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2020 (7) TMI 394 - AT - Income TaxTP Adjustment - MAM Selection - adjustment on account of interest on loan/quasi equity by assessee - rejection of Transactional Net Margin Method as the most appropriate method to justify the arm's length nature of the aforesaid transaction and applying Comparable Uncontrolled Price ('CUP') as the most appropriate method - HELD THAT:- Arm’s length rate of interest in the case of loans advanced to the AE’s is to be determined on the basis of rate of interest charged in the countries where loan is received/ consumed. Assessee in alternative submissions also submitted that internal CUP is available, for the purpose of benchmarking of transaction of interest free loan as the AEs also availed loan from DBS Bank Singapore and the documents evidencing the interest rate at 6.22% charged by DBS Bank is filed on record. Considering the submissions of assessee, we direct the AO/TPO to consider internal CUP of 6.22% for the purpose of benchmarking of international transaction of provision of interest free loans and recompute the arm’s length price afresh. Needless to direct that before making fresh calculation/ computation the AO/TPO shall grant opportunity of hearing to the assessee. Grounds of appeal are allowed for statistical purpose. Adjustment on account of upfront fee cost and administrative expenses on loan given to foreign AEs - TPO/AO to workout adjustment by taking consolidated rate of 0.25% of upfront fee for loan granted by assessee and deleted the addition of administrative charges - HELD THAT:- While benchmarking international transaction, an element of income, expenses, or in apportionment of any contribution to any cost, must be embedded in it. In case of lending or borrowing of money, the determination of arm and spice is made on the basis of income, expenses, interest, allocation or apportionment or any contribution to any cost element is rooted in the transaction which may have bearing on the profit or loss of the assessee. In our humble view, in case of capital financing the usual element is the interest earned or incurred. We have noted that the case of assessee throughout the proceeding is that the loans were provided from assessee’s own fund and that no expenses were incurred. The TPO has not brought on record that while granting loan the assessee to its assessee has incurred, recovered or earned any expenses on account of upfront fees or administrative charges. Considering the aforesaid factual discussion, we direct the AP/TPO to delete the entire upfront fees and administrative charges. - Decided in favour of assessee.
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