Goodyear South Asia Tyres P. Ltd, Aurangabad V. ACIT, Aurangabad

ITA 1868/PUN/2012

• Counselvise Citation: 186824514 RSA 2012
• Duration Of Justice: 2 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-04-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 28-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MAZHAR AKRAM
• Keywords: Depreciation; Transfer pricing; International transaction; Commercial expediency
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.1431/PN/2010 (ASSESSMENT YEAR : 2006-07) GOODYEAR SOUTH ASIA TYRES PVT. LTD., H-18, MIDC AREA, WALUJ, AURANGABAD. PAN : AABCG5544P . APPELLANT VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-1, AURANGABAD. . RESPONDENT ITA NOS.1868 & 1869/PN/2012 (ASST. YRS : 2005-06 & 2007-08) GOODYEAR SOUTH ASIA TYRES PVT. LTD., H-18, MIDC AREA, WALUJ, AURANGABAD. PAN : AABCG5544P . APPELLANT VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-1, AURANGABAD. . RESPONDENT ITA NOS.1882 & 1883/PN/2012 (ASST. YRS : 2005-06 & 2007-08) ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-1, AURANGABAD. . APPELLANT VS. GOODYEAR SOUTH ASIA TYRES PVT. LTD., H-18, MIDC AREA, WALUJ, AURANGABAD. PAN : AABCG5544P . RESPONDENT ASSESSEE BY : MR. NEERAJ JAIN & MR. ABHISHEK AGARWAL DEPARTMENT BY : MR. MAZHAR AKRAM DATE OF HEARING : 20-10-2014 DATE OF PRONOUNCEMENT : 28-11-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED FIVE APPEALS RELATE TO THE SAME ASSES SEE AND AS CERTAIN COMMON ISSUES ARE INVOLVED THE APPEALS HAVE BEEN CL UBBED AND HEARD ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED F OR THE SAKE OF CONVENIENCE AND BREVITY. 2. IN THE THREE APPEALS PREFERRED BY THE ASSESSEE P ERTAINING TO ASSESSMENT YEARS 2005-06, 2006-07 AND 2007-08 WHICH ARE DIRECTED AGAINST THE RESPECTIVE ORDERS OF THE CIT(A), AURANGABAD DAT ED 30.07.2012, ONE OF THE ISSUES WHICH IS COMMON, RELATES TO ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT WHILE DETERM INING THE ARM'S LENGTH PRICE OF THE EXPENDITURE INCURRED BY WAY OF INTEREST ON L OANS RAISED FROM THE ASSOCIATED ENTERPRISES. IT WAS A COMMON POINT BETW EEN THE PARTIES THAT ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2006-07 V IDE ITA NO.1431/PN/2010 BE TAKEN AS THE LEAD CASE IN ORDER TO APPRECIATE THE CONTROVERSY. ACCORDINGLY, THE APPEAL FOR ASSESSMEN T YEAR 2006-07 WAS HEARD AS THE LEAD CASE. 3. ITA NO.1431/PN/2010 IS DIRECTED AGAINST THE ORDE R OF THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE- 1, AURANGABAD ( IN SHORT THE ASSESSING OFFICER) PASSED U/S 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 14.10.2010, WHICH IS IN CONFORMITY WITH THE DIRECTIONS GIVEN BY THE DISPUTE RESOLUTION PANEL- 1, MUMBAI (I N SHORT THE DRP) DATED 27.09.2010. IN THIS APPEAL THE VARIOUS GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER :- 1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN COMPLETING THE ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 1 44(C) OF THE INCOME-TAX ACT, 1961 ('THE ACT') BY ENHANCING THE TOTAL INCOME OF THE APPELLANT (BEFORE SET OFF OF BROUGHT FORWARD LOSSES AND DEPRECIATION) BY RS.73,64,368/- 2. THAT THE ASSESSING OFFICER/TRANSFER PRICING OFFI CER ('AO/TPO') ERRED ON FACTS AND IN LAW IN MAKING ADDITION TO THE INCOM E OF THE APPELLANT TO THE EXTENT OF RS.66,04,445/- ON ACCOUNT OF THE ALLEGED DIFFERENCE IN THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS UNDE RTAKEN BY THE APPELLANT. 2.1 THAT THE AO/TPO ERRED ON FACTS AND IN LAW IN DI SREGARDING THE METHODOLOGY APPLIED BY THE APPELLANT FOR BENCHMARKI NG THE INTERNATIONAL TRANSACTION OF PAYMENT OF INTEREST ON TECHNICAL KNO W HOW FEES LOAN AND PROPOSING AN ADJUSTMENT OF RS. 19,02,919/- TO THE I NCOME OF THE APPELLANT. ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 2.2 THAT THE LEARNED AO/TPO ERRED ON FACTS AND IN L AW IN COMPARING THE INTEREST RATE CHARGED BY THE ASSOCIATED ENTERPRISE FOR TECHNICAL KNOW HOW FEES LOAN WITH THE INTEREST RATE PRESCRIBED BY RESE RVE BANK OF INDIA ('RBI') FOR EXTERNAL COMMERCIAL BORROWING ('ECB') FOR THE A SSESSMENT YEAR 2006-07. 2.3 THAT THE LEARNED AO/TPO ERRED ON FACTS AND IN L AW IN NOT APPRECIATING THAT THE TECHNICAL KNOW HOW FEES LOAN WAS STRICTLY TO SUPPORT THE BUSINESS OF THE APPELLANT IN THE INITIAL PERIOD OF ITS SET-U P & THE PAYMENT WAS DEFERRED FOR A PERIOD OF 9 YEARS (INITIALLY FOR 7 YEARS AND SUBSEQUENTLY FOR 7 YEARS) WITHOUT INTEREST. 2.4 THAT THE LEARNED AO/TPO ERRED ON FACTS AND IN L AW IN DISREGARDING THE METHODOLOGY ADOPTED BY THE APPELLANT FOR BENCHMARKI NG THE INTERNATIONAL TRANSACTION OF PAYMENT OF INTEREST ON FOREIGN CURRE NCY CASH LOAN AND PROPOSING AN ADJUSTMENT OF RS. 33,06,854/- TO THE I NCOME OF THE APPELLANT. 2.5 THAT THE LEARNED AO/TPO ERRED ON FACTS AND IN L AW IN COMPARING THE INTEREST RATE CHARGED BY THE ASSOCIATED ENTERPRISE FOR FOREIGN CURRENCY CASH LOAN WITH THE INTEREST RATE PRESCRIBED BY RESERVE B ANK OF INDIA ('RBI') FOR EXTERNAL COMMERCIAL BORROWING ('ECB') FOR THE ASSES SMENT YEAR 2006-07. 2.6 THAT THE LEARNED AO/TPO ERRED ON FACTS AND IN L AW IN DISREGARDING THE METHODOLOGY ADOPTED BY THE APPELLANT FOR BENCHMARKI NG THE INTERNATIONAL TRANSACTION OF PAYMENT OF INTEREST ON ECB AND PROPO SING AN ADJUSTMENT OF RS.13,94,672/- TO THE INCOME OF THE APPELLANT. 2.7 THAT THE LEARNED AO/TPO ERRED ON FACTS AND IN L AW IN COMPARING THE INTEREST RATE CHARGED BY THE ASSOCIATED ENTERPRISE FOR THE ECB WITH THE INTEREST RATE LIBOR PLUS 2% PRESCRIBED BY THE RBI FOR ECB FO R THE YEAR 2006-07 AS AGAINST THE INTEREST RATE OF LIBOR PLUS 3% NOTIFIED BY RBI FOR THE YEAR 2003- 04, I.E. AT THE TIME WHEN ECB LOAN WAS OBTAINED. 2.8 THAT THE LEARNED AO/TPO ERRED ON FACTS AND IN L AW IN NOT APPRECIATING THAT THE INTEREST ON ECB CHARGED BY THE AE FROM THE APPELLANT IS SAME OR LESS THAN THE ACTUAL COST OF BORROWINGS IN THE HANDS OF THE AE. 2.9 THAT THE LEARNED AO/TPO ERRED ON FACTS AND IN L AW IN NOT APPRECIATING THAT THE LOAN TRANSACTIONS BETWEEN THE APPELLANT AN D ITS AE WAS GENUINE AND ENTERED INTO AS A RESULT OF COMMERCIAL EXPEDIENCY. 