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Cotton Naturals (I) Pvt. Ltd. Versus DCIT, Circle- 6 (2) , New Delhi

2017 (12) TMI 468 - ITAT DELHI

Interest on loan given to the subsidiary - Held that:- No adjustment was made on account of interest on loan given to the subsidiary for assessment year 2009-10, we are of the considered opinion that no addition is called for on account of difference in armís length price on the transaction on account of interest on loan given to the subsidiary. The grounds raised by the assessee are accordingly allowed. - Addition on account of the interest on export proceeds receivable - rectification appl .....

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issue to the file of the Assessing Officer for fresh adjudication. The grounds no.7 and 8 are accordingly allowed for statistical purposes. - ITA No.6910/Del/2014 - Dated:- 4-12-2017 - SHRI R. K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER For The Assessee : Shri Venketesh Chaurasia, Adv. For The Department : Shri H. K. Choudhary, CIT-DR ORDER PER R. K. PANDA, AM : This appeal filed by the assessee is directed against the order dated 27.11.2014 passed by the DCIT, Circle-6(2 .....

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the course of TP assessment proceedings, observed that the assessee has reported the following international transactions in Form No.3CEB :- Name of the AE Nature of transactions Amount (Rs.) JPC Equestrian Inc. Sale of goods 27490618 JPC Equestrian Inc. Interest on Loan 1990626 3. He observed that the ownership structure of the assessee as on 31.03.2010 is as under :- Shareholders No. shares % of holding Varun Sharma 995000 50% Tokie Sharma 995000 50% 4. He further observed from the TP documen .....

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56,68,724/- on the following :- (a) Interest on Foreign Currency Loan - Rs.54,14,503/- (b) Receivables - Rs.2,54,221/- 6. The assessee approached the DRP, who vide order dated 29.09.2014 directed the Assessing Officer to adopt the figure of ₹ 49,35,541/- as against the upward adjustment of ₹ 54,14,503/- made by the Assessing Officer in the draft assessment order as determined by the TPO. So far as amount receivables is concerned, the DRP directed to substitute the same at ₹ 1,9 .....

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raising the following grounds :- 1. On the facts and circumstances of the case, the order passed by the learned AO under Section 143(3) read with Section 144C of the Act is bad both in the eye of law and on facts. 2. On the facts and circumstances of the case, the learned AO has erred, both on facts and in law in making assessment at an income of ₹ 86,94,370/- as against income of ₹ 35,60,774/- declared by the assessee. 3. On the facts and circumstances of the case, the learned AO ha .....

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s erred in making the addition despite the fact that the transaction being in pursuance of the same agreement, the facts remaining the same, the order of the Hon'ble ITAT is binding on him. 5(i) On the facts and circumstances of the case, the learned AO has erred, both on facts and in law in making the to make addition of an amount of ₹ 49,35,541/- on account of difference in arm's length price on the transaction of interest on loan given to the subsidiary. (ii) On the facts and ci .....

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has erred both on facts and law in making comparison with uncomparables like government bonds and topping it up with the various considerations ignoring the fact that the assessee has given loan to an associated enterprise which happens to be a subsidiary in a foreign country. (v) On the facts and circumstances of the case, the learned TPO has erred both on facts and law in making a comparison with the foreign currency loan advanced by an Indian bank to an Indian entity and topping it up with v .....

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. On the facts and circumstances of the case, the Hob'ble DRP has erred, both on facts and in law in making to make addition of an amount of ₹ 1,98,058/- on account of interest on export proceeds receivable. (ii) That the above addition has been proposed ignoring the fact that there is no provision of notional interest on such transactions under the Act. 8. That the above said addition has been made ignoring the detailed transfer pricing study made by the appellant for determining the .....

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ssessee ignoring the specific provisions of the Act. 11. That the appellant craves leave to add, amend or alter any of the grounds of appeal. 8. Ld. counsel for the assessee referred to the loan agreements, copy of which is placed at page 1 to 13 of the Paper Book and submitted that the loan was advanced at a fixed rate way back in the year 2002-03 and, therefore, the interest rate cannot be varied or changed in the year under consideration. Referring to the order of the DRP, ld. counsel for the .....

