funds to the holding company (SCPKL) was 12.5%, and hence, it could not have lent funds at a lower rate. - The CIT(A) found merit in this argument, noting that the interest rate charged by SBI to SCPKL was 12.5%, which could be considered an appropriate benchmark. 2. Comparable Transactions: - The assessee highlighted that it charged 16% interest to its wholly-owned subsidiary, which was accepted by the TPO. - The CIT(A) noted that if the interest received at 16% was accepted as ALP, then the interest rate paid at 12.5% should also be accepted. 3. Appropriate Benchmark: - The CIT(A) observed that the loan from Silver Cross Marketing Pvt. Ltd., used by the TPO as a benchmark, was not comparable due to differences in principal amounts and time periods. - The CIT(A) concluded that the interest rate of 12.5% paid to SCPKL was at arm's length. Tribunal's Analysis: The Tribunal upheld the CIT(A)'s decision, providing the following analysis: 1. Interest Rate Comparability: - The Tribunal agreed that the interest rate charged by SBI to SCPKL (12.5%) was an appropriate benchmark. - The Tribunal noted that the cost plus method was suitable for determining the ALP in this case. 2. Methodology: - The Tribunal emphasized the provisions of Section 92C, which mandates using the most appropriate method for determining the ALP. - The Tribunal found that the cost plus method, considering the cost of funds to SCPKL, was appropriate. 3. Rejection of TPO's Comparable: - The Tribunal concurred with the CIT(A) that the loan from Silver Cross Marketing Pvt. Ltd. was not a suitable comparable due to differences in loan amounts and time periods. 4. Conclusion: - The Tribunal concluded that the CIT(A) was justified in deleting the upward adjustment and that the interest rate of 12.5% was at arm's length. - The appeal by the Revenue was dismissed. Final Judgment: The Tribunal upheld the CIT(A)'s order, confirming that the interest rate of 12.5% paid by the assessee was at arm's length and did not warrant any transfer pricing adjustment. The appeal by the Revenue was dismissed, and the order was pronounced in the open court on 04.10.2019.
|