2.10 WITHOUT PREJUDICE THAT THE LEARNED AO/TPO ERRE D ON FACTS AND IN LAW IN NOT HOLDING THAT +/(-)5% VARIATION FROM THE ARM'S L ENGTH INTEREST SHOULD HAVE BEEN ALLOWED TO THE APPELLANT UNDER THE PROVISION O F SECTION 92C(2) OF THE ACT. 3. THAT THE AO ERRED ON FACTS AND IN LAW IN DISALLO WING THE DEPRECIATION AMOUNTING TO RS.7,59,723 CLAIMED BY THE APPELLANT O N ASSETS FORMING PART OF BLOCK OF ASSETS NOT USED DURING THE RELEVANT PREVIO US YEAR. 3.1 THAT THE AO ERRED ON FACTS AND IN LAW IN NOT AP PRECIATING THAT THE EXPRESSION 'USED FOR THE PURPOSE OF BUSINESS' AS ME NTIONED IN SECTION 32(1) OF THE ACT, REFERS TO THE ENTIRE BLOCK OF ASSET AND NOT THE INDIVIDUAL ASSETS FORMING PART OF THE BLOCK OF ASSETS. 4. IN BRIEF, THE RELEVANT FACTS ARE THAT ASSESSEE I S A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS, INTER-ALIA, ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF AUTOMOTIVE TYRES, TUBES, FLAPS, ETC. AT ITS FACTORY LOCATED AT AURANGABAD. FOR THE ASSESSM ENT YEAR 2006-07, IT FILED A ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 RETURN OF INCOME DECLARING NIL INCOME. THE SAID RETURN WAS SUBJECT TO A SCRUTINY ASSESSMENT U/S 143(3) R.W.S. 144C(13) OF T HE ACT BY THE ASSESSING OFFICER DATED 14.10.2010 WHEREIN THE TOTAL INCOME H AS BEEN DETERMINED AT NIL. HOWEVER, TWO ADDITIONS HAVE BEEN MADE FIR STLY, A SUM OF RS.66,04,445/- ON ACCOUNT OF A TRANSFER PRICING ADJ USTMENT; AND SECONDLY, A SUM OF RS.7,59,723/- ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION, THUS, TOTALING TO RS.73,64,368/-. THE INCOME SO DETERMINED WAS SE T-OFF AGAINST THE BROUGHT FORWARD BUSINESS LOSS FOR ASSESSMENT YEAR 1998-99 A ND ULTIMATELY THE TOTAL INCOME WAS DETERMINED AT NIL. HOWEVER, BOTH THE ADDITIONS MADE BY THE ASSESSING OFFICER HAVE BEEN CHALLENGED BY THE ASSES SEE IN THE APPEAL BEFORE US. 5. ALTHOUGH, ASSESSEE HAS RAISED MULTIPLE GROUNDS O F APPEAL BUT THE ESSENTIALLY THE GRIEVANCE IS ON ACCOUNT OF THE AFOR ESAID TWO ADDITIONS MADE BY THE ASSESSING OFFICER. THE FIRST SUBSTANTIVE DISPU TE IS WITH REGARD TO AN ADDITION OF RS.66,04,445/- MADE BY THE ASSESSING OF FICER ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. 6. THE FACTS LEADING UP TO THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT CAN BE SUMMARIZED AS FOLLOWS. THE ASSES SING OFFICER NOTICED THAT THE ASSESSEE COMPANY HAD ENTERED INTO VARIOUS INTER NATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES WHOSE INCOME WAS LIABLE TO BE COMPUTED HAVING REGARD TO THEIR ARM'S LENGTH PRICE IN TERMS OF THE PROVISIONS OF SECTION 92(1) OF THE ACT. ACCORDINGLY, THE ASSESSING OFFICER REFERR ED THE MATTER TO THE TRANSFER PRICING OFFICER (TPO) U/S 92CA(1) OF THE ACT FOR CO MPUTATION OF ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS ENTERED BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. THE TPO NOTED THAT VARIOUS INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES WERE ENTERED BY THE ASS ESSEE, VIZ., TERM LOAN REPAYMENT, IMPORT OF RAW MATERIAL/CAPITAL GOODS/SPA RES, EXPENSES REIMBURSED/RECOVERED TO/FROM AN ASSOCIATED ENTERPRI SE, INTEREST ON TERM LOAN, ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 ETC.. THE TPO, AFTER ALLOWING THE REQUISITE OPPORT UNITIES TO THE ASSESSEE, PASSED AN ORDER U/S 92CA(3) OF THE ACT DATED 08.10. 2009 DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS, W HEREBY HE HAS PROPOSED AN ADJUSTMENT OF RS.66,04,445/- IN RESPECT OF THE INTE RNATIONAL TRANSACTIONS OF INTEREST PAID ON LOANS RAISED FROM THE ASSOCIATED E NTERPRISES. ALL OTHER INTERNATIONAL TRANSACTIONS ENTERED BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES HAVE BEEN ACCEPTED BY THE TPO TO BE AT ARM'S LENGTH PRICE. IN THIS VIEW OF THE MATTER, WE CONFINE OUR FURTHER DIS CUSSION ONLY IN RESPECT OF THE TRANSACTION OF PAYMENT OF INTEREST ON LOANS RAISED FROM ASSOCIATED ENTERPRISES, WHICH IS THE INTERNATIONAL TRANSACTION IN DISPUTE B EFORE US. 7. THE APPELLANT COMPANY HAS INCURRED INTEREST EXPE NDITURE OF RS.2,96,25,682/- IN RESPECT OF THREE KINDS OF FOREI GN CURRENCY CASH LOANS RAISED FROM GOODYEAR TYRE AND RUBBER CO., AN ASSOCI ATED ENTERPRISE BASED IN USA. FIRSTLY, ASSESSEE HAD RAISED A TECHNICAL KNOW HOW LOAN IN THE PAST YEARS WHICH CARRIED RATE OF INTEREST OF 12% PER ANNUM; SE CONDLY, ASSESSEE RAISED A FOREIGN CURRENCY CASH LOAN AGAINST IMPORT OF CAPITA L GOODS IN THE PAST YEARS WHICH CARRIED INTEREST @ 12% PER ANNUM; THIRDLY, A LOAN BY WAY OF EXTERNAL COMMERCIAL BORROWING (ECB) WAS RAISED FROM THE ASSO CIATED ENTERPRISE IN THE PAST YEARS, FOR FINANCING ITS WORKING CAPITAL NEEDS , WHICH CARRIED RATE OF INTEREST OF LIBOR PLUS 3%. THE TPO COMPARED THE IN TERNATIONAL TRANSACTION OF THE PAYMENT OF INTEREST ON THE AFORESAID LOANS WITH THE CEILING PRESCRIBED BY THE RESERVE BANK OF INDIA (RBI) FOR PAYMENT OF INTE REST ON ECB LOANS FOR THE PREVIOUS YEAR UNDER CONSIDERATION, WHICH STOOD AT L IBOR PLUS 2% I.E. 5.46. BY COMPARING THE AFORESAID RBI MANDATED INTEREST RA TE ON ECB LOANS I.E. 5.46% WITH THE RATE OF INTEREST INCURRED BY THE ASS ESSEE, AN ADJUSTMENT OF RS.66,04,445/- WAS MADE SO AS TO DETERMINE THE ARM' S LENGTH PRICE ON ACCOUNT OF THE PAYMENT OF INTEREST WHICH IS DETAILE D AS UNDER :- ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 LOAN RATE OF INTEREST PAID BY THE APPELLANT INTEREST PAID BY APPELLANT (RS.) INTEREST COMPUTED BY TPO (LIBOR+200BPS) DIFFERENCE (ADJUSTMENT) TECHNICAL KNOWHOW LOAN 12% P.A. 34,91,594 15,88,675 19,02,919 FOREIGN CURRENCY CASH LOAN 12% P.A. 55,03,780 21,96,926 33,06,854 ECB LOAN LIBOR PLUS 3% 2,06,30,308 1,92,35,636 13,94,672 TOTAL ADJUSTMENT 66,04,445 8. THE AFORESAID STAND OF THE TPO HAS BEEN AFFIRME D BY THE DISPUTE RESOLUTION PANEL (DRP) VIDE ORDER DATED 27.09.2010 IN RESPONSE TO OBJECTIONS RAISED BY THE ASSESSEE TO THE ADJUSTMENT PROPOSED B Y THE ASSESSING OFFICER ON THE ABOVE LINES IN THE DRAFT ASSESSMENT ORDER U/ S 143(3) R.W.S. 144C(1) OF THE ACT DATED 23.12.2009. 9. IN THE ABOVE BACKGROUND, RIVAL PARTIES HAVE MADE THEIR SUBMISSIONS. THE APPELLANT COMPANY HAS FURNISHED VOLUMINOUS PAPE R BOOKS AND ON BEHALF OF THE REVENUE ARGUMENTS HAVE BEEN ADVANCED, ALONG WITH WRITTEN SUBMISSIONS BY THE TPO HAVE ALSO BEEN PLACED ON REC ORD. THE RIVAL SUBMISSIONS HAVE BEEN HEARD AND THE RELEVANT MATERI AL PERUSED IN ORDER TO DISPOSE OF THE DISPUTE. 