TMI Blog2015 (4) TMI 1253X X X X Extracts X X X X X X X X Extracts X X X X ..... ter is that it was a foreign currency loan which was given abroad. Therefore the most appropriate method is taking the LIBOR as correct benchmark - the benchmarking done by the assessee is correct and the AO is directed to delete the addition. - ITA No.5718/Del/2013, ITA No. 375/Del/2013 - - - Dated:- 1-4-2015 - SHRI I.C. SUDHIR AND SHRI J.S. REDDY For the Appellant : Shri Peeyush Jain, CIT(DR) For the Respondent : S/Shri Pawan Kumar, Tarun Kumar Ms. Oindrila Bala, CAs ORDER ITA No. 5718/Del/2011: I.C. Sudhir Judicial Member The assessee has questioned the assessment order passed in pursuance to the directions issued by the learned Dispute Resolution Panel (DRP) on the following grounds: 1. That the assessment Order passed in pursuance to the directions issued by the Learned Dispute Resolution Panel ('DRP') is a vitiated order as the Ld. DRP has erred both on facts and in law in confirming the addition made by the Ld. Assessing Officer ( O')/Ld. Transfer Pricing Officer ('TPO') to the appellant's income; 2. That the Ld. AO erred in law in making a disallowance of INR 20,42,826/- under section 14A of the Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m's length interest rate on the basis of Indian Corporate bonds, thereby resulting in an erroneous application of CUP method; 3.4 collecting information on corporate bond yields of the companies by exercising power granted to the Ld. TPO u/s 133(6) of the Act that was not available to the Assessee in the public domain and in doing so; 4.4.1 violating the fundamental principles of natural justice by relying on the information sourced u/s 133(6); 4.4.2 not sharing with the Assessee, the information/reply received by the Ld. TPO u/s133(6). 4.5. disregarding the analysis carried out by the Assessee to benchmark the international transaction of interest received on loan on various incorrect t/baseless statements with several infirmities in the TP Order so as to mislead the cause of justice, thereby clearly demonstrating a prejudiced mindset driven with the single-minded intention to recommend a TP adjustment. 4.6 disregarding judicial pronouncements in India in undertaking the TP adjustment. 5. The Ld. AO/Ld. TPO erred in incorrectly calculating the interest on loan based on the ALP determined by the Ld. TPO. 6. The Ld. AO grossly erred in proposin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Manufacturing activities have been categorized in Class-I, receipts of interest on loan have been categorized in class-II, and reimbursement of expenses have been categorized in class-III. 3.1 For class one and class three transactions, as discussed hereinabove in para No.3, TNMM has been selected as the most appropriate method. OP/PC has been selected as the PLI . The OP/PC of the assessee company, has been calculated at 16.69%, while the mean OP/PC of 25 comparables have been calculated at 9.47%. For class two transaction of receipt of loan, the assessee had used CUP method for bench marking. The assessee has used alternate investment opportunity in the bank FD as the bench mark. It was stated that the average return earned on bank deposit was 7,.26% per annum during the year. After adjusting for six months, overage for what premium, it was stated that the effective earning was higher than the bank FD interest amount. Therefore, the transaction are stated to be at arms length. It was submitted that the assessee has extended foreign current loan to its subsidiaries, the details of these loans as per TP report are as under: MSSL has extended foreign currency loans to fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h effect from assessment year 2008-09. He pointed out that an identical issue was also raised before the ITAT in the assessee's own case in ITA No. 5105/Del/2010 for the assessment year 2006-07, wherein the ITAT has held that the Assessing Officer is not correct in applying Rule 8D and the matter was referred back to the file of the Assessing Officer to make disallowance after giving opportunity to the assessee. He submitted that in pursuance to the above directions of the ITAT for the assessment year 2006-07, the Assessing Officer has made disallowance only to the extent of 0.5% p.f. the average investment held by the assessee during the assessment year 2006-07. The assessee has duly accepted the said appeal effect order passed by the Assessing Officer. 9. The learned CIT(DR) did not dispute the above submissions of the Learned AR that an identical issue has been decided by the ITAT in the case of assessee itself for the assessment year 2006-07. He, however, placed reliance on the orders of the authorities below on the issue. 