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2015 (11) TMI 12 - ITAT MUMBAI

2015 (11) TMI 12 - ITAT MUMBAI - TMI - Transaction of foreign currency loan given to the Associate Enterprise - Transfer pricing adjustment - addition made by TPO taking the rate of interest at 12.7% in respect of the foreign currency loan given to Associate Enterprise - Held that:- In the eight case laws cited by the assessee, it has been held that it is the LIBOR, which has to be applied in the case of foreign currency loan given to AE. All these case laws were cited by the assessee before the .....

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the ld. DRP in the present case. There is no gainsaying that the orders of the Tribunal are binding on the lower authorities, including the DRP. “Agarwal Warehousing & Leasing Co. Ltd.”, (2002 (7) TMI 86 - MADHYA PRADESH High Court), as pointed out, is the authority on the point. Therein, the decision of the Hon’ble Supreme Court in the case of “Kamlakshi Finance Corporation Ltd.”,[1991 (9) TMI 72 - SUPREME COURT OF INDIA] is also a case in point. - Decided in favour of assessee. - I.T.A. No. 8 .....

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5,849/- may be deleted. 2. On the facts and circumstances of case the Learned Dispute Resolution Panel has erred in confirming the addition made by the Learned Transfer Pricing Officer amounting to ₹ 27,635,849/- in respect of international transaction being the foreign currency loan given to Associate Enterprise. The appellant prays that conclusion reached by the Learned Dispute Resolution Panel is not justified and is contrary to the provisions of the law and various judicial pronounceme .....

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rned Dispute Resolution Panel has erred in taking the applicable interest rate at 12.7%. 4. On the facts and circumstances of the case the appellant prays that, s the foreign currency loan was given in US dollars, the External Commercial Borrowing rates as applicable in the international market should be applied in respect of foreign currency loan given to the Associate Enterprise instead of the rate of interest at 12.7% as determined by the Learned Transfer Pricing Officer and confirmed by the .....

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l is regarding the determination at arm s length price in respect of interest charged to associate enterprise being a 100% subsidiary of the assessee. The assessee has given a loan in U.S. Dollars and the interest is also charged in U.S. Dollars. In a study report, the assessee has established taking into consideration the prevailing international rate of interest in the currency in which the loan is given than the average effective rate is 5.62%. The assessee has charged 7% interest and hence i .....

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see. 6. Before us, the ld. Counsel for the assessee has relied on the following case laws:- 1. Tata Autocomp Systems Ltd. vs. ACIT (Mumbai Tribunal) ITA No. 7354/Mum/2011. 2. Tech Mahindra Limited vs. DCIT (Mumbai Tribunal( ITA No. 1176/Mum/2010. 3. M/s Logix Micro Systems Ltd. vs. ACIT (Bangalore) ITA No. 423/Ban/2009. 4. Ajhent Technologies Pvt. Ltd. vs. ITO (Delhi Tribunal) ITA No. 3647/Del/2007. 5. M/s Siva Industries & Holdings Ltd. vs. ACIT (Chennai Tribunal) ITA No. 2148/Mds/2010. 6. .....

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ollowed instead of following the interest rate of a currency other than the currency in which the transaction has taken place. All the eight decisions have laid down a principle of law which is directly applicable on the facts of the case. Whenever the Tribunal has laid down a principle of law on a subject matter, then the same is binding on all the lower authorities. The Hon'ble Madhya Pradesh High Court, in the case of Agarwal Warehousing & Leasing Co. Ltd. , reported in 257 ITR 235 (M .....

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P has, in this regard, observed as follows:- 4.6 Discussion and Directions: We have considered the .above submissions of the assessee, the order passed by the TPO as well as the documents produced before us. In this regard, it may be noted that for the purpose of benchmarking a transaction, one has to carry out an analysis of the transaction as if the said transaction is between two independent parties. When the assessee is granting loans to its AE from its own funds, the same has to be bench ma .....

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e the cost of borrowing of the assessee. Further, since any businessman would like to protect himself from various risks as outlined above, especially when the loan is given without any security, he will certainly charge a markup on the cost of his own borrowing. These aspects, which are factual aspects in respect of the transaction under consideration/have not at all been considered/commented upon/discussed by Hon'ble ITAT in their decisions cited by the assessee. However, it is seen that t .....

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rrowings of the assessee. On appeal, the Tribunal observed that the cost incurred by the assessee was not a relevant consideration under the CUP and the comparable transaction should be foreign currency lending between unrelated parties. Since the assessee had foreign currency lending from a bank, the Tribunal upheld the order of ld. CIT(A) who had applied the correct method to compute the ALP of the interest on loans to AEs. The ITAT observed as under:- o o o o o 4.8 In view of above discussion .....

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