10. THE LD. REPRESENTATIVE FOR THE ASSESSEE EXTENSI VELY ARGUED THAT THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F TRANSFER PRICING ADJUSTMENT IS NOT SUSTAINABLE. AT THE OUTSET, THE LD. REPRESENTATIVE SUBMITTED THAT THE TERMS AND CONDITIONS OF THE LOANS RAISED F ROM THE ASSOCIATED ENTERPRISES HAVE BEEN APPROVED BY THE GOVERNMENT OF INDIA VIZ. THE DEPARTMENT OF ECONOMIC AFFAIRS, (MINISTRY OF FINANC E) AND RESERVE BANK OF INDIA. IT HAS BEEN POINTED OUT THAT THE RESERVE BA NK OF INDIA HAS SPECIFICALLY APPROVED THE RATE OF INTEREST IN RESPECT OF TECHNIC AL KNOWHOW LOAN AS WELL AS THE FOREIGN CURRENCY CASH LOAN BY TAKING INTO CONSI DERATION THE THEN PREVAILING RATE OF INTEREST AND ALSO CONSIDERING THE FACTS AND CIRCUMSTANCES SURROUNDING THE LOANS OBTAINED BY THE ASSESSEE. IN THE CONTEXT OF THE TECHNICAL KNOWHOW ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 LOAN AND FOREIGN CURRENCY CASH LOAN OBTAINED BY THE ASSESSEE, IT WAS POINTED OUT THAT THERE WAS A MORATORIUM OF PAYMENT ON INTER EST FOR INITIAL SEVEN YEARS, WHICH WAS, HOWEVER, EXTENDED FOR NEXT TWO YEARS, AN D THE RESERVE BANK OF INDIA APPROVED THE RATE OF INTEREST OF 12% FOR THE PERIOD STARTING AFTER THE END OF SUCH NINE YEARS. THE LD. REPRESENTATIVE POINTED OUT THAT THE AFORESAID TERMS OF THE LOAN ARE SPECIFICALLY APPROVED BY THE RESERVE BANK OF INDIA AND THEREFORE IT WOULD BE INAPPROPRIATE FOR THE TPO, WH ICH IS ANOTHER WING OF THE GOVERNMENT, TO SAY THAT THE PAYMENT OF INTEREST BY THE ASSESSEE TO THE ASSOCIATED ENTERPRISE IS NOT AN ARM'S LENGTH PRICE. THE POINT MADE BY THE ASSESSEE IS THAT THE ARM'S LENGTH PRICE OF THE TRAN SACTION OF INTEREST PAID BY THE ASSESSEE IN THE PRESENT CASE CANNOT BE CONSIDERED D E-HORS THE FACTUM OF THE CENTRAL GOVERNMENT HAVING APPROVED THE TERMS AND TH E RATE OF PAYMENT OF INTEREST. IN THIS CONTEXT, HE HAS RELIED ON THE PA RITY OF REASONING UPHELD BY THE TRIBUNAL IN THE FOLLOWING DECISIONS : (I) ABHISHEK AUTO INDUSTRIES LTD. VS. DCIT (ITA NO.1433/DEL/2009 DATED 12.11.2010); (II) DCIT VS. SONA OKEGAWA PRECISION FORGINGS LTD. (ITA NO.5386/DEL/2010 DATED 16.12.2011); (III) M/S CADBURY INDIA LTD. VS. ADDL.CIT (ITA NO.7408/MUM/20 10 DATED 13.11.2013); (IV) LUMAX INDUSTRIES LTD. VS. ACIT (ITA NO.4456/DE L/2012 DATED 31.05.2012); (V) M/S HERE MOTOCORP LTD. VS. ADDL.CIT (ITA NO.513 0/DEL/2010 DATED 23.11.2012); AND, (VI) M/S THYSSENKRUPP INDUSTRIES INDIA PVT. LTD. VS. ADDL.CIT (ITA NO.6460/MUM/2012 DATED 27.02.2013). 11. APART THEREFROM, IT HAS ALSO BEEN SUBMITTED THA T THE ADJUSTMENT MADE BY THE TPO BY COMPARING THE SPECIFIC RATE OF INTERE ST APPROVED BY THE RBI FOR TECHNICAL KNOWHOW LOAN AND FOREIGN CURRENCY CASH LO AN AVAILABLE BY THE ASSESSEE WITH A GENERAL RATE PRESCRIBED BY THE RBI IN RESPECT OF ECB LOANS IS WRONG BECAUSE IT IS FALLACIOUS TO APPLY THE GENERAL RATES APPROVED BY RBI IN PREFERENCE TO THE SPECIFIC RATE APPROVED BY THE RBI FOR THE INSTANT TWO LOANS IN THE CASE OF THE ASSESSEE. ON THIS COUNT ALSO IT HA S BEEN ASSERTED THAT THE APPROACH OF THE TPO IS UNJUSTIFIED. ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 12. FURTHERMORE, IT IS POINTED OUT THAT THE TPO HAS WRONGLY ADOPTED THE RATE OF INTEREST COMPUTED AT LIBOR PLUS 2% BECAUSE SUCH A RATE OF INTEREST IS APPLICABLE FOR ECBS HAVING A MATURITY PERIOD OF THR EE TO FIVE YEARS. IN THIS CONTEXT, IT HAS BEEN POINTED OUT THAT THE ARM'S LEN GTH PRICE OF THE INTEREST PAYABLE BY THE ASSESSEE ON TECHNICAL KNOWHOW LOAN A ND FOREIGN CURRENCY CASH LOAN HAVE BEEN COMPUTED BY THE TPO CORRESPONDI NG TO THE CEILING RATE FOR THE ECB LOANS PRESCRIBED BY THE RBI AT LIBOR PL US 200BPS I.E. 5.46% (3.46% + 2%). BY REFERRING TO THE RELEVANT RBI CIR CULAR 60 DATED 31.01.2004, A COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK, IT IS SUBMITTED THAT THE SAME IS IN RELATION TO LOANS HAVING MATURITY PERIOD OF THREE TO FIVE YEARS. IT IS FURTHER POINTED OUT THAT THE SAID CIRCULAR ISSUED B Y THE RBI PROVIDES THE CEILING OF INTEREST RATE OF LIBOR PLUS 3.5% IN RESPECT OF E CBS HAVING MATURITY PERIOD OF MORE THAN FIVE YEARS. THE LD. REPRESENTATIVE PO INTED OUT THE TENURE OF ALL THE THREE LOANS OBTAINED BY THE ASSESSEE FROM ITS A SSOCIATED ENTERPRISE IS MORE THAN FIVE YEARS, NAMELY, TECHNICAL KNOWHOW LOA N 12 YEARS; FOREIGN CURRENCY CASH LOAN 14 YEARS; AND, ECB LOAN 4 YE ARS. IT IS SUBMITTED THAT WITHOUT CONCEDING TO THE STAND OF THE TPO, EVEN IF THE CEILING OF INTEREST PAYABLE ON ECB LOANS PRESCRIBED BY THE RBI FOR LOAN S HAVING MATURITY PERIOD OF MORE THAN FIVE YEARS IS ADOPTED, THE EFFECTIVE I NTEREST PAID BY THE ASSESSEE WOULD BE LOWER, AND EVEN ON THIS BASIS, NO ADJUSTME NT WOULD SURVIVE IN RELATION TO PAYMENT OF INTEREST ON TECHNICAL KNOWHO W LOAN AND FOREIGN CURRENCY CASH LOANS. 13. A PERTINENT ISSUE HAS BEEN RAISED BY THE ASSESS EE, WHICH IS WITH RESPECT TO THE STAND OF THE TPO THAT THE EXPENDITUR E OF INTEREST PAID BY THE ASSESSEE DURING THE YEAR IS TO BE BENCHMARKED ON A STANDALONE BASIS BY DISREGARDING THE FACT THAT THERE WAS AN INITIAL MOR ATORIUM PERIOD OF 9 YEARS DURING WHICH NO INTEREST WAS PAYABLE AND THAT THE 1 2% RATE OF INTEREST WAS PAYABLE ONLY FOR THE POST-MORATORIUM PERIOD. IT IS SUBMITTED THAT IF THE EFFECTIVE RATE OF LOAN WAS COMPUTED CONSIDERING THE PERIOD FO R WHICH LOAN HAS BEEN ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 AVAILED BY THE ASSESSEE, RATE OF INTEREST WOULD WOR K OUT MUCH LOWER THAN THE BENCHMARK CONSIDERED BY THE TPO. IN THIS CONTEXT, THE ASSESSEE COMPANY HAS CALCULATED THE EFFECTIVE RATE OF INTEREST ON A STANDALONE BASIS BY CONSIDERING THE LOAN OUTSTANDING DURING THE YEAR AN D THE PERIOD FOR WHICH IT HAS BEEN AVAILED BY THE ASSESSEE, I.E. INCLUDING TH E PERIOD OF MORATORIUM WHEN NO INTEREST WAS PAYABLE. IT IS SUBMITTED THAT THE EFFECTIVE RATE OF INTEREST WORKS OUT TO BE LESSER THAN ARM'S LENGTH RATE DETER MINED BY THE TPO. THE DETAILS IN THIS REGARD ARE AS UNDER :- TECHNICAL KNOWHOW LOAN FCC LOAN PARTICULARS YEAR ENDING MARCH, 05 YEAR ENDING MARCH, 06 YEAR ENDING MARCH, 06 INTEREST PAID 8066927 3491595 5503760 AMOUNT OF LOAN OUTSTANDING 223691325 210246455 243824000 EFFECTIVE RATE OF INTEREST 3.60% 1.66% 2.26% 14. IT WAS THEREFORE CONTENDED THAT EVEN ON THIS CO UNT ADJUSTMENT PROPOSED BY THE TPO IS UNCALLED FOR. 15. