Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2016 (2) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (2) TMI 196 - AT - Income TaxTransfer pricing adjustment - advance to subsidiary - addition on interest charged on advances to the subsidiaries - Held that:- It cannot be said that the advance to subsidiary, at 247 basis points above the LIBOR, is not at an arm’s length price. In any event, once DRP itself states that the Indian banks are charging 250 basis above LIBOR on similar loans, even though this interest rate could reach upto 400 basis points in some cases, there cannot be any good reason for holding that loan advanced to a subsidiary at 247 basis points above the LIBOR rate is not at an arm’s length price. That apart, as noted earlier in this order, once Hon’b;le Delhi High Court, observes that the “assessee advanced monies to the subsidiaries which were under its management and control, which in fact substantially reduced the risk and in these circumstances there was no rationale of adjusting any amount of higher basis”, it cannot be open to the transfer pricing authorities to contend that this loan should be treated as a high risk loan on which high interest rate should be charged even within the range of interest rates charged by the Indian banks generally. In view of these discussions, as also bearing in mind entirety of the case, we uphold the grievance of the assessee and direct the Assessing Officer to delete this arm’s length price adjustment in respect of interest charged on advances to the subsidiaries. Disallowance under section 14A - Held that:- Having noted the uncontroverted claim of the assessee that borrowed funds are not used in investments yielding the tax exempt in question, we are of the considered view that no part of the interest could be disallowed under rule 8D. The question of allocation of interest could arise only in a situation in which at least a part of borrowed funds are used in investments resulting in tax exempt income. That’s not the case here and none of the authorities even allege that. Accordingly, the disallowance under rule 8D remains restricted to 0.5% of the average value of investments resulting in tax exempt income. The Assessing Officer will, accordingly, recompute the disallowance under section 14A r.w.r. 8 D.
|