10. Respectfully following the order of the ITAT in the case of the assessee itself for the assessment year 2006-07 (supra), on identical issue, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.79% 7.26% Euro 5,000,000 Motherson Sumi Systems Limited Mides (FZE) 5% April 2005 8.29% 7.26% Euro 150,000 Motherson Sumi Systems Limited Handels GmbH 4.2% October 2004 7.49% 7.26% USD 2,000,000 Motherson Electrical Wires Lanka (PVT) Ltd ('Mew. Sri Lanka) 6% April 2005 8.11% 7.26% 12. The assessee submitted that the above analysis is based on the premises that the loan advanced to the AEs are justified if the equivalent rupee income during the year (2006-07) is higher than the income than the income that would be earned on a rupee investing in the Indian market. With the assistance of the above table, it was submitted that the assessee has investment option, which establishes that the international transaction of assessee related to receipt of interest meets the arms length standard. It was pointed out that the assessee has received interest of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Motherson Sumi Systems Limited Midest (FZE) A 5%(Euro) 2.03% Motherson Sumi Sustems Limited Handels GmbH B- 4.2% (Euro) 6 months Euribor + 205bps Motherson Electrical Wires Lanka (Pvt) Ltd ('MEW, Sri Lanka) BBB+ 6% (USD) 4.81% 15. The assessee stated that since the interest rate charged to the subsidiaries is higher, therefore, by selecting the overseas subsidiary as the tested party, also substantiate that the interest has been charged at arm's length. In support, the learned AR referred page Nos. 384 to 387 of the paper book filed on behalf of the assessee i.e. copies of TP orders for assessment years 2005-06 and 2006-07. He, thereafter, referred page Nos. 9 and 11 of the paper book i.e. details of associated enterprises and international transactions. He, thereafter referred page No. 61 of the paper book i.e. details of interest received on loans to subsidiaries. He also referred page Nos. 174 to 177 of the paper book i.e. submission of the assessee on interest on loan advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Cotton Naturals (I) P. Ltd. Wherein the Bench observed that the CUP method is the moist appropriate method in order to ascertain arm's length price of the international transaction i.e, where the lending of money was in foreign currency to its AE the domestic prime lending rate would have no applicability and the interbank rate fixed should be taken as benchmark rate for international transactions. WE, therefore, hold that LIBOR rate has to be adopted in the instant case since the interest charged by the assessee from its AE is higher than the LIBOR rate in the year under consideration no transfer pricing adjustment in that regard is warranted. We therefore set aside the order of the AO in this regard and allow the grounds urged by the assessee. 18. Again in the case of Bhansali Co. (supra), the Mumbai Bench of the ITAT has decided the issue as under vide para No. 5 of the order, the is as under: We have carefully perused the orders of the authorities below. It is an admitted fact that the loan was given in the year 2005. It is also undisputed fact that interest rate charged as LIBOR plus 200 basis points have been accepted in completed assessments from AYs 2005-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arranted under sec. 14A of the Act read with Rule 8D of the Rules, the Ld. A.O. erred in making the disallowances of ₹ 3,890,801 which is excessive and unreasonable as dividend income received during the year is merely ₹ 292,753. 3. That the reference made by the A.O. suffers from jurisdictional error as the Ld. A.O. has not recorded any reasons in the assessment order based on which he reached the conclusion that it was 'necessary or expedient' to refer the matter to the Ld. TPO for computation of the Arm's length ('ALP'), as is required under sec. 92CA(1) of the Income-tax Act, 1961 ('the Act'). 4. The Ld. DRP erred both on facts and in law in confirming the Ld.A.O/TPO's action of making an adjustment of ₹ 2,41,94,156 to the income of the appellant by holding that the international transactions of the appellant pertaining to receipt of interest on the loans given to its three subsidiaries do not satisfy the arm's length principle envisaged under the Income-tax Act, 1961 ('Act'). In doing so the ld. DRP has grossly erred in agreeing the TPO's action of; 4.1 disregarding the ALP, as determined by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not need independent adjudication. 24. Ground Nos. 2, 2.1 to 2.3: In these grounds, the disallowance of ₹ 39,80,801 made under sec. 14A of the Act read with Rule 8D of the I.T. Rules, has been questioned. Since, there is no dispute that Rule 8D was very much applicable during the assessment year under consideration, the Learned AR withdrew these grounds. The same are accordingly rejected as withdrawn. 25. Ground Nos. 3, 4, 4.1 to 4.4 (4.4.1 4.4.2), 4.5, 4.6: In these grounds, adjustment of ₹ 2,41,94,156 to the income of the assessee confirmed by the learned DRP holding that the international transactions of the assessee pertaining to receipt of interest on the loans given to its subsidiaries do not satisfy the arm's length principles, has been questioned by the assessee. Under almost similar facts, an identical issue has already been decided by us in the above appeal for the assessment year 2007-08. Following the same, the matter is set aside to the file of the Learned TPO/A.O. to decide the issue afresh as directed therein after affording opportunity of being heard to the assessee. These grounds are accordingly allowed for statistical purposes. 26. Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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