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESE NTATIVE APPEARING FOR THE REVENUE HAS CONTENDED THAT THE INCOME-TAX AUTHO RITIES MADE NO MISTAKE IN DETERMINING THE ARM'S LENGTH PRICE OF THE TRANSA CTION OF PAYMENT OF INTEREST TO ASSOCIATED ENTERPRISE BASED ON THE RATE PRESCRIB ED BY RBI FOR THE ECB LOANS. THE LD. DEPARTMENTAL REPRESENTATIVE POINTED OUT THAT ASSESSEE HAS PAID 12% RATE OF INTEREST ON ITS TECHNICAL KNOWHOW AND FOREIGN CURRENCY CASH LOANS, WHICH WAS HIGHER THAN THE RATE PRESCRIBED BY THE RBI FOR ECB LOANS AND THEREFORE THE PAYMENT OF INTEREST WAS MORE THAN THE ARM'S LENGTH PRICE. SIMILARLY, IT WAS POINTED OUT THAT ON THE ECB LOANS , ASSESSEE HAS PAID RATE OF INTEREST EQUIVALENT TO LIBOR PLUS 3% WHEREAS THE RA TE OF INTEREST ON ECBS PRESCRIBED BY THE RBI DURING THE YEAR UNDER CONSIDE RATION WAS LBIOR PLUS 2%. IN THIS MANNER, THE ORDER PASSED BY THE LOWER AUTHORITIES IS SOUGHT TO BE JUSTIFIED. ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. BEFORE PROCEEDING TO ADJUDICATE THE RIVAL STANDS, IT WOULD BE APPROPR IATE TO BRIEFLY TOUCH-UPON THE MANNER IN WHICH THE IMPUGNED LIABILITY TOWARDS INTE REST ON LOANS RAISED FROM ASSOCIATED ENTERPRISES HAS BEEN INCURRED BY THE ASS ESSEE. PERTINENTLY, THE LOANS IN QUESTION, NAMELY, TECHNICAL KNOWHOW LOAN, FOREIGN CURRENCY CASH LOAN AND ECB LOAN HAVE BEEN AVAILED BY THE ASSESSEE FROM GOODYEAR TYRE AND RUBBER CO. AN ASSOCIATED ENTERPRISE BASED IN US A. ASSESSEE HAS MADE A PAYMENT OF INTEREST OF RS.2,96,25,682/- IN RESPEC T OF THE AFORESAID THREE LOANS. REGARDING THE TECHNICAL KNOWHOW LOAN, THE D ETAILS ARE THAT THE ASSESSEE COMPANY ENTERED INTO A TECHNICAL ASSISTANC E AND LICENSE AGREEMENT WITH ITS ASSOCIATED ENTERPRISE ON 21.06.1994 FOR PR OVISION OF TECHNICAL ASSISTANCE IN MANUFACTURING OF EARTHMOVER TYRES, RA DIAL TYRES, RADIAL PASSENGER TYRES, ETC.. IN TERMS OF THE SAID AGREEM ENT, ASSESSEE WAS REQUIRED TO PAY A LUMP SUM TECHNICAL KNOWHOW FEE OF USD ONE CRORE. THE SAID AGREEMENT WAS SUBSEQUENTLY AMENDED VIDE A SUPPLEMEN TARY AGREEMENT DATED 01.10.2003, WHEREBY THE AGREED AMOUNT OF TECH NICAL KNOWHOW FEE PAYABLE TO GOODYEAR USA WAS REDUCED TO USD 67,50,00 0/-. ON 11 TH JULY, 1996 ASSESSEE ENTERED INTO AN AGREEMENT WITH THE AS SOCIATED ENTERPRISE IN TERMS OF WHICH THE TECHNICAL KNOWHOW FEE PAYABLE WA S CONVERTED INTO A LOAN WHICH WAS INITIALLY INTEREST-FREE FOR THE FIRST SEV EN YEARS PERIOD AND WAS THEREAFTER RE-PAYABLE IN THREE BRANCHES CARRYING IN TEREST @ 12% PER ANNUM. CONSEQUENT TO THE MODIFICATION OF THE TECHNICAL ASS ISTANCE AGREEMENT DONE ON 01.10.2003, THE LOAN AGREEMENT WAS ALSO MODIFIED BY AN AGREEMENT DATED 02.10.2003 WHEREBY THE PRINCIPAL AMOUNT OF LOAN WAS REDUCED FROM USD ONE CRORE TO USD 67,50,000/-. THE LOAN AGREEMENT DATED 11.07.1996 WAS APPROVED BY THE RESERVE BANK OF INDIA VIDE LETTER D ATED 17.04.1996, WHICH WAS SUBSEQUENTLY AMENDED VIDE RBI LETTER DATED 10. 06.2003 REDUCING THE PRINCIPAL AMOUNT OF LOAN FROM USD ONE CRORE TO USD 67,50,000/-. COPIES OF SUCH APPROVALS HAVE BEEN PLACED IN THE PAPER BOOK A T PAGES 469 473. IN TERMS OF THE RBI APPROVALS, IT TRANSPIRES THAT THE TECHNICAL KNOWHOW LOAN WAS ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 INTEREST FREE FOR INITIAL PERIOD OF SEVEN YEARS FRO M THE DATE ON WHICH TECHNICAL KNOWHOW FEE WAS PAYABLE AND AT THE END OF THE SEVEN YEARS THE LOAN WAS REPAYABLE IN FIVE EQUAL INSTALLMENTS TOGETHER WITH INTEREST @ 12% PER ANNUM. NOTABLY, SUCH INTEREST WAS PAYABLE FOR THE PERIOD A FTER THE MORATORIUM PERIOD OF SEVEN YEARS. THE RBI APPROVAL ALSO PERMITS THAT DURING THE SEVEN YEARS MORATORIUM PERIOD, THE LOAN AMOUNT WAS TO BE INCREA SED BY 5% OF THE PRINCIPAL AMOUNT TO ACCOUNT FOR THE FOREIGN EXCHANG E RISK COVERAGE. THE AFORESAID INCREASE ON ACCOUNT OF FOREIGN EXCHANGE R ISK COVERAGE WAS NOT APPLICABLE AFTER THE CLOSE OF SEVEN YEARS MORATORI UM PERIOD. SUBSEQUENTLY, RBI ALSO EXTENDED THE PERIOD OF MORATORIUM FOR PAYM ENT OF INTEREST BY TWO YEARS, BUT IN THIS EXTENDED PERIOD OF MORATORIUM NO FURTHER INCREASE ON ACCOUNT OF EXCHANGE RATE FLUCTUATION WAS ALLOWED. ALL THESE FEATURES OF THE TECHNICAL KNOWHOW LOAN ARE EMERGING FROM THE MATERI AL ON RECORD AND IN-FACT THE SAME ARE NOT IN DISPUTE. 17. NOW, WITH REGARD TO THE FOREIGN CURRENCY CASH L OAN, THE DETAILS ARE AS FOLLOWS. ON 16.08.1995 ASSESSEE ENTERED INTO A FOR EIGN CURRENCY CASH LOAN AGREEMENT WITH ITS ASSOCIATED ENTERPRISE, NAMELY, G OODYEAR TYRE AND RUBBER CO., USA FOR USD 56,00,000 FOR THE PURPOSE OF FINAN CING IMPORT OF CAPITAL GOODS. THE SAID AGREEMENT WAS ALSO APPROVED BY THE RESERVE BANK OF INDIA VIDE COMMUNICATION DATED 27.09.1995, A COPY OF WHIC H HAS BEEN PLACED IN THE PAPER BOOK AT PAGE 393. IN TERMS OF THE SAID APPRO VAL BY THE RESERVE BANK OF INDIA, IT IS PRESCRIBED THAT THE LOAN SHALL REMA IN INTEREST-FREE FOR A PERIOD OF SEVEN YEARS FROM THE DATE OF GRANT OF LOAN AND AT T HE END OF THE SEVEN YEARS IT SHALL BE REPAID IN FIVE EQUAL INSTALLMENTS TOGETHER WITH INTEREST @ 12%. A PERUSAL OF THE RBI APPROVAL REVEALS THAT OTHER TERM S AND CONDITIONS IN RESPECT OF ABOVE FOREIGN CURRENCY CASH LOAN ARE SIMILAR TO THOSE PRESCRIBED FOR TECHNICAL KNOWHOW LOAN, WHICH WE HAVE SUCCINCTLY EN UMERATED IN THE EARLIER PARAS. ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 18. THIRDLY, THE ECB LOAN RAISED BY THE ASSESSEE FR OM ITS ASSOCIATED ENTERPRISE, NAMELY, GOODYEAR TYRE AND RUBBER CO., U SA IS OF A SUM OF USD 90,00,000. THE SAID LOAN HAS BEEN RAISED VIDE AN A GREEMENT DATED 12.09.2003 AND SUCH FINANCING IS TO MEET THE WORKIN G CAPITAL REQUIREMENTS. IN TERMS OF THE SAID AGREEMENT, A COPY OF WHICH HAS BE EN PLACED IN THE PAPER BOOK AT PAGE 438, THE BORROWING IS REPAYABLE IN THR EE INSTALLMENTS BY 15.03.2006, 31.12.2006 AND 31.12.2007. THE ECB LOA N WAS AVAILED BY THE ASSESSEE AT THE INTEREST RATE OF LIBOR PLUS 3% AS N OTIFIED BY THE RBI IN ITS CIRCULAR NO.36 DATED 14.11.2003, WHICH WAS PREVAILI NG WHEN THE ASSESSEE RAISED SUCH ECB LOAN. 19. IN THE BACKGROUND OF THE AFORESAID TERMS AND CO NDITIONS OF THE LOANS RAISED FROM THE ASSOCIATED ENTERPRISE, ASSESSEE PAI D INTEREST AGGREGATING TO RS.2,96,25,683/- TO ITS ASSOCIATED ENTERPRISES. TH E ASSESSEE BENCHMARKED THE AFORESAID TRANSACTION OF PAYMENT OF INTEREST BY APPLYING COMPARABLE UNCONTROLLED PRICE (CUP) METHOD AS THE MOST APPROPR IATE METHOD AND THUS JUSTIFIED THAT THE AFORESAID PAYMENT OF INTEREST WA S AT AN ARM'S LENGTH PRICE. THE STAND OF THE ASSESSEE WAS THAT INTEREST CHARGED ON TECHNICAL KNOWHOW LOAN AND FOREIGN CURRENCY CASH LOAN @ 12% WAS LOWER THAN THE PRIME LENDING RATE (PLR) OF INTEREST CHARGED BY THE STATE BANK OF INDIA AT THE RELEVANT POINT OF TIME, I.E. 12.25% - 13.25%. ASSESSEE ALSO JUSTI FIED