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2023 (5) TMI 361 - AT - Income TaxTP Adjustment - Interest on loans and advances given to the AEs - Assessee argued for the loans and advances in foreign currency, the interest should be the market determined rate applicable to the currency concerned in which the loan has to be repaid but not on the basis of the currency or legal tender of the place or country of residence of either of the parties - HELD THAT:- As in the light of the decision in the case of CIT VS. vs M/S Cotton Naturals (I) Pvt. Ltd. [2015 (3) TMI 1031 - DELHI HIGH COURT] in that case also, both learned TPO and the DRP referred to the PLR rates only by way of analogy so as to state the prevailing interest rates in India, but while applying CUP method for comparability, they had applied LIBOR rates prevailing and applied a mark-up of 700 points on account of low credit rating of the subsidiary AE and the cost of transaction. Interest rates vary and are thus dependent on the foreign currency in which the repayment is to be made and, therefore, domestic interest rate should not be applied for determining the interest rate in case of loans to be re-paid in foreign currency. Respectfully following the decision of the Hon’ble Delhi High Court (supra), we hold that the ALP of interest shall be determined with reference to the interest rates applicable to the currency in which the loan has to be repaid. Since the assessee had already benchmarked the transaction and made a suo motto adjustment at 10.55% which is certainly higher than the LIBOR+400 basic points adopted by various fora, the same can be accepted. Adjustment of corporate guarantee fee - assessee suo motto adjusted at 0.5% towards commission from the AEs - HELD THAT:- Having considered the facts in their entirety, and while respectfully following the view taken by the Hon’ble Bombay High Court in the case of GlenmarkPharmaceuticals Ltd.[2013 (11) TMI 1583 - ITAT MUMBAI] we deem it just and proper to accept the ALP of corporate guarantee at 0.53%. We accordingly direct the learned Assessing Officer/learned TPO to adopt the same. Rate of interest on the receivables - HELD THAT:- We are of the considered opinion that the ends of justice would be met by accepting the interest rate on similar foreign currency receivables/advances as LIBOR+200 points. We accordingly direct the AO / TPO to adopt the same. Interest expense stating that the assessee advanced interest free loans to related parties - specific contention of the assessee is that there is business contingency in advancing the moneys to the subsidiaries because of the conditions stipulated by the concessionaire to create the SPVs for execution of the project - HELD THAT:- There is no denial of the fact that the related parties are the wholly owned subsidiaries of the assessee. There is also no specific denial that such subsidiaries were assessed to tax in the same territory and were paying taxes. Revenue failed to contend and establish that because of the assessee not charging any interest on the moneys advanced to the subsidiaries, there is any leakage of revenue – on the face of the allegation of the assessee that if the assessee charges interest, such an expense is allowable in the hands of the subsidiaries. Revenue does not dispute the contention of the assessee that at one place or the other, the interest expense has to be allowed. It is a revenue neutral transaction and assessee not charging any interest on the loans and advances made to its subsidiaries does not have any impact on the Government exchequer. With this view of the matter, we allow grounds. Application of markup of 10% on the contract revenue and proposing an adjustment - HELD THAT:- As no information is furnished to contradict the findings of the authorities below. In these circumstances, we do not find anything illegality or irregularity in the authorities adopting the markup at 10% of the sub-contract services amount. Ground is accordingly dismissed.
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