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2021 (10) TMI 276 - AT - Income TaxTP Adjustment - Addition of interest expenses - interest received by assessee on loans extended to its associated enterprises (‘AEs’) - TPO adopting credit rating of BB, which prompted him to adopt the LIBOR rate with add on of 400 basis points - HELD THAT:- UUL agreed to repay the loan as and when sufficient funds are available with it and if not repaid, then agreed that the outstanding loans, together with accumulated interest, to be converted into common stock or preferred stock of UUL at any point of time. These clauses in the loan agreement are nothing but eye-wash as the appellant company is the holding company of the borrower and have sanctioned loan for unsecured junior debt loan upto US$ 7 million. The above facts have to be considered alongwith the fact that UUL has its Registered Office in the State of the Delaware, USA and in its fourth year of operations, it employed four employees for managing its warehousing operations. Considering the facts of the case in hand in light of the two loan agreements mentioned elsewhere, and considering the fact that the assessee itself has charged interest @ 8% in the case of UUL and 6.138% in the case of UBV, we do not find any error or infirmity in the transfer pricing approach of the TPO upheld by the DRP. Ground No. 3 with all its sub-grounds is dismissed. Lower interest charged @ 6% instead of 16% from its wholly owned subsidiary company - HELD THAT:- As on receiving financial assistance from the assessee, revenue from sales of M/s UniLink Engineering Pvt Ltd increased from ₹ 94.73 lakhs from F.Y 2005–06 to ₹ 26.12 crores in F.Y 2008–09. We further find that own funds of the assessee as on 31.03.2007 were at ₹ 33.35 crores which jumped to ₹ 127.62crores as on 31.03 2009 and tp ₹ 139.17 crores as on 31.03.2009. Loan was given in earlier F.Y and the assessee had sufficient own funds to give the loan. It is equally true that no disallowance was made in the earlier Assessment Year though the DRP has observed that rest judicata is not applicable under Income Tax proceedings but, in our considered opinion, when the facts are same, and the law has not changed, then the rule of consistency ought to have been followed. Considering the facts of the case in totality, we do not find any merit in the addition made by the Assessing Officer. We, accordingly, direct the Assessing Officer to delete the same. Ground No. 4 is, accordingly, allowed. Disallowing 5% of expenses on adhoc / estimated basis out of claim of deduction under the head “Ocean, Air Freight and Marine Insurance” - HELD THAT:- As assessee was specifically asked to justify the increase in expenses incurred on Air/ocean freight and marine insurance. It is equally true that before the DRP the assessee explained the increase by filing documentary evidences showing that these expenses were incurred on CIF basis. Assessing Officer himself has admitted in his second remand report that the assessee was able to justify the increase of expenses under this head. We are of the considered view that unless there is a limitation put by law on the amount of expenditure, a lesser amount expended cannot be allowed merely because the assessing authority thinks that the assessee could have managed by paying lesser amount as a prudent business man. Hon'ble Supreme Court in the case of Walchand & Co. Pvt Ltd [1967 (3) TMI 2 - SUPREME COURT] has held that the test of prudence by substituting its own view in place of business man’s is not acceptable. Considering the fact that disallowance made by the assessee was purely on adhoc basis and restricting the disallowance by the DRP is also on adhoc basis. We, therefore, do not find any merit in the impugned addition. The Assessing Officer is directed to delete the addition.
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