THE RATE OF INTEREST ON THE GROUND THAT TECHNICAL KNOWHOW AND FOREIGN CURRE NCY LOANS WERE SPECIFICALLY APPROVED BY THE RBI WHEREIN THE RATE O F INTEREST PAYABLE WAS ALSO PRESCRIBED. EVEN WITH REGARD TO THE ECB LOAN AVAIL ED, IT WAS CONTENDED THAT THE SAME WAS IN ACCORDANCE WITH GUIDELINES AND THE INTEREST RATE CEILING PRESCRIBED BY THE RBI AT THE TIME OF OBTAINING SUCH LOAN. THE AFORESAID SUBMISSIONS OF THE ASSESSEE HAVE NOT FOUND FAVOUR W ITH THE TPO. ONE OF THE POINTS RAISED BY THE TPO IS THAT THE TECHNICAL KNOW HOW LOAN HAS BEEN OBTAINED BY CONVERSION OF TECHNICAL KNOWHOW FEE PAY ABLE TO GOODYEAR TYRE AND RUBBER CO.. AS PER THE TPO, WHAT IS INDEED PAY ABLE BY THE ASSESSEE IS ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 A CHARGE/FEE FOR OBTAINING TECHNICAL KNOWHOW AND TH AT IT IS NOT A PURE CASH LOAN TAKEN BY THE ASSESSEE. ACCORDING TO THE TPO, SUCH A TRANSACTION CANNOT BE COMPARED WITH THE PREVAILING LENDING RATES IN TH E DOMESTIC MARKET AT THE TIME OF RAISING OF LOAN. INSTEAD, ACCORDING TO HIM , THE ARM'S LENGTH PRICE WOULD HAVE TO BE DETERMINED BY BENCHMARKING THE INTEREST RATES PREVAILING ON BORROWINGS FROM ABROAD AT THE TIME OF PAYMENT OF IN TEREST. THEREFORE, THE PLEA OF THE ASSESSEE FOR COMPARING THE INTEREST PAID @ 1 2% WITH THE PRIME LENDING RATE OF SBI WAS NOT ACCEPTED. ANOTHER REAS ON ADVANCED BY THE TPO IS THAT ASSESSEE WAS ALSO REQUIRED TO ACCOUNT FOR E XCHANGE FLUCTUATION BURDEN DURING THE CURRENCY OF THE LOAN. UNDER THESE CIRCU MSTANCES, AS PER THE TPO, SUCH A LOAN CANNOT BE TREATED TO BE AT PAR WITH A D OMESTIC LOAN RAISED FROM AN INDIAN BANK. IN OUR VIEW, THE TPO IS JUSTIFIED IN SAYING THAT THE IMPUGNED TRANSACTIONS INVOLVE LOAN LIABILITIES IN FOREIGN CU RRENCY AND THEREFORE IT IS NOT A DOMESTIC BORROWING SO AS TO COMPARE THE TRANSACTION OF PAYMENT OF INTEREST WITH THE DOMESTIC PRIME LENDING RATE OF THE INDIAN BANKS. 20. SO HOWEVER, ONE PERTINENT POINT HAS BEEN RAISED BY THE ASSESSEE BEFORE US TO THE EFFECT THAT IN ORDER TO BENCHMARK THE INTEREST COST INCURRED BY THE ASSESSEE IT WOULD BE APPROPRIATE TO EVALUATE TH E EFFECTIVE RATE OF INTEREST PAYABLE BY THE ASSESSEE ON THE TECHNICAL KNOWHOW LO AN AND FOREIGN CURRENCY CASH LOAN RAISED FROM THE ASSOCIATED ENTERPRISE. N OTABLY, THE SAID ARGUMENT HAS BEEN RAISED BY THE ASSESSEE NOT ONLY BEFORE US BUT ALSO BEFORE THE TPO AS IS EVIDENT FROM PARA 5 OF THE ORDER OF THE TPO W HEREIN THE ARGUMENTS OF THE ASSESSEE HAVE BEEN REPRODUCED. THE PLEA OF THE ASS ESSEE IS THAT THE RATE OF INTEREST OF 12% FOR THE CURRENT YEAR CANNOT BE CONS IDERED IN ISOLATION BY IGNORING THE INTEREST-FREE MORATORIUM PERIOD OF INI TIAL NINE YEARS. THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED IN THE CO URSE OF HEARING THAT ALTHOUGH THE RATE OF INTEREST PAYABLE DURING THE FI VE YEAR REPAYMENT SCHEDULE IS 12%, BUT IF THE INITIAL INTEREST-FREE PERIOD OF NINE YEARS IS CONSIDERED, THE EFFECTIVE RATE OF INTEREST WOULD BE EVEN LOWER THAN THE RATE OF 5.46% ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 CONSIDERED BY THE TPO AS AN ARM'S LENGTH RATE. IN THIS CONTEXT, OUR ATTENTION HAS BEEN DRAWN TO A WORKING FURNISHED IN THE COURSE OF THE HEARING. WITH RESPECT TO THE TECHNICAL KNOWHOW LOAN, IT IS EXPLAI NED THAT ACTUAL INTEREST COST OF RS.1,15,58,522/- (INCLUSIVE OF THE INCREASED COS T OF BORROWINGS ON ACCOUNT OF EXCHANGE IN FLUCTUATION) IS SPREAD OVER THE PERI OD OF LOAN THE EFFECTIVE RATE OF INTEREST FOR THE ASSESSMENT YEAR 2006-07 WORKS O UT TO 2.51% ONLY. SIMILARLY, WITH RESPECT TO THE FOREIGN CURRENCY CAS H LOAN ON SPREADING THE ACTUAL INTEREST COST OF 1,39,69,848/- OVER THE PERI OD OF LOAN AND ALSO TAKING INTO ACCOUNT THE INCREASED BORROWINGS ON ACCOUNT OF EXCH ANGE RATE FLUCTUATION, THE EFFECTIVE RATE OF INTEREST FOR ASSESSMENT YEAR 2006 -07 COMES TO 2.67%. IT IS SOUGHT TO BE POINTED OUT THAT THE AFORESAID EFFECTI VE RATES OF INTEREST IS LESS THAN THE ARM'S LENGTH RATE OF INTEREST CONSIDERED B Y THE TPO IN RESPECT OF TECHNICAL KNOWHOW AND FOREIGN CURRENCY CASH LOANS. THEREFORE, THERE WAS NO NECESSITY OF MAKING ANY ADJUSTMENT IN THE TRANSACTI ON OF PAYMENT OF INTEREST ON ACCOUNT OF TECHNICAL KNOWHOW AND FOREIGN CURRENC Y CASH LOANS IN ORDER TO BRING IT TO THE LEVEL OF ARM'S LENGTH PRICE. THE A FORESAID WORKINGS ARE TABULATED AS UNDER :- (I) REGARDING TECHNICAL KNOWHOW LOAN :- YEAR LOAN OUTSTANDING (A) INTEREST SPREAD (B) EXCHANGE FLUCTUATION (C) INTEREST +EXCHANGE FLUCTUATION COST D=B+C INTEREST RATE % D/A 1995 49,795,823 963210 - 963,210 1.93 1996 52,285,614 963210 2489791 3,453,001 6.60 1997 117,880,405 963210 2489791 3,453,001 2.93 1998 198,180,446 963210 5645041 6,608,251 3.33 1999 207,558,238 963210 9377791 10,341,001 4.98 2000 215,208,767 963210 7650529 8,613,739 4.00 2001 220,853,808 963210 5645041 6,608,251 2.99 2002 223,691,325 963210 2837517 3,800,727 1.70 2003 223,691,325 963210 - 963,210 0.43 2004 223,691,325 963210 - 963,210 0.43 2005 223,691,325 963210 - 963,210 0.43 2006 210,246,455 963210 - 963,210 0.46 TOTAL/AVERAGE 11,558,522 36,135,489 48,694,001 2.51 (II) REGARDING FOREIGN CURRENCY CASH LOAN :- YEAR LOAN OUTSTANDING (A) INTEREST SPREAD (B) EXCHANGE FLUCTUATION (C) INTEREST +EXCHANGE FLUCTUATION COST D=B+C INTEREST RATE % D/A ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 1996 13,44,02,400 12,69,986 - 12,69,986 0.94 1997 19,97,52,520 12,69,986 67,20,120 79,90,106 4.00 1998 20,94,04,140 12,69,986 9651620 1,09,21,606 5.22 1999 21,90,55,760 12,69,986 9651620 1,09,21,606 4.99 2000 22,87,07,380 12,69,986 9651620 1,09,21,606 4.78 2001 23,83,59,000 12,69,986 9651620 1,09,21,606 4.58 2002 24,38,24,000 12,69,986 5465000 67,34,986 2.76 2003 24,38,24,000 12,69,986 - 12,68,986 0.52 2004 24,38,24,000 12,69,986 - 12,69,986 0.52 2005 24,38,24,000 12,69,986 - 12,69,986 0.52 2006 24,38,24,000 12,69,986 - 12,69,986 0.52 TOTAL/AVERAGE 1,39,69,848 5,07,91,600 6,47,61,448 2.67 21. THE AFORESAID WORKINGS HAVE NOT BEEN DISPUTED I N THE COURSE OF HEARING BEFORE US. BE THAT AS IT MAY, THE MOOT POINT IS AS TO WHETHER IT IS RELEVANT TO CONSIDER THE STATED RATE OF INTEREST OF 12% OR THE EFFECTIVE RATE OF INTEREST FOR THE PURPOSE OF BENCHMARKING THE TRANSACTION WITH CO MPARABLE CASES. THE TERMS AND CONDITIONS OF THE AGREEMENT APPROVED BY T HE RBI IN RELATION TO TECHNICAL KNOWHOW AND FOREIGN CURRENCY CASH LOANS, WHICH HAVE