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his Panel is constraint not to follow the order of Hon ble ITAT. 9. He submitted that the appeal filed by the Department before the Hon ble Delhi High Court has been dismissed vide ITA No.233/2014 order dated 27.03.2015, copy of which is placed at pages 61 to 82 of the Paper Book. Referring to page 14 to 50 of the Paper Book, he submitted that the Tribunal in assessee s own case for assessment year 2008-09 has decided the issue in favour of the assessee by holding that the adjustment suggested b .....

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e DRP for this year has to be deleted. 11. Ld. DR on the other hand heavily relied on the order of the Assessing Officer/TPO/DRP. 12. We have considered the rival arguments made by both the sides, perused the orders of the authorities below and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Tribunal, in assessee s own case for assessment year 2008-09 vide ITA No.5855/Del/2012 order dated 08.02.2013 from para 11 onwards h .....

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well as interest received on loan. The TPO accepted the assessee s submission qua sale of apparel that the same was at arms length. As regards interest the assessee mentioned that it has received interest at a rate of 4% which was comparable with the export packing credit rate obtained from independent banks in India. The TPO was not in agreement with the above contention of the assessee. He observed that it is to be seen that what the assessee would have earned by giving loans in the Indian ma .....

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ding the interest rate that may be charged on receivables from AE s, Libor rate for calculating interest is not proper. He opined that instead of US rate, Indian rate is to be adopted. He observed that an independent person in India would expect the maximum return on its investment, and if the lending rate is higher in Indian currency then he would not lend in foreign currency where the lending rate is not so attractive. The TPO further noted that it should not be forgotten that, had the AE of t .....

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ore the DRP assessee inter-alia contended that comparison has to be made with respect of advance or loan in USA and not based on Indian conditions. The comparison could also be with rate of interest being paid by the multinational companies or banks in respect of money borrowed from India. However, the DRP agreed with TPO s point of view. But, it held that further addition on account of security is not needed. It opined that Arm s length interest rate may be taken as the PLR of RBI for the finan .....

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parties. The financial position and credit rating of the subsidiaries will be broadly the same as the holding company. In such a situation, domestic prime lending rate would have no applicability and the international rate fixed being LIBOR should be taken as the benchmark rate for international transactions. 15. The above view is duly supported by following case laws relied upon by the assessee s counsel. In Siva Industries and Holding Ltd. vs. ACIT Supra it was held by ITAT that the assessee h .....

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sed by the ITAT in the case of M/s Four Soft Ltd., Hyderabad vs. DCIT Supra, Dy. C.I.T. vs. Tech. Mahindra Supra, Tata Autocomp Systems vs. ACIT Supra. 17. We further note that assessee has arrangement, for loan with Citi Bank, for less than 4%. However, for loan provided to its AE s it has charged 4% p.a. interest. Hence, adjustment suggested by the TPO is not warranted. 18. We further note that assessee s profits are exempt u/s. 10B. Hence, there is no case that assessee would benefit by shift .....

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PO is not warranted. 20. In the background of the aforesaid discussions and precedents, we hold that the rate of interest charged by the assessee for the loans transactions with the AE was Arms Length Price. Hence, no transfer pricing adjustment is called for. 21. In the result, the Assessee s appeal is allowed. 13. We find following the above decision the Tribunal in assessee s own case for assessment year 2007-08 vide ITA No.3265/Del/2011 order dated 30.10.2013 has allowed the appeal of the as .....

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en decided in its favour by the Hon ble Delhi High Court in the assessee s own case (CIT v Cotton Naturals (I) Pvt. Ltd. 2015-TII-09-HC-DEL-TP). The assessee stated that the facts this year, are the same as in the year, in which a similar adjustment has been deleted by the Hon ble High Court. The assessee stated that the loan on which interest adjustment has been made is also the same. Respectfully following the decision of the Hon ble High Court in the assessee s case, the AO is directed to del .....

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