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2015 (11) TMI 1264 - ITAT MUMBAI

2015 (11) TMI 1264 - ITAT MUMBAI - TMI - Transfer pricing adjustment - whether for the benchmarking of the transaction of loan, the interest rate for 6 months LIBOR + 150 Basis Points for a period for more than 5 years is appropriate or not? - Held that:- So far as the basis adopted by the TPO, we agree with the observation and finding of the CIT(A) that manner in which credit rating has been assigned to the AE is not a correct approach, because there is ‘no specific information’ with regard to .....

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lines of the Reserve Bank of India appears to be correct approach for benchmarking the ALP. The aforesaid finding of CIT(A) is thus affirmed and we do not find any reason to deviate from such a conclusion. Accordingly, the order of the CIT(A) on this score is affirmed and the grounds raised by the revenue stands dismissed. - Decided in favour of assessee. - ITA No. : 1656/Mum/2013 - Dated:- 12-8-2015 - SHRI B R BASKARAN, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER For The Appellant : .....

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onths LIBOR + 150 Basis points for a period of 3 years and 6 months LIBOR + 250 Basis Points for a period of more than 5 years. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in rejecting the method adopted by the TPO in benchmarking the loan transactions with domestic corporate bonds. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the fact that the cost of borrowing by the assessee is much more than the LI .....

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s subsidiary for sum amounting to ₹ 284,887,000/-, that is, to Geodesic Technology Solutions Ltd. (Hong Kong) (GTSL), which is its AE. The TPO has applied interest rate @ 20.72% based on his consideration of credit rating of AE in the Category B . He also analyzed financial ratios like, earning per share, debt equity ratio and interest coverage ratio of the AE and based on such credit rating he held that interest rate of 20.72% is to be charged. 4. Before the CIT(A), the assessee submitted .....

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ding such credit ratings could result serious distortion of the estimation of risk assumed, hence, the TPO s basis for arriving and assigning the credit ratings is not correct; secondly, he held that in the international transactions LIBOR is the best basis for benchmarking the interest rate. Since there is no independent CUP rate available to benchmark the said international transaction, accordingly, he looked into RBI guidelines, which are in respect of ECB rates for the borrowing by the India .....

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Accordingly it was considered fit to look into the RBI guidelines which are in respect of ECB. ECB rates are for borrowing by the Indian Corporates for the purposes of capital account transactions and accordingly are fully secured against the capital assets which would be acquired through such ECB. Accordingly, the delayed receivables which would in turn constitute loan which would be for the purposes of working capital, there would ordinarily be a further premium to the all in cost ceiling rate .....

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