BEEN SUCCINCTLY NOTED BY US IN THE EARLIER PART OF THIS ORDER, CLEARLY ESTABLISH THAT IN THE INITIAL PERIOD OF NINE YEARS THERE WAS A MORATO RIUM ON INTEREST PAYMENT AND THAT ASSESSEE WAS NOT REQUIRED TO INCUR ANY INTERES T COSTS. IT IS ONLY SUBSEQUENT TO THE MORATORIUM PERIOD, ASSESSEE WAS T O INCUR INTEREST COST AND THAT TOO, DURING THE PERIOD OF REPAYMENT OF LOANS. OFCOURSE, DURING THE MORATORIUM PERIOD THE LIABILITY TOWARDS PRINCIPAL A MOUNT OF LOAN WAS LIABLE TO BE INCREASED BY 5% ON ACCOUNT OF EXCHANGE RATE FLUC TUATION. CONSIDERING THE ENTIRETY OF TERMS AND CONDITIONS, THEREFORE, THE CO ST OF BORROWINGS TO THE ASSESSEE (I.E. ON TECHNICAL KNOWHOW AND FOREIGN CUR RENCY CASH LOANS) ARE TO BE COMPUTED AFTER FACTORING THE INITIAL PERIOD OF M ORATORIUM. THEREFORE, IT WOULD BE INAPPROPRIATE TO MERELY COMPARE THE STATED RATE OF INTEREST OF 12% WITH THE PREVAILING RATES WITHOUT TAKING INTO CONSI DERATION THE SPECIFIC TERMS AND CONDITIONS OF THE ASSESSEES BORROWINGS. THERE FORE, IN-PRINCIPLE, WE ARE AGREEMENT WITH THE ASSESSEE FOR THE PROPOSITION THA T IT WOULD BE APPROPRIATE TO COMPUTE EFFECTIVE RATE OF INTEREST IN RESPECT OF IN TERNATIONAL TRANSACTION OF LOAN ENTERED INTO WITH THE ASSOCIATED ENTERPRISE BEFORE CARRYING OUT THE EXERCISE OF BENCHMARKING SUCH INTERNATIONAL TRANSACTIONS VIS-- VIS THE ARM'S LENGTH ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 PRICE/INTEREST OF THE COMPARABLE UNCONTROLLED TRANS ACTIONS. ON THIS ASPECT, THE LD. DEPARTMENTAL REPRESENTATIVE REITERATED THE STAN D OF THE TPO TO THE EFFECT THAT THE TRANSFER PRICING REGULATION OF INDIA PROVI DE THAT FOR COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL T RANSACTION, DATA RELATING TO THE RELEVANT FINANCIAL YEAR ALONE IS TO BE USED AND THAT THE DATA RELATING TO OTHER PERIODS NOT BEING MORE THAN TWO YEARS PRIOR T O SUCH FINANCIAL YEAR CAN BE CONSIDERED ONLY IF SUCH DATA REVEALED FACTS WHICH H AVE AN INFLUENCE ON DETERMINATION OF THE TRANSFER PRICING IN RELATION T O THE TRANSACTION BEING COMPARED. IN OTHER WORDS, AS PER THE LD. DEPARTMEN TAL REPRESENTATIVE, THE AFORESAID APPROACH OF CONSIDERING THE DATA OF OTHER YEARS WOULD NOT BE APPROPRIATE. IN OUR CONSIDERED OPINION, THE AFORES AID ARGUMENT IS QUITE FALLACIOUS. WHILE COMPUTING THE YEARLY EFFECTIVE R ATE OF INTEREST IN RESPECT OF IMPUGNED LOANS WHAT IS BEING SOUGHT IS THE FACTORIN G OF THE TERMS AND CONDITIONS OF THE LOAN AGREEMENTS. MOREOVER, THE P OINT BEING MADE OUT BY THE TPO IS ON ACCOUNT OF SUB-RULE (4) OF RULE 10B OF TH E INCOME TAX RULES, 1962, WHICH IS OF NO RELEVANCE IN THE PRESENT CONTEXT. T HE AFORESAID SUB-RULE PROVIDES THAT THE DATA TO BE USED IN ANALYZING THE COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRAN SACTION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNA TIONAL TRANSACTION HAS BEEN ENTERED INTO. THE SAID PROVISION HAS NO RELEVANCE IN THE PRESENT CONTEXT, WHEREIN THE ISSUE RELATES TO IDENTIFYING AND DETERM INING THE CORRECT INTERNATIONAL TRANSACTION WHICH IS REQUIRED TO BE B ENCHMARKED UNDER THE TRANSFER PRICING REGULATION. THEREFORE, THE PLEA O F THE REVENUE ON THIS ASPECT IS LIABLE TO BE REJECTED. WE HOLD SO. 22. AT THE TIME OF HEARING, THE LD. REPRESENTATIVE ALSO RELIED UPON THE DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. HITACHI HOME & LIFE SOLUTIONS (INDIA) LTD. VIDE ITA NO.182/AHD/2011 & OTHERS DATED 12.08.2012 WHEREIN THE ROYALTY PAID BY THE AS SESSEE AT 3.75% TO THE ASSOCIATED ENTERPRISE WAS SOUGHT TO BE BENCHMARKED. THE REVENUE ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 DETERMINED THE ARM'S LENGTH RATE OF PAYMENT OF ROYA LTY @ 3%, WHILE ASSESSEE WAS CHARGED 3.75% BY THE ASSOCIATED ENTERPRISE. TH E ASSESSEE HAD PUT UP A DEFENCE ON THE GROUND THAT THE EFFECTIVE RATE OF RO YALTY PAYABLE WAS @ 2.30% ON SALES. IT WAS CONTENDED THAT THE ROYALTY OF 3.7 5% WAS PAYABLE AFTER REDUCING VARIOUS EXPENSES FROM THE SALE VALUE OF TH E PRODUCTS BUT THE EFFECTIVE RATE WORKED OUT TO 2.30%, WHICH WAS COMPA RABLE TO ARM'S LENGTH RATE BEING CONSIDERED BY THE REVENUE. ON THE BASIS OF T HE ASSERTION OF THE ASSESSEE TO THE EFFECT THAT THE EFFECTIVE RATE OF R OYALTY WAS LOWER THAN THE COMPARABLE TRANSACTION, THE ADDITION MADE BY THE TP O WAS DELETED BY THE TRIBUNAL. THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE CONCEPT OF THE EFFECTIVE RATE OF ROYALTY AS AGAINST THE STA TED RATE OF ROYALTY WAS APPROVED BY THE TRIBUNAL FOR THE PURPOSE OF BENCHMA RKING THE INTERNATIONAL TRANSACTION OF THE ASSESSEE. IN THE PRESENT CASE A LSO, IN OUR VIEW THE RATIO OF THE DECISION OF THE AHMEDABAD BENCH OF TRIBUNAL IN THE CASE OF HITACHI HOME & LIFE SOLUTIONS (INDIA) LTD. (SUPRA) APPLIES. THE REFORE, IN CONCLUSION, WITHOUT OPINING ON THE OTHER ARGUMENTS RAISED BY THE ASSESS EE, WE DEEM IT FIT AND PROPER TO DELETE THE ADDITION WITH RESPECT TO THE I NTEREST PAID ON TECHNICAL KNOWHOW AND FOREIGN CURRENCY CASH LOANS ON THE GROU ND THAT THE EFFECTIVE RATE OF INTEREST INCURRED BY THE ASSESSEE IS LOWER THAN THE ARM'S LENGTH RATE OF INTEREST CONSIDERED BY THE TPO. THUS, ON THIS ASPE CT ASSESSEE SUCCEEDS. 23. THE OTHER ISSUE REMAINING IS WITH RESPECT TO AN ADJUSTMENT MADE ON ACCOUNT OF ECB RAISED BY THE ASSESSEE. IN THIS CON TEXT, WE HAVE ALREADY NOTED THE RELEVANT FACTS. ASSESSEE RAISED ECB LOAN OF USD 90,00,000 FOR FINANCING ITS WORKING CAPITAL REQUIREMENTS VIDE AN AGREEMENT DATED 12.09.2003. THE SAID LOAN WAS RAISED BY THE ASSESS EE IN TERMS OF THE THEN PREVAILING RBI NOTIFICATION LIBOR PLUS 3%, AS APPLI CABLE IN SEPTEMBER, 2003. IT HAS BEEN EXPLAINED THAT THE RELEVANT CIRCULAR OF RBI NO.36 DATED 14.11.2003 PRESCRIBED THAT EBCS COULD BE RAISED FOR WORKING CA PITAL REQUIREMENTS AT THE INTEREST RATES SPECIFIED THEREIN. THE LD. REPRESEN TATIVE SUBMITTED THAT THE ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 ASSESSEE HAVING RAISED THE ECB LOAN AT THE PREVAILI NG RBI NOTIFIED RATES, IT COULD NOT BE SAID THAT SUBSEQUENTLY THE SAID RATE O F INTEREST IS NOT AN ARM'S LENGTH PRICE/RATE. THE TPO HAS OBSERVED THAT IN TH E REVISED RATES NOTIFIED BY THE RBI, THE CEILING ON THE INTEREST RATES HAS BEEN LOWERED. THE TPO HAS OBSERVED THAT SUBSEQUENT TO 2003, WHEN THE RATES PR ESCRIBED BY RBI HAVE CHANGED TO THE BENEFIT OF BORROWERS, ASSESSEE OUGHT TO HAVE UNDERTAKEN RESTRUCTURING OF THE LOAN AND RE-NEGOTIATED LOWER R ATE