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TMI Blog2019 (10) TMI 1563X X X X Extracts X X X X X X X X Extracts X X X X ..... . interest payment @12.5% to M/s South City Projects (Kolkata) Ltd. for short "M/s SCPKL" hereafter is a holding company & 10.5% to Shri Jaideep Halwasiya who is a director of assessee company and related person within the meaning of person referred to in Section 40A(2)(b) of the Act. The AO referred matter to the Transfer Pricing Officer (TPO) u/s 92CA of the Act, for determination of Arm's Length price in the aforesaid transactions. The TPO observed that the assessee had paid interest @ 9.5% to the party namely M/s Silver Cross Marketing Pvt. Ltd. and held the same to be the arm's length price (ALP). Accordingly, he suggested an upward adjustment of Rs.2,72,43,632/-. The Assessing Officer on receipt of report on transfer pricing adjustments vide order dt: 29.12.2016 and assessed the total income of Rs.7,00,40,112/- u/s 144C r.w.s 143(3) of the Act against the returned income of Rs.4,27,96,480/- by making addition of Rs.2,72,43,632/- on account of transfer pricing adjustment. 4. Aggrieved by the assessment order passed by the Ld. A.O, the assessee had filed an appeal before the CIT(A). After considering the submission of the assessee, the CIT(A) deleted the addition made by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on examination of the same (at pages 63 to 70 of the Paper book filed in appeal) it would be evident that interest charged from M/s SCPKL was Base rate plus 2.75%. It has accordingly been contended that the base rate in 2012 was 9.5%, and therefore the interest @ 12.5% was paid to SBI during the year. Therefore, I find merit in the contention of the appellant that as the cost of funds to the holding company itself was 12.5%; and as a corollary there is adequate merit therefore that it cannot be expected to advance loans at a lower rate of interest. On an extended corollary, there is merit in the contention of the appellant that the interest rate of 12.5% can be held to be at arm's length. The appellant-company has taken further strength in bringing to notice that the interest rate of 12.5% was charged by a 3rd party, i.e. a bank [SBI], in the case at hand] from its unrelated borrower i.e. SCPKL, and therefore as a third party in an independent transaction has charged interest rate of 12.5% from its borrower it can safely be adopted as the ALP and benchmarked against the loan transaction between the assessee and its holding company. 4. Further, it has also been contended th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PO has been argued by the appellant-company that the said loan transaction pertains to a smaller principal of Rs.9.5 crores, as evidenced by the ledger, and therefore the same does not constitute an appropriate benchmark against the loan from SCPKL which involves a much bigger principal of Rs. 115 crores. It has also been further argued that the loan from M/s Silver Cross was obtained in earlier FYs when the interest rates were lower. It was also argued that even the loan from SCPKL was obtained @ 9.5%,in earlier FY i.e. as per agreement dated June,2011, and that later on due to the rise in interest rates the interest rate was scaled up to 12,5olo w.e.f from April 2012. On similar lines it has been argued that the interest from loan from Shri Jaideep Halwasiya was @ 9.5% which was modified to 10.5% in FY 2011-12. In summary it has been contended by the appellant-assessee that the ALP of 9.5% adopted by the Ld. TPO pertains to a different time period when the interest rates were lower, and that therefore they ought not to be indicative of the appropriate benchmark, It has been further argued that on perusal of Audited Accounts of M/s SCPKL, it would be revealed that the said entity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered as the interest rate that was prevailing in the market and interest rate of 12.5% charged by SBI from M/s SCKPL can be used as comparable in the assessee's case, since the loan received SBI was advanced to the assessee without any mark-up. 7. The provisions u/s 92C of the Act, the sub-section 1 explains that the arm's length price of the specified domestic transaction shall be determined by applying the most appropriate methods contained therein having regards to the nature or class of transaction or class of associated enterprises or functions performed by it. Sub-section 2 mandates the most appropriate method as contemplated in subsection 1 shall be applied for determination of arms length price. 8. The ld. AR submits that the CIT(A) held that the most appropriate method for determining the ALP method in the present case is cost plus method and in support of his contention referred to Page 1-3 of Paper Book, where, we note, the cost of funds to the lender i.e SCKPL was 12.5% and therefore, in our opinion the loan transaction with M/s SCPKL is liable to be taken as arm's length price. For ready reference, the relevant portion of the CIT(A) is reproduced as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X
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