TMI Blog2021 (10) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee itself has charged interest @ 8% in the case of UUL and 6.138% in the case of UBV, we do not find any error or infirmity in the transfer pricing approach of the TPO upheld by the DRP. Ground No. 3 with all its sub-grounds is dismissed. Lower interest charged @ 6% instead of 16% from its wholly owned subsidiary company - HELD THAT:- As on receiving financial assistance from the assessee, revenue from sales of M/s UniLink Engineering Pvt Ltd increased from ₹ 94.73 lakhs from F.Y 2005 06 to ₹ 26.12 crores in F.Y 2008 09. We further find that own funds of the assessee as on 31.03.2007 were at ₹ 33.35 crores which jumped to ₹ 127.62crores as on 31.03 2009 and tp ₹ 139.17 crores as on 31.03.2009. Loan was given in earlier F.Y and the assessee had sufficient own funds to give the loan. It is equally true that no disallowance was made in the earlier Assessment Year though the DRP has observed that rest judicata is not applicable under Income Tax proceedings but, in our considered opinion, when the facts are same, and the law has not changed, then the rule of consistency ought to have been followed. Considering the facts of the case in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C of the Income Tax Act, 1961 ( the Act ) confirming the draft assessment order. On the facts and circumstances of the case and in law, the learned AO erred in assessing the income of the Appellant at ₹ 15,32,52,150/- as against the returned income of ₹ 13,76,59,264/-. 3. That on the facts and in circumstances of the case and in law, the Learned Assessing Officer/Learned Transfer Pricing Officer and Learned DRP has grossly erred in making an addition of ₹ 26,23,286 on account of the interest received by assessee on loans extended to its associated enterprises ( AEs ) and in doing so the Ld. DRP has erred in: a. not considering the economic analysis performed by the assessee for benchmarking such interest rates; and b. proposing the addition based on arbitrary selection of arm's length interest rate without any basis. 4. That on the facts and in circumstances of the case and in law, the Learned Assessing Officer and Learned DRP has grossly erred in disallowing a sum of ₹ 72,23,773/- out of total interest expenses of ₹ 10.78 crores on account of lower interest charged @ 6% instead of 16% from its wholly owned subsidiary company wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iparts USA Ltd [UUL]. Interest received on this loan is 8%. The second loan is advanced to another AE, Uniparts Europe BV Netherlands [UBV]. The rate of interest charged on this loan is 6.138%. The bench marking has been given by the assessee in its Transfer Pricing Study Report. 6. After perusing the transfer pricing analysis and the detailed submissions made by the assessee in its TP approach, the TPO observed that the assessee has lent money to an entity that does not have reasonable credit rating. After discussing the related financial risk, the TPO observed as under: 13.2 As discussed above, the interest rate for the loan given in different currencies is not the same and for the purpose of transfer pricing, the interest rate on a loan in a particular currency should be benchmarked against the prevailing interest rate for loan denominated in' that currency only and not against that for loan denominated in other currencies i.e., the interest rate for Dollar loan should bench marked again the prevailing interest rate for Dollar loans such as LIBOR or EURIBOR for US Dollar loan and not against the interest rates for Rupee loan. Even the India Public sector Banks charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .82 1948 January 2009 2850732.75 0.82 1948 February 2009 2850732.75 0.82 1948 March 2009 2850732.75 0.82 1948 Total 33522.99 Exchange Rate at that time 50.72 Rs per USD Arm's Length Interest that should have been received by the assessee is 33522.99$ Excess Interest that should have been received by the assessee in INR= 17,00,286 Rs. Based on the calculation above, the arm s length interest is determined as ₹ 1,85,24,054. This is as against the interest of ₹ 1,68,23,768 charged by you. Accordingly, the difference of ₹ 17,00.286 is the proposed adjustment u/s 92CA. 8. The assessee raised objections before the DRP but could not succeed. 9. A perusal of the TP analysis done by the TPO shows that the entire findings are based upon credit rating BB. In so far as the first loan is concerned, which is given to UUL, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Loan shall be repayable by the Borrower when sufficient funds are available with the Borrower. In no event UIL shall force to the Borrower to pay the Loan amount. The Loan amount shall be treated as subordinate to any loan, existing or future, taken by the Borrower from any bank or financial institutions. 3. CONVERSION OF LOAN Notwithstanding anything to the contrary contained in the Loan Agreement, the UUL agrees that the outstanding Loan (together with accumulated interest/if any) may be converted into common stock or preferred stock of the UUL at any point of time with the mutual consent of both the parties. 