OF INTEREST. THAT SUCH AN ASPECT HAS NOT BEEN UNDERTAKEN BY THE ASSESSEE AND THEREFORE HE HAS APPLIED THE SUBSEQUENT NOTIFIED RATES OF THE RBI FO R ECBS IN ORDER TO DETERMINE THE ARM'S LENGTH PRICE/RATE OF INTEREST O N ECB LOAN. 24. ON THIS ASPECT, THE LD. REPRESENTATIVE SUBMITTE D THAT THE SUBSEQUENT NOTIFICATIONS BY RBI FOR ECBS CONTAINED A RESTRICTI ON WHEREBY ECB COULD NOT BE AVAILED FOR WORKING CAPITAL REQUIREMENTS. IN SO FAR AS THE ASSESSEE IS CONCERNED, IT WAS POINTED OUT THAT ECB LOAN WAS RAI SED FOR WORKING CAPITAL REQUIREMENTS WHICH WAS PERMISSIBLE IN TERMS OF THE THEN PREVAILING RBI GUIDELINES AT THE TIME OF AVAILING OF LOAN IN 2003. THE LD. REPRESENTATIVE POINTED OUT THAT BEFORE THE TPO, ASSESSEE VIDE COMM UNICATION DATED 19.02.2009 FURNISHED AN AGREEMENT FOR FOREIGN CURRE NCY CASH LOAN AVAILED BY THE ASSOCIATED ENTERPRISE FROM M/S J.P. MORGAN CHAS E BANK, WHEREIN THE ASSOCIATED ENTERPRISE HAD PAID INTEREST @ LIBOR PLU S 4% I.E. 7.46% (3.46% + 4%) OR ALTERNATE BASE RATE +3%. IN COMPARISON, ASS ESSEE HAD PAID LOWER INTEREST ON ECB LOAN WHICH WAS LIBOR PLUS 3% I.E. 6 .46% (3.46% + 3%) BY CONSIDERING THE CEILING PRESCRIBED BY THE RBI AT TH E RELEVANT POINT OF TIME. IN THIS CONTEXT, IT IS SOUGHT TO BE SUBMITTED THAT ASS ESSEE PAID INTEREST RATE TO THE ASSOCIATED ENTERPRISE WHICH WAS EVEN LOWER THAN THE COST OF BORROWING OF THE ASSOCIATED ENTERPRISE. IN THIS CONTEXT, A REFERENC E HAS BEEN MADE TO PAGE 257 TO 260 OF THE PAPER BOOK WHEREIN IT WAS POINTED OUT TO THE TPO THAT THE RATE OF INTEREST PAYABLE BY THE ASSOCIATED ENTERPRI SE ON ITS BORROWING TO PROVIDE ECB TO THE ASSESSEE WAS LIBOR PLUS 4% OR AL TERNATE BASIS RATE +3%. ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 BUT KEEPING IN MIND, THE RBI RESTRICTIONS ASSOCIATE D ENTERPRISE CHARGED ONLY LIBOR PLUS 3% FROM THE ASSESSEE COMPANY. LD. REPRE SENTATIVE SUBMITTED THAT THIS INTERNAL BENCHMARK AVAILABLE WITH THE ASS ESSEE HAS BEEN DISREGARDED BY THE TPO. 25. IN OUR CONSIDERED OPINION, THE AFORESAID COMPAR ABLE UNCONTROLLED TRANSACTIONS I.E. THE TRANSACTION BETWEEN THE ASSOC IATED ENTERPRISE AND M/S J.P. MORGAN CHASE BANK PROVIDES A DIRECT BENCHMARK FOR THE PURPOSES OF DETERMINING THE ARM'S LENGTH PRICE OF PAYMENT OF IN TEREST IN RESPECT OF ECB LOANS. WHILE APPLYING CUP METHOD, IN OUR VIEW, IT IS APPROPRIATE THAT THE AMOUNT CHARGED IN AN CONTROLLED TRANSACTION IS EXAM INED WITH THE AMOUNT CHARGED IN AN UNCONTROLLED TRANSACTION. IN THE PRE SENT CASE, THE AFORESAID TRANSACTION BROUGHT OUT BY THE ASSESSEE QUALIFIES T HE SAID TESTS. ON THIS ASPECT, A GAINFUL REFERENCE CAN ALSO BE MADE TO THE DISCUSSION OF THE THIRD MEMBER BENCH OF THE TRIBUNAL IN THE CASE OF TECHNIM OUNT ICB PVT. LTD. VS. ACIT (ITA NO.4608 & 5085/MUM/2010 DATED 17.07.2012) WHEREIN THE CONTEXT OF THE CLAUSE (I) OF RULE 10B(E) OF THE RULES, IT H AS BEEN OPINED THAT THE SAID RULE ITSELF PROVIDES THAT A PREFERENCE SHALL BE GIV EN TO INTERNAL COMPARABLE UNCONTROLLED TRANSACTION VIS--VIS EXTERNAL COMPARA BLE UNCONTROLLED TRANSACTION. THE RELEVANT DISCUSSION IS AS UNDER : - 10. CLAUSE (I) OF RULE 10B(E) STIPULATES THAT NET PROFI T MARGIN FROM AN INTERNATIONAL TRANSACTION WITH AN AE IS COMPUTED IN RELATION TO COST INCURRED OR SALES EFFECTED OR ASSETS EMPLOYED ETC. CLAUSE (I I) IS MATERIAL FOR THE PRESENT PURPOSE. IT PROVIDES THAT THE NET PROFIT MARGIN REA LIZED BY THE ENTERPRISE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROL LED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS COMPUTED HAVING REGA RD TO THE SAME BASE. THE 'BASE' OF THIS PROVISION TAKES ONE BACK TO CLAU SE (I) WHICH REFERS TO COST INCURRED OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED. ON SPLITTING CLAUSE (II) INTO TWO PARTS, IT DIVULGES THAT THE RE FERENCE IS MADE TO INTERNAL AND EXTERNAL COMPARABLES. ONE PART OF CLAUSE (II) REFER S TO 'THE NET PROFIT MARGIN REALIZED BY THE ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION' AND THE OTHER PART TALKS OF 'THE NET P ROFIT MARGIN REALIZED. BY AN UNCONTROLLED ENTERPRISE FROM A COMPARABLE UNCONT ROLLED TRANSACTION'. IT TRANSPIRES THAT WHEREAS THE FIRST PART REFERS TO TH E PROFIT MARGIN FROM INTERNAL COMPARABLE UNCONTROLLED TRANSACTIONS, THE SECOND PA RT REFERS TO PROFIT MARGIN FROM AN EXTERNAL COMPARABLE UNCONTROLLED TRANSACTIO N. THUS, IT IS DISCERNIBLE THAT WHAT IS TO BE COMPARED UNDER THIS METHOD IS PR OFIT FROM A COMPARABLE UNCONTROLLED TRANSACTION. THE WORD 'COMPARABLE' MAY ENCOMPASS INTERNAL COMPARABLE OR EXTERNAL COMPARABL E. THERE IS CUE IN THE ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 RULE ITSELF AS TO PREFERENCE TO BE GIVEN TO INTERNA L COMPARABLE UNCONTROLLED TRANSACTIONS VIS-A-VIS EXTERNALLY COMPARABLE UNCONT ROLLED TRANSACTIONS. IT IS BECAUSE THE DELEGATED LEGISLATURE HAS FIRSTLY REFER RED TO THE NET PROFIT MARGIN REALIZED BY THE ENTERPRISE (INTERNAL) FROM A COMPARABLE UNCONTROLLED TRANSACTION AND, THEREAFTER, IT POINTS TOWARDS NET PROFIT MARGIN REALIZED BY AN UNRELATED ENTERPRISE (EXTERNA L) FROM A COMPARABLE UNCONTROLLED TRANSACTION. THUS WHERE POTENTIAL COMPARABLE IS AVAILABLE IN THE SHAPE OF AN UNCONTROLLED TRANSACTION OF THE SAM E ASSESSES, IT IS LIKELY TO HAVE HIGHER DEGREE OF COMPARABILITY VIS-A-VIS COMPA RABLES IDENTIFIED AMONGST THE UNCONTROLLED TRANSACTIONS OF THIRD PARTIES. THE UNDERLYING OBJECT BEHIND COMPUTING ALP OF AN INTERNATIONAL TRANSACTION IS TO FIND OUT THE PROFITS WHICH SUCH ENTERPRISE WOULD HAVE EARNED IF THE TRANSACTIO N HAD BEEN WITH SOME THIRD PARTY INSTEAD OF RELATED PARTY. WHEN THE DATA IS AV AILABLE SHOWING PROFIT MARGIN OF THAT ENTERPRISE ITSELF FROM A THIRD PARTY , IT IS ALWAYS SAFE AND ADVISABLE TO HAVE RECOURSE TO SUCH INTERNAL COMPARA BLE CASE. THE REASON IS PATENT THAT THE VARIOUS FACTORS HAVING BEARING ON T HE QUALITY OF OUTPUT, ASSETS EMPLOYED, INPUT COST ETC. CONTINUE TO REMAIN BY AND LARGE SAME IN CASE OF AN INTERNAL COMPARABLE. THE EFFECT OF DI FFERENCE DUE TO SUCH INHERENT FACTORS ON COMPARISON MADE WITH THE THIRD PARTIES, GETS NEUTRALIZED WHEN COMPARISON IS MADE WITH INTERNAL C OMPARABLE. EX CONSEQUENTI, IT FOLLOWS THAT AN INTERNAL COMPARABLE UNCONTROLLED TRANSACTION IS MORE NOTEWORTHY VIS-A-VIS ITS COUNTE RPART, I.E., EXTERNAL COMPARABLE. 