TMI Blog2023 (7) TMI 899X X X X Extracts X X X X X X X X Extracts X X X X ..... interest cost appears to be negligible. The amount of interest cost as compared amount of gross import of material and export generated by the assessee is far more than the interest expenses after converting in India rupees. No adjustment under the transfer pricing provisions is required to be made with respect to the interest free loans and advances by the assessee to its associated enterprises in the given facts and circumstances. Hence, the ground of appeal of the assessee is allowed. - ITA Nos. 1738 to 1740/AHD/2019 - - - Dated:- 14-6-2023 - Shri Waseem Ahmed, Accountant Member And Shri T.R Srnthil Kumar, Judicial Member For the Assessee : Shri Milin Mehta And Shri Bhavin Marfatia, A.Rs For the Respondent : Shri Samir Sharmar, CIT. D.R with Shri Atul Pandey, Sr.D.R ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned three appeals have been filed at the instance of the Assessee against the common order of Learned Commissioner of Income Tax(Appeals)-12, Ahmedabad, dated 20/09/2019 arising in the matter of assessment order passed under s. 143(3)of the Income Tax Act, 1961 (here-after referred to as the Act ) relevant to the Assessment Years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. The learned CIT(A) erred in fact and in law confirming the action of the Ld. TPO and the Ld. AO in adopting an inconsistent approach in considering the comparable rate of interest for the same interest free loan advanced to the AE. 9. The learned CIT(A) erred in fact and in law confirming the action of the Ld. TPO and the Ld. AO in not allowing the variation of 5% in calculating ALP for international transaction in respect of loan advanced as required u/s. 92C of the Act. Other Grounds: 10. The learned CIT(A) erred in fact and in law confirming the action of the Ld. AO in charging interest u/s. 234A of the Act. 11. The learned CIT(A) erred in fact and in law confirming the action of the Ld. AO in charging interest u/s. 234B of the Act. 12. The learned CIT(A) erred in fact and in law confirming the action of the Ld. AO in charging interest u/s. 234C of the Act. 13. The learned CIT(A) erred in fact and in law confirming the action of the Ld. AO in charging interest u/s. 234D of the Act. 14. The learned CIT(A) erred in fact and in law confirming the action of the Ld. AO in initiating penalty proceedings u/s, 271(1)(c) of the Act. 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther transactions carried out with the AE. It is because all the transactions are interlinked. Thus, in such a situation the TNMM method can be adopted for the purpose of benchmarking to work out the ALP. Thus, no adjustment is required to be made. 4.4 The assessee further contended that under the CUP method to determine the ALP, the adequate comparable are required which are not available in the market for this kind of transactions. Likewise, the bank rate cannot be taken as comparable for the reason that the banks operate under different facts and circumstances which cannot be compared with the activities of the assessee. 4.5 However, the AO/TPO rejected the contention of the assessee and worked the arm length of interest at Rs. 28,33,393/- by observing as under: 10. Additionally, the Assessee has contended that it has used TNMM method for bench marking interest free loan given to its AR. However, it is clear that under the applicable transfer pricing regulations, under the TNMM method, the operating profit of the rested party has to be computed and while computing operating profit only operating costs and operating revenue are to be considered. Further, by definition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lem that loan could not have been contributed as capital originally if it was actually meant to be capital contribution. If the assessee's contention, that whenever interest free loan was granted to AEs, there should not be any adjustment was accepted, it would tantamount to taking out such transactions from the realm of section 92(1) and 92B. [Para 11]. From the provisions of section 92B it is clear that lending or borrowing money between two AEs comes within the ambit of international transactions and whether the same is at ALP has to be considered. The question of rate of interest on the borrowing loan is an integral part of ALP determination of this context. Thus clearly the assessee's contention sought to add text to the clear legal position as embodied in the statutes. Such an interpretation is not permissible, and when an interest free loan is given to the AEs, income or account of interest cannot be attributed from point of view of arms length consideration . [Para12]. This decision was also relied upon by ITAT, Delhi in the case of Aithent Technologies Pvt. Ltd. in ITA No.3647/Delhi/2007 dated 09/12/2011 wherein the question as to whether TNMM or CUP method should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest for the purpose. The Ld. CIT(A) noted that the TPO had charged LIBOR + 200 base points for such interest free advance and that the appellant had not provided any evidence to show that this rate was not appropriate. The said upward adjustment was accordingly upheld by the Ld. CIT(A). As to the ground of the appellant that the TPO should have allowed the variation of +/(-) 5% in calculating the ALP for international transaction in respect of loan advance as required u/s 92C, the Ld. CIT(A) rejected the same holding that the said variation of ALP is available only if the price is determined by taking arithmetical mean of more than one prices whereas in the case, the TPO has determined a single price of ALP. 6.7 In the above narrated background and for the purpose of ground related to upward adjustment of Rs.65,80,979/- the contentions of the appellant in its submission have been diligently considered. On careful reading of appellant's submissions and the background narrated before I do not find any basis to deviate from the decision of the Ld. CIT(A)-III, Baroda in the appellate order dated 23/01/2012 for A.Y. 2006-07 (in appeal No. CAB/(A)III-434/09-10) and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Name of the AE Amount Purchase of Cobalt concentrate Rubamin FZE UAE 18,30,09,720/- Export of spares and consumables Rubamin FZE UAE 58,20,092/- Reimbursement of various expenses Rubamin FZE UAE 1,02,38,122/- Reimbursement of various expenses Rubecco SPRL 3,89,184/- Interest free loan Rubamin FZE 14,08,51,672/- 9.2 On perusal of the transaction carried out by the assessee with its AE, it is revealed that there are different transactions, but all are interlinked. Once the activities of the assessee and its associated enterprises are so interrelated and interconnected then the transactions should be seen in aggregate for working out the ALP. In this regard we find Para 3.9 of OECD Transfer Pricing Guidelines which reiterates that though ideally the arm's length principles should be applied on a transaction-by-transaction basis, there ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AE in DRC and supplying the assessee for its manufacturing activity. Thus, the question arises whether any adjustment is required under the transfer pricing provision on account of such interest erosion advances. The answer stands in negative because the assessee got such huge business from its associated enterprises, which would not have been possible until the assessee had not incorporated a company in UAE and DRC. In other words, the transaction for advancing the interest-free loans to the associated enterprises has to be seen in the context of the benefit received by it from such associated enterprises. As such the transaction of interest free loans/ advances viz a viz the benefit received by the assessee are intrinsic ably linked which has to be evaluated after aggregating both the transactions. The transaction of interest free advances cannot be viewed without considering the benefit derived by the assessee from the associated enterprises. On analyzing the notional interest added by the TPO under the transfer pricing adjustment with the benefit derived by the assessee, the interest cost appears to be negligible. The amount of interest cost stands at ₹ 28,33,393/- where ..... X X X X Extracts X X X X X X X X Extracts X X X X
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