4. SECURITY FOR THE LOAN UIL agrees that the Loan together with all interest stipulated in or payable under the Loan Agreement shall be free from security. The Lender agrees that Borrower shall not be required to give any kind of security for the above Loan. 13. A perusal of the above show that UUL agreed to repay the loan as and when sufficient funds are available with it and if not repaid, then agreed that the outstanding loans, together with accumulated interest, to be converted into common stock or preferred stock of UUL at any point of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of giving loan to UUL. As mentioned elsewhere, the facts of the case are clearly distinguishable from the facts of the decision of the Hon'ble High Court of Delhi [supra] relied upon by the ld. counsel for the assessee. In all other decisions of the coordinate benches, relied upon by the ld. AR, the benches have followed the decision of the Hon'ble High Court of Delhi [supra], therefore, they are also distinguishable from the facts of the case. 17. Further, reliance was placed on the decision of the coordinate bench in the case of Aurionpro Solutions 27 ITR [T] 276 Mumbai wherein the coordinate bench, using its discretion, applied LIBOR + 2% whereas the TPO took the ALP LIBOR +3%. In our considered view, the coordinate bench, in its wisdom and discretion, took a particular view on the facts of that case in hand. 18. Considering the facts of the case in hand in light of the two loan agreements mentioned elsewhere, and considering the fact that the assessee itself has charged interest @ 8% in the case of UUL and 6.138% in the case of UBV, we do not find any error or infirmity in the transfer pricing approach of the TPO upheld by the DRP. Ground No. 3 with all its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee company has paid a total amount of ₹ 9,65,99,996/- as interest to various banks on credit facilities enjoyed during the F.Y. 2008-09 and the total outstanding balance of various Secured Loans as on 31st March, 2009 was of ₹ 1,45,98,11,345/-. Considering the ratio of interest the divided by the amount of loan the percentage of interest comes-out to 6.61% which is very much close to 6% rate of interest charged from M/s Unilink Engineering Pvt Ltd. That the assessee company is charging interest on loan extended to its wholly owned subsidiary, M/s Unilink Engineering Pvt. Ltd for the last many years and the same has been allowed and no addition has been made on this account in any of earlier years assessments. That the Paid-up Capital of the assessee company was ₹ 1412.73 Lacs and accumulated profits as on 31st March, 2008 were of ₹ 11349.65 Lacs. It may be presumed that the loan amounting to ₹ 1191.56 Lacs to its wholly owned subsidiary, M/s Uniiink Engineering Bvt. Ltd. has been extended out of the Paid- up Capital and free reserves of the Company which are available to the assessee company free of interest. 23. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has advanced money to M/s UniLink Engineering Pvt Ltd out of its own funds and not out of borrowed funds. 25. The ld. DR strongly supported the findings of the AO/DRP. 26. A perusal of the facts show that on receiving financial assistance from the assessee, revenue from sales of M/s UniLink Engineering Pvt Ltd increased from ₹ 94.73 lakhs from F.Y 2005 06 to ₹ 26.12 crores in F.Y 2008 09. We further find that own funds of the assessee as on 31.03.2007 were at ₹ 33.35 crores which jumped to ₹ 127.62crores as on 31.03 2009 and tp ₹ 139.17 crores as on 31.03.2009. 27. It is true that the loan was given in earlier F.Y and the assessee had sufficient own funds to give the loan. It is equally true that no disallowance was made in the earlier Assessment Year though the DRP has observed that rest judicata is not applicable under Income Tax proceedings but, in our considered opinion, when the facts are same, and the law has not changed, then the rule of consistency ought to have been followed. Considering the facts of the case in totality, we do not find any merit in the addition of ₹ 72,23,773/- made by the Assessing Officer. We, accordingly, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have not properly appreciated the fact that these expenses were incurred on CIF basis. The ld. counsel for the assessee vehemently stated that the disallowance has been made purely on adhoc basis. 37. Per contra, the ld. DR strongly supported the findings of the DRP. It is the say of the ld. DR that looking into the facts of the case, DRP has given substantial relief. 38. We have carefully perused the underlying facts in issue. It is true that the assessee was specifically asked to justify the increase in expenses incurred on Air/ocean freight and marine insurance. It is equally true that before the DRP the assessee explained the increase by filing documentary evidences showing that these expenses were incurred on CIF basis. We find that the Assessing Officer himself has admitted in his second remand report that the assessee was able to justify the increase of expenses under this head. We are of the considered view that unless there is a limitation put by law on the amount of expenditure, a lesser amount expended cannot be allowed merely because the assessing authority thinks that the assessee could have managed by paying lesser amount as a prudent business man. 39. The H ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