26. IN VIEW OF THE AFORESAID, IN OUR VIEW, SINCE TH E RATE OF INTEREST PAID BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE IN RESPEC T OF ECB LOAN IS LOWER THAN THE RATE OF INTEREST PAID BY THE ASSOCIATED ENTERPR ISE TO M/S J.P. MORGAN CHASE BANK, THE TRANSACTION OF PAYMENT OF INTEREST ON ECB LOAN RAISED FROM THE ASSOCIATED ENTERPRISE IS AT AN ARM'S LENGTH PRI CE. THEREFORE, THE ADDITION ON ACCOUNT OF INTEREST PAID ON ECB LOAN IS DIRECTED TO BE DELETED. 27. IN THE AFORESAID MANNER, INSOFAR AS THE ADDITIO N OF RS.66,04,445/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF TRANSFER PRI CING ADJUSTMENT RELATING TO THE PAYMENT OF INTEREST ON LOANS RAISED FROM ASSOCI ATED ENTERPRISE IS CONCERNED, THE ASSESSING OFFICER IS DIRECTED TO DEL ETE THE SAME. 28. THE ONLY OTHER GROUND OF THE ASSESSEE FOR ASSES SMENT YEAR 2006-07 IS WITH RESPECT TO THE ACTION OF THE LOWER AUTHORITIES IN DISALLOWING DEPRECIATION AMOUNTING TO RS.7,59,723/- CLAIMED BY THE ASSESSEE ON ASSETS FORMING PART OF BLOCK ASSETS BUT NOT USED DURING THE PERIOD UNDER C ONSIDERATION. ON THIS ASPECT, IT WAS A COMMON POINT BETWEEN THE PARTIES T HAT THE SAID ISSUE HAS BEEN DEALT WITH BY THE TRIBUNAL IN THE ASSESSEES O WN CASE IN EARLIER ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 ASSESSMENT YEARS OF 2002-03 TO 2004-05 VIDE ITA NOS .1879 TO 1881/PN/2012 DATED 15.09.2014. THE CLAIM OF THE ASSESSEE FOR DE PRECIATION WAS ALLOWED BY THE TRIBUNAL. IT WAS ALSO A COMMON GROUND BETWEEN THE PARTIES THAT THE SAID ORDER OF THE TRIBUNAL CONTINUES TO HOLD THE FIELD A ND THEREFORE FOLLOWING THE SAID PRECEDENT THE ASSESSEE HAS TO SUCCEED ON THIS ASPEC T ALSO. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO ALLOW APPROPRIATE RELIEF TO THE ASSESSEE FOLLOWING THE PRECEDENT BY WAY OF THE EARLIER ORDER S OF THE TRIBUNAL IN THE ASSESSEES OWN CASE. 29. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR A SSESSMENT YEAR 2006-07 IS ALLOWED. 30. IN ASSESSMENT YEAR 2005-06 IN THE APPEAL OF THE ASSESSEE VIDE ITA NO.1868/PN/2012, THE FIRST ISSUE IS WITH REGARD TO THE TRANSFER PRICING ADJUSTMENT MADE WITH RESPECT TO THE TRANSACTION OF INTEREST PAID TO THE ASSOCIATED ENTERPRISE ON TECHNICAL KNOWHOW AND FORE IGN CURRENCY CASH LOANS. IT WAS A COMMON POINT BETWEEN THE PARTIES THAT THE FACTS AND CIRCUMSTANCES ON THIS ASPECT ARE PARI-MATERIA TO THOSE CONSIDERED BY US IN THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2006-07 IN THE EARLIER PARAS. THEREFORE, OUR DECISION IN RELATION TO THE AFORESAID ISSUE IN THE APPEAL FOR ASSESSMENT YEAR 2006-07 WOULD APPLY MUTATIS MUTANDIS IN THIS YEAR ALSO. FOLLOWING THE SAME, ASSESSEE SUCCEEDS IN ASSESSMENT YEAR 2005-06 ALSO. 31. IN ASSESSMENT YEAR 2005-06, ANOTHER ISSUE IS WI TH REGARD TO AN ADDITION OF RS.5,48,472/- MADE BY THE ASSESSING OFFICER TOWA RDS THE IMPORT OF CAPITAL GOODS. THE RELEVANT DISCUSSION IN THIS REGARD MADE BY THE CIT(A) IS AS UNDER :- 12.3 IN RESPECT OF THE ADJUSTMENT OF RS.5,48,472/- TO THE PRICE PAID BY THE APPELLANT TOWARDS THE IMPORT OF CAPITAL GOOD S, IT HAS BEEN OBSERVED THAT HAVING A GLOBAL TRANSFER PRICING POLICY DOES NOT ME AN THAT THE MARKUP STATED ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 IN THE POLICY IS AUTOMATICALLY JUSTIFIED. AS STATE D, THE REASONABLENESS OF THE MARKUP HAS TO BE ESTABLISHED. 10% MARKUP OVER AND ABOVE THE COST OF CAPITAL GOODS TO AE CANNOT BE SAID TO BE ON LOWER S IDE UNDER ANY PARAMETER OF COMPARISON. IT IS ALSO OBSERVED THAT THE EVIDEN CES OR CERTIFICATE CERTIFYING THE ACTUAL COST OF INCIDENTAL EXPENSES AS STATED BY THE APPELLANT LIKE HANDLING, WAREHOUSING, INSURANCE, FREIGHT, ETC. WERE NOT PROD UCED BEFORE THE ASSESSING OFFICER NOR BEFORE THE TPO. THEREFORE, THE CONTENT IONS RAISED BY THE TRANSFER PRICING OFFICER AND THE A.O. ARE ACCEPTED. IN VIEW OF THE FACTS, I CONFIRM THE ADJUSTMENT OF RS.5,48,472/- ON ACCOUNT OF EXCESS PR ICE PAID OVER AND ABOVE THE ALP, CONSIDERING 10% AS THE REASONABLE RANGE OF MARKUP TO THE AE. 32. CONSIDERING THE AFORESAID DISCUSSION AND IN THE ABSENCE OF ANY CREDIBLE ARGUMENT RAISED BY THE ASSESSEE IN THE COU RSE OF HEARING, THE AFORESAID DECISION OF THE CIT(A) IS HEREBY AFFIRMED AND ASSESSEE FAILS ON THIS ASPECT. 33. RESULTANTLY, THE APPEAL OF THE ASSESSEE FOR ASS ESSMENT YEAR 2005-06 IS PARTLY ALLOWED. 34. IN ASSESSMENT YEAR 2007-08 IN THE APPEAL OF THE ASSESSEE VIDE ITA NO.1869/PN/2012, THE ONLY ISSUE IS WITH REGARD TO A N ADDITION OF RS.29,48,183/- ON ACCOUNT OF PAYMENT OF INTEREST ON ECB LOAN RAISED FROM GOODYEAR USA. IT WAS A COMMON POINT BETWEEN THE PA RTIES THAT THE FACTS AND CIRCUMSTANCES ON THIS ASPECT ARE PARI-MATERIA TO THOSE CONSIDERED BY US IN THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2006-07 IN THE EARLIER PARAS. THEREFORE, OUR DECISION IN RELATION TO THE AFORESAI D ISSUE IN THE APPEAL FOR ASSESSMENT YEAR 2006-07 WOULD APPLY MUTATIS MUTANDIS IN THIS YEAR ALSO. FOLLOWING THE SAME, ASSESSEE SUCCEEDS IN ASSESSMENT YEAR 2007-08 ALSO. 35. RESULTANTLY, THE APPEAL OF THE ASSESSEE FOR ASS ESSMENT YEAR 2007-08 IS ALLOWED. 36. THE ONLY TWO APPEALS REMAINING ARE THE REVENUE S APPEALS FOR ASSESSMENT YEARS 2005-06 AND 2007-08. IN BOTH THE APPEALS, A COMMON ITA NO.1891/PN/2013 ITA NO.1970/PN/2013 A.Y. 2005-06 ISSUE RAISED IS WITH REGARD TO THE ACTION OF THE CI T(A) IN ALLOWING DEPRECIATION ON MACHINERY NOT USED FOR PRODUCTION OF TWO/THREE W HEELER TYRES DURING THE YEAR UNDER CONSIDERATION. ON THIS ASPECT, IT WAS A COMMON POINT BETWEEN THE PARTIES THAT SIMILAR DISPUTE HAS BEEN CONSIDERED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2002-03 TO 2004-05 VIDE ITA NOS.1879 TO 1881/PN/2012 DATED 15.09.2014. CONSIDE RING THE AFORESAID PRECEDENT WHICH CONTINUES TO HOLD THE FIELD, WE FIN D NO REASONS TO INTERFERE WITH THE DECISION OF THE CIT(A). THE SAME IS HEREB Y AFFIRMED. 37. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. 38. RESULTANTLY, THE APPEALS OF THE ASSESSEE FOR AS SESSMENT YEARS 2006-07 AND 2007-08 ARE ALLOWED THAT FOR ASSESSMENT YEAR 20 05-06 IS PARTLY ALLOWED AND THE APPEALS OF THE REVENUE FOR ASSESSMENT YEARS 2005-06 AND 2007-08 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH NOVEMBER, 2014. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 28 TH NOVEMBER, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A), AURANGABAD; 4) THE CIT, AURANGABAD; 5) THE DRP-I, MUMBAI; 6) THE DR B BENCH, I.T.A.T., PUNE; 7) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE