AI Insights
The case involves appeals by the Revenue against the orders of the CIT(A) which had deleted the transfer pricing adjustments made by the TPO for the assessment years 2014-15 and 2015-16. The adjustments pertained to the corporate guarantee commission and interest rates on loans between the assessee, M/s. A.A. Infraproperties Private Limited, and its holding company, M/s. South City Projects (Kolkata) Ltd. (SCPKL), and its director. The Tribunal examined whether the transactions were at arm's length, considering the corporate guarantee commission and interest rates charged. The Tribunal relied on various precedents and the specific facts of the case, including the roles and risks assumed by each party in the transactions, to conclude that the adjustments made by the TPO were not justified.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 132535 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 month(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
12-07-2023
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
C
Next Hearing Date
01-05-2023
Assessment Year
2015-2016
Appeal Filed On
12-03-2023
Judgement Text
| आयकर अपीलीय अिधकरण Ɋायपीठ, कोलकाता | IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, KOLKATA BEFORE SHRI SANJAY GARG, HON’BLE JUDICIAL MEMBER & DR. MANISH BORAD, HON’BLE ACCOUNTANT MEMBER I.T.A. No. 200/Kol/2023 Assessment Year: 2014-15 & I.T.A. No. 201/Kol/2023 Assessment Year: 2015-16 JCIT(OSD), Circle-1(1), Kolkata Vs M/s. A.A. Infraproperties Private Limited 375, Prince Anwar Shah Road Jadavpur – 700001 [PAN: AAHCA8145L] अपीलाथŎ/ (Appellant) Ů̝ यथŎ/ (Respondent) Assessee by : Shri Akkal Dudhewala, FCA Revenue by : Shri G.H. Sema, CIT D/R सुनवाई की तारीख/Date of Hearing : 02/05/2023 घोषणा की तारीख /Date of Pronouncement: 13/07/2023 आदेश/O R D E R PER DR. MANISH BORAD, ACCOUNTANT MEMBER : The captioned appeals have been preferred by the Revenue against the separate orders of learned Commissioner of Income Tax (Appeals) -22, Kolkata, even dated 21.09.2021, issued against the orders of the Ld. DCIT, Circle-10(1), Kolkata dated 01.02.2018 and 31.01.2019 respectively for AYs 2014-15 & 2015-16. Since the issues involved are common in both these appeals, they were heard together and are being disposed off by way of this common order. 2. The Registry has pointed out that there is a delay of 497 (four hundred ninety seven) days in filing the present appeal before the Tribunal. Petition for condonation of delay is placed on record by assessee explaining the reasons for delay, owing to Pandemic of I.T.A. No. 200/Kol/2023 Assessment Year: 2014-15 & I.T.A. No. 201/Kol/2023 Assessment Year: 2015-16 M/s. A.A. Infraproperties Private Limited 2 Covid-19 during that time. It is noted that the period of delay falls during the time of Pandemic of Covid-19 which has been excluded by the Hon’ble Supreme Court in the case of suo moto Writ Petition (C) No. 3 of 2020 dated 10.01.2022 by which the period from 15.03.2020 to 28.02.2022 has been directed to be excluded for the purpose of limitation. Vide this order a further period of 90 days has been granted for providing the limitation from 01.03.2022. Accordingly, we condone the delay and proceed to admit the appeal for hearing. 3. As the issues involved in both these appeals are identical, they were heard together and are being disposed off by way of this common order. 4. We will first take up the appeal in ITA No. 200/Kol/2023 for AY 2014-15. Ground Nos. 1 to 5 taken by the Revenue are in relation to the Ld. CIT(A)’s action of deleting the upward transfer pricing adjustment of Rs.1,16,473/- in relation to the corporate guarantee (‘CG’) extended by the assessee to its foreign subsidiary, M/s Indocean Developers Pvt. Ltd., Sri Lanka (‘IDPL’). 5. Brief facts of the case are that the appellant is a Special Purpose Vehicle floated by its holding company, M/s South City Projects (Kolkata) Ltd. (‘SCPKL’) for the purposes of undertaking real estate development in Sri Lanka through its step-down subsidiary, IDPL. During the relevant year, M/s IDPL had availed a loan facility from Axis Bank, Hong Kong which was secured against the charge on the immovable assets owned by its associated enterprise (‘AE’), M/s I.T.A. No. 200/Kol/2023 Assessment Year: 2014-15 & I.T.A. No. 201/Kol/2023 Assessment Year: 2015-16 M/s. A.A. Infraproperties Private Limited 3 SCPKL. In connection thereto, SCPKL had issued a Stand-By Letter of Credit (‘SBLC’) in favour of Axis Bank, Hong Kong by pledging its assets. From the copy of the SBLC placed at pages 40-47 of the Paperbook, it is noted that the SBLC was principally issued by SCKPL. The assessee was only a signatory to the said SBLC in the capacity of being the SPV-shareholder of IDPL. The assessee did not assume any risk in as much as none of its assets were pledged towards this SBLC. The facts on record show that SCKPL had charged a corporate guarantee fee @ 1% from IDPL and the appellant out of abundant caution had charged 0.2% towards corporate guarantee fee. It is therefore noted that the CG fee charged by SKCPL and the assessee towards the joint SBLC issued in favour of IDPL was 1.2, and the same was claimed to be at arm’s length. The Ld. TPO however did not agree to the same and benchmarked the arm’s length corporate guarantee fee in the hands of the assessee separately and independent of SCKPL at 1.63% which worked out to Rs.1,33,973/-. Taking note that the appellant had charged 0.2% from the AE, i.e. Rs.17,500/-, the Ld. TPO made a net adjustment of Rs1,16,472/-. Aggrieved by this order of the TPO, the assesse preferred an appeal before the Ld. CIT(A) who deleted the same. Now, the revenue is in appeal before this Tribunal. 6. In the course of hearing, the undersigned had relied on the findings recorded by the Ld. CIT(A) for deleting the addition. Supporting the order of the Ld. CIT(A), it was contended that, for providing the guarantee to IDPL the total guarantee commission of I.T.A. No. 200/Kol/2023 Assessment Year: 2014-15 & I.T.A. No. 201/Kol/2023 Assessment Year: 2015-16 M/s. A.A. Infraproperties Private Limited 4 1.2% (1% by SCKPL & 0.2% by the assessee) had been charged. The facts of record demonstrated that the SBLC was principally issued by SCKPL, necessary risks were assumed by SKCPL and even the assets were pledged by SCKPL. Apart from being a signatory to the SBLC, as the assessee was the subsidiary of SCKPL through which investment was held in IDPL, no risks were assumed nor any of its assets were pledged nor were any functions performed by the assessee. On these facts, therefore, the corporate guarantee commission of 0.2% charged by the assessee out of abundant caution ought not to have been disputed by the Ld. TPO in as much as the assessee had only indulged in shareholder activity by providing the said guarantee. The undersigned had also cited a series of rulings of the co-ordinate benches of the Tribunal including the jurisdictional ITAT Kolkata that 0.5% is a reasonable benchmark for ascertaining the ALP of Corporate Guarantee. As the facts on record showed that the aggregate CG fee charged was 1.2% in relation to the SBLC issued in favour of Axis Bank Hong Kong, which was higher than 0.5%, the Ld. CIT(A) had rightly held the impugned transaction to be at arm’s length and therefore deleted the transfer pricing adjustment. On the other hand, the Ld. DR vehemently argued supporting the action of the Ld. TPO. 7. We have heard rival contentions and perused the material placed before us. We note that the SCPKL had issued an SBLC in favour of IDPL from Axis Bank, Hong Kong, towards the loan of USD 2.5 Million availed by IDPL. This SBLC facility was obtained by I.T.A. No. 200/Kol/2023 Assessment Year: 2014-15 & I.T.A. No. 201/Kol/2023 Assessment Year: 2015-16 M/s. A.A. Infraproperties Private Limited 5 SCKPL and the assessee was only a signatory to the same since it was the principal shareholder of IDPL and had also jointly guaranteed the loan along with SCKPL. From the terms of the SBLC, it is evident that the appellant had not pledged any assets to Axis Bank as a collateral and also the risks in case of default were to be borne by SCKPL whose assets were pledged as collateral. Since SCKPL had obtained this SBLC in favour of IDPL, it had charged a guarantee commission of 1% from IDPL. Although the assessee was not assuming any risks nor had it pledged any assets or collateral, nor was the assessee the principal/borrower in the SBLC, it is however noted to have charged a guarantee commission of 0.2% for being a signatory to this SBLC document. It is therefore noted that SKCPL along with the assessee had charged a total guarantee commission of 1.2% (1% by SCKPL & 0.2% by the assessee) from IDPL towards this SBLC. On these given facts, therefore, the action of the Ld. TPO disregarding the guarantee commission of 1% charged by SCKPL from IDPL, while benchmarking the impugned transaction in question, is found to be fundamentally flawed. 8. We note that the Ld. CIT(A) had rightly taken note of the above facts and circumstances and held that the holding company, i.e. SCKPL, that had actually provided the guarantee along with the assessee, had in aggregate charged 1.2% (1% by SCKPL & 0.2% by the assessee), which exceeded the reasonable rate of commission of 0.5%, I.T.A. No. 200/Kol/2023 Assessment Year: 2014-15 & I.T.A. No. 201/Kol/2023 Assessment Year: 2015-16 M/s. A.A. Infraproperties Private Limited 6 as held in a series of rulings, and thus no upward adjustment was warranted. The relevant findings of the Ld. CIT(A) reads as follows: “Grounds 2, 3 and 4 These pertain to the upward adjustment of guarantee commission through ALP adjustment. The impugned transaction, in summary, is as under: South City Projects (Kolkata) Ltd (SCPKL) has a subsidiary, namely AA Infra Properties Pvt Ltd – the present appellant. The appellant company, in turn, has a subsidiary, namely, Indocean Developers Put Ltd (IDPL). The structure of the impugned transaction vis-a-vis this corporate structure is that the holding company, SCPKL has availed of a facility in the form of a stand-by letter of credit (SBLC), of Rs 275 Crores from Axis Bank, Kolkata. Against this SBLC IDPL (the subsidiary of the appellant and therefore step down subsidiary SCPKL) has availed a loan of USD 2.50 million from Axis Bank, Hong Kong. The undisputed fact is that this facility is secured through securities provided by SCPKL to Axis Bank. The appellant comes into the transaction because the guarantee is also provided by the appellant for the said loan. It is noteworthy, though, that the appellant has pledged any assets to the Axis Bank as a collateral for this loan. The risks in case of default, are to borne by the holding company, SCPKL, whose assets are pledged as collateral. It is also undisputed that during the impugned period, SCPKL has charged a guarantee commission of 1% from IDPL coming to Rs 87,700/-. The appellant has provided a copy of the audited financials, the balance sheet, calculation of guarantee commission and tax computation, as well the ITR acknowledgement for AY 2014-15 in the case of SCPKL, upon being asked to do so u/s 250(4) of I.T.A. No. 200/Kol/2023 Assessment Year: 2014-15 & I.T.A. No. 201/Kol/2023 Assessment Year: 2015-16 M/s. A.A. Infraproperties Private Limited 7 the Act. The guarantee commission, it transpires, has been offered to tax, by SCPKL, under the head other sources as per note 2.21 of the balance sheet of SCPKL. The appellant company, since it was not assuming any risk in the form of pledging of any of its assets, has also charged a smaller guarantee commission for IDPL, @ 0.2%. The purpose of the loan as it is was in the form of a substitute for the equity investment that the appellant company would otherwise have made. This has not been disputed either by the AO/TPO or the appellant. Therefore, for the providing of the guarantee to IDPL, the latter has paid a total guarantee commission of 1.2% (1 % to SCPKL and 0.2% to appellant). This commission admittedly has been paid to IDPL's group companies one its own holding company and the other, the holding company of IDPL's holding company. ... In my considered opinion, the AE is an entity that does not have sufficient financial strength to borrow a loan on its own. The AO/TPO has not disputed - in fact they have agreed with this fact- that no lender would give a loan to the AE without the support of the parent and also the holding company through a guarantee. The reason and intention behind the providing of this guarantee, by the appellant, as well by the holding company, to its admittedly wholly owned subsidiary company - the AE - for the purpose of advancing the business interests of the appellant as well as of the holding company and to protect their business interests, must be taken into consideration before venturing into evaluation of ALP in such contexts. The intention of the appellant here is plainly not to make this a commercial venture and to earn a profit out of the transaction, but to protect and support its own investments and commercial ventures by means of providing support to its own subsidiary. The approach I.T.A. No. 200/Kol/2023 Assessment Year: 2014-15 & I.T.A. No. 201/Kol/2023 Assessment Year: 2015-16 M/s. A.A. Infraproperties Private Limited 8 adopted by AO/TPO to arrive at arm's length rate for guarantee fee is not sustainable without first taking into account the above factors and the structure of the transaction and evaluating the effect of these factors upon the credit ratings and loan taking capacities of the individual player in this transaction. The assumption of a credit rating for the AE and the selection of comparable data leaves a lot to be desired since it does not take into consideration the particular commercial scenario of the instant case and the structure of the transaction. Further, I find that in a series of rulings, in identical circumstances, the corporate guarantee commission has been taken to be 0.5% by various jurisdictional authorities. They are as follows:- Sl.No. Name of the Ruling Synopsis Authority Rate of guarantee fees approved by the authority 1 Nimbus Communication Limited ALP was determined @ 0.5% against TPO's determination of 1.5% [ITA No. 3644/Mum/2010] Mumbai ITAT 0.50% 2 Godrej Household Products limited Mumbai ITAT restricted TP adjustment on guarantee commission to 0.5%, following co-ordinate bench ruling in Nimbus Communications [TS- 229- ITAT-2013(Mum)-TP] [ITA No. 7369/Mum/2010] Mumbai ITAT 0.50% 3 Godrej Sara Lee Ltd Mumbai ITAT referred to the assessee's case in AY 2006-07, wherein ITAT, following the Tribunal ruling in Nimbus Communications Ltd had directed the AO to re-compute TP adjustment by applying the rate of 0.5% for guarantee commission Mumbai ITAT 0.50% I.T.A. No. 200/Kol/2023 Assessment Year: 2014-15 & I.T.A. No. 201/Kol/2023 Assessment Year: 2015-16 M/s. A.A. Infraproperties Private Limited 9 [ITA No. 7227/Mum/2011] 4 Everest Kanto Cylinder Ltd. Mumbai ITAT held that TPO was not correct in determining arm's length guarantee commission @3% based on quotes on the bank's website and considered 0.5% as ALP for guarantee commission. [2015](58 taxmann.com 254) Bombay High Court 0.50% 5 Reliance Industries Limited (dated September 13, 2013) (Mumbai Tribunal) Mumbai ITAT upheld the order of CIT(A) to charge guarantee commission at the rate of 0.38% being the ALP for the guarantee (ITA No. 885/Mum/2009 and ITA No.1725/Mum/2009) Mumbai ITAT 0.38% 6 Manugraph India Ltd Mumbai ITAT directed the AO/TPO to adopt the 0.5% as guarantee commission charges in respect of the guarantee provided by the assessee for obtaining the loan by the AE. (ITA No. 4761/Mum/2013) Mumbai ITAT 0.50% 7 Aditya Birla Minacs Worldwide Ltd ITAT directed The learned TPO to adopt 0.5% as guarantee commission charges in respect of the guarantee provided on behalf of its AEs (ITA No. 4761/Mum/2013) Mumbai ITAT 0.50% 8 Nimbus Communications Ltd ITAT directed AO to restrict the TP adjustment by re-computing the guarantee commission as 0.5% as ALP (ITA No 6816/Mum/2010, ITA No. 7105/Mum/2011 Mumbai ITAT 0.50% 9 Godrej Consumer Products Ltd. ITAT directed the AO to recompute the arm's length price of the corporate guarantee should at Mumbai ITAT 0.50% I.T.A. No. 200/Kol/2023 Assessment Year: 2014-15 & I.T.A. No. 201/Kol/2023 Assessment Year: 2015-16 M/s. A.A. Infraproperties Private Limited 10 0.5 per cent [2016] 69 taxmann.com 436 (Mumbai - Trib.) A perusal of the above table shows that, the average rate of Corporate Guarantee commission, in similar circumstances, that has been accepted by several ITAT rulings is 0.5%. This rate of late, has also been the approach followed by the jurisdictional, Hon'ble Kolkata Tribunal. It is not in dispute that the Appellant in the instant case and the Holding company - that has actually provided all the collateral in terms of its assets - have together already charged a guarantee commission @1.2% from the AE (1% to the holding company that pledged its assets for the purpose Of the guarantee and 0.2% by the appellant). Once this commission, has already exceeded the accepted reasonable rate of commission as per the various rulings cited above, the action of upward adjustment by the AO/TPO does not stand. In view of the above discussions it is clear that the present upward adjustment made on account of Corporate Guarantee commission cannot be sustained and is therefore deleted. These grounds of appeal of the appellant are therefore partly allowed.” 9. We also note that in most of the cases, the co-ordinate benches of this Tribunal have adopted arm’s length corporate guarantee fees between 0.2 % - 0.5%. We may gainfully refer, in this regard, to the following decisions of this Hon’ble Tribunal: i. DCIT v. Berger Paints India Limited (ITA Nos. 917 & 918/Kol/2017) ii. Britannia Industries Limited v. DCIT (ITA No. 745/Kol/2017) [96 taxmann.com 430] iii. DCIT v. Karam Chand Thapar & Bros. Coal Sales Limited (ITA Nos. 320 & 321/Kol/2021) I.T.A. No. 200/Kol/2023 Assessment Year: 2014-15 & I.T.A. No. 201/Kol/2023 Assessment Year: 2015-16 M/s. A.A. Infraproperties Private Limited 11 10. In view of the above, and as rightly observed by the Ld. CIT(A) (supra), in the instant case, that the assessee along with SCKPL had charged 1.2% (1% by SCKPL & 0.2% by the assessee) which was comparable to the above ALP rate of 0.5%, we do not see any reason to interfere in the finding of Ld. CIT(A) deleting the impugned adjustment. Accordingly Ground Nos. 1 to 5 raised by the revenue are dismissed. 11. Ground Nos. 6 to 8 of the appeal relate to the Ld. CIT(A)’s action of deleting the transfer pricing adjustment of Rs.2,83,84,150/- made u/s 40A(2)(b) of the Act in relation to the specified domestic transaction involving loan availed from AE, SKCPL and its director. The facts of the case, as noted, are that the appellant had availed loan from its holding company, M/s SKCPL, and its director, Shri Jaideep Halwasiya, both of which carried interest of 13.5% during the year. The assessee had benchmarked the interest rate against the prevailing SBI PLR of 14.55% and therefore reported the same to be at arm’s length. Ld. Assessing Officer referred the matter to the TPO for computing arm’s length price in the said transactions. Ld. TPO observed that the assessee had paid interest at the rate of 11.5% to another party, M/s Silver Cross Marketing Pvt Ltd, and therefore held the interest paid to the AEs to be excessive and thus made the downward adjustment of Rs.2,83,84,150/- viz., 13.5% - 11.5%. Aggrieved by the same, the assessee preferred an appeal before the Ld. I.T.A. No. 200/Kol/2023 Assessment Year: 2014-15 & I.T.A. No. 201/Kol/2023 Assessment Year: 2015-16 M/s. A.A. Infraproperties Private Limited 12 CIT(A). On appeal the Ld. CIT(A) noted that the AE, SKCPL had sourced the loan advanced to the assessee from SBI. He observed that the interest rate charged by SBI from SKCPL was 12.75% and therefore in terms of the Cost Plus Method, the interest rate of 13.5% charged by SKCPL from the assessee was fair and reasonable. The Ld. CIT(A) further noted that the domestic PLR was the appropriate benchmark rate to ascertain the arm’s length interest rate. In the instant case, since the PLR prevailing in 2013 was 14.55%, the interest rate of 13.5% paid by the assessee to its AEs was held to be at arm’s length. The Ld. CIT(A) further noted that the assessee, in turn, had advanced loans to AE, IDPL at 16% and therefore when this interest rate charged by the assessee was held to be at ALP, then it was inappropriate to hold the interest rate of 13.5% paid to AE on a different footing. As far as the interest of 11.5% paid to M/s Silver Cross Marketing Private Limited was concerned, the Ld. CIT(A) noted that both the quantum of loan involved and also the time periods when this loan was availed were vastly different than the terms of loans availed from AEs and hence the Ld. CIT(A) held that these cannot be said to be comparable transactions. For the aforesaid reasons, the Ld. CIT(A) deleted the transfer pricing adjustment made by the Ld. TPO u/s 40A(2)(b) of the Act. The relevant findings of the Ld. CIT(A) are as under:- “Facts of the case are that during the year, the assessee had entered into a Specified Domestic Transaction i.e. interest payment @ 13.5% to M/s. South City Projects (Kolkata) Ltd ("SCPKL") and 13.5% to Shri Jaideep Halwasiya, being the holding company and director of appellant company respectively, I.T.A. No. 200/Kol/2023 Assessment Year: 2014-15 & I.T.A. No. 201/Kol/2023 Assessment Year: 2015-16 M/s. A.A. Infraproperties Private Limited 13 against loans advanced by these two entities to the appellant. This fell within the meaning of person referred to in Section 40A(2)(b) of the Act. The case was referred to the Transfer Pricing Officer (TPO) u/s 92CA of the Act, for determination of Arm's Length Interest in the aforesaid transactions. The TPO observed that the assessee had paid interest @ 11.5% to another 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 adjustment. The appellant has contested this action of the AO/TPO on several grounds. The appellant has stated that the TPO disregarded the fact that cost of funds to the holding company, which advanced the loan to the appellant, itself was 12.75% and hence it could not have lent funds to the appellant @ 11.5% as contended by the AO/TPO. He has further argued that ALP in a loan transaction may be determined under the Cost Plus Method (CUP) and since the cost of funds to the lender (the holding company) itself was 12.75%, the loan transaction with SCPKL should be accepted as being at arm's length and hence no transfer pricing adjustment was warranted. He has drawn my attention, in this regard, to the sanction letter from SBI, the loan creditor of SCPKL. A perusal of the same shows that interest charged by SBI from SCPKL was base rate plus 2.75%. The base rate in 2013 was 10%. Hence, interest @ 12.75% was paid to SBI during the year by the lender company. Now, since the cost of funds to the holding company itself was 12.75%, it cannot be expected to advance loans at a lower rate of interest. This, the appellant has contended, lends credence to accepting the interest rate of 13.5% as being at arm's length. Moreover, the appellant further points out that interest rate of 12.75% was charged by a third party i.e. a bank from its unrelated borrower i.e. SCPKL. Now since a third party in an independent transaction has charged interest rate of 12.75% from its borrower, so charging of interest by SCPKL from the appellant at 13.50% can safely be adopted as the ALP and benchmarked against the loan transaction between the appellant and its holding company. I find force in the arguments of the appellant that once the lender itself is borrowing at a higher rate of interest, then it does not make prudent business sense to insist that the same lender could or would advance the loan at a lower rate of interest. From the Transfer Pricing point of view also, it makes greater legal sense to benchmark the transaction against completely independent, though comparable, loan transaction between uncontrolled parties - the lender company, SCPKL, and SBI. I.T.A. No. 200/Kol/2023 Assessment Year: 2014-15 & I.T.A. No. 201/Kol/2023 Assessment Year: 2015-16 M/s. A.A. Infraproperties Private Limited 14 It has also been held consistently by judicial authorities, for example, the Hon'ble Courts in the under mentioned cases, that if the loan transactions are denominated in a foreign currency then international rate of interest i.e. LIBOR plus rate may be adopted as an appropriate benchmark: i. The Delhi High Court in case of CIT Vs. Cotton Naturals (l) Pvt. Ltd. [276 CTR 475] ii. Chennai Bench of Tribunal in case of Siva Industries & Holdings Ltd. Vs. ACIT [145 TTJ (Chennai) 497] iii. The Mumbai Tribunal in case of Tata Autocomp System Ltd. Vs. ACIT [149 TTJ 233]. The said decision has been affirmed by the Hon'ble Bombay High Court in case of CIT vs. Tata Autocomp System Ltd. (374 ITR 516). Applying this settled proposition of law, to the instant case, it is noted that loan transaction is denominated in Indian Currency and thus domestic prime lending rate (PLR) may be reasonably used as a benchmark. The appellant drew my attention to the SBI PLR for the year 2013. A perusal of the same shows that interest rates in the given year were around 14.55% (Page 20, PLR) Thus, interest paid @ 13.5% to SCKPCL and to 13.5% to Shri Halwasiya was clearly at arm's length and does not warrant any TP Adjustment. I also find that the appellant, during the year, has charged an interest of 16% p.a. from its wholly owned subsidiary Indocean Developers Pvt. Ltd. This rate has not been disputed by the AO/TPO. It is found that a sum of Rs.24,88,28,562/- has been offered to tax as interest received from its subsidiary in its return (computation enclosed) and has been duly accepted by the AO. Now, if interest received @ 16% from its subsidiary has been accepted as an reasonable ALP, then I cannot understand how, in the same order, the TPO/AO can be permitted to adopt a different Arm's length interest rate for the purposes of interest paid to its holding company. Coming to the interest paid @ 11.5% to M/s. Silver Cross Marketing Pvt. Ltd. (Silver Cross) treated as ALP by the TPO it is pointed out by the appellant that the said loan transaction pertains to a smaller principal of Rs. 9.5 crores (ledger enclosed) and hence the same does not constitute an appropriate benchmark against the loan from SCPKL which involves a huge principal of Rs. 157.85 crores. Moreover, the loan from M/s. Silver Cross was obtained in earlier FYs when the interest rates were lower. Even the loan from SCPKL was obtained @ 9.5% in earlier FY i.e. as per agreement dated June, 2011. However, because of the rise in interest rates the interest rate was scaled up to 13.5% w.e.f. from April 2013. I.T.A. No. 200/Kol/2023 Assessment Year: 2014-15 & I.T.A. No. 201/Kol/2023 Assessment Year: 2015-16 M/s. A.A. Infraproperties Private Limited 15 Similarly, I find that the loan from Shri Jaideep Halwasiya was initially @ 10.5% which was later modified to 13.5% in FY 2013-14. The records clearly indicate that the ALP of 11.5% pertains to a different time period when the interest rates were lower. Hence, the same cannot be taken as an appropriate benchmark. Further, it is an accepted fact that more often than not, interest rates are pegged, directly or indirectly, to the credit worthiness of the borrower. A perusal Of the Audited Accounts of SCPKL shows that it has a net worth of 261 crores (approximately). The assessee on the other hand has a net worth of Rs. 38.49 crores only. Thus, if SCPKL with higher credit worthiness could obtain a loan @ 12.75% only, it is difficult to concur with the view of the AO/TPO that appellant could obtain a loan at a lower interest rate. Finally, but not the least, the appellant has submitted copies of the order Of the Hon'ble Kolkata Tribunal, C-Bench, in his own case, for AY 2013-14 upon the same set of facts and circumstances, in which the Hon'ble Tribunal, concurring with the order of my predecessor in office - who had also allowed this ground - had allowed the appellant's appeal and struck down the action of the AO/TPO. Relying respectfully upon the orders of my Ld predecessor, the Hon'ble Tribunal, Kolkata in the appellant's own case, as also upon the above cited authorities, and noting that the facts for this AY are the same; and as per the discussions above; I cannot concur with the action of the AO/TPO and the same is deleted. 12. Aggrieved by this order, the Revenue is now in appeal before this Tribunal. 13. The ld. D/R vehemently argued supporting the orders of the lower authorities. The ld. Counsel for the assessee, on the other hand, relied heavily on the decision of the Tribunal in the assessee’s own case in ITA No. 55/Kol/2018, dt. 04/10/2019. 14. We note that an identical issue was involved in the assessee’s own case for the immediately preceding AY 2013-14 in ITA No.55/Kol/2018 dated 04.10.2019. In the earlier year also, a similar I.T.A. No. 200/Kol/2023 Assessment Year: 2014-15 & I.T.A. No. 201/Kol/2023 Assessment Year: 2015-16 M/s. A.A. Infraproperties Private Limited 16 transfer pricing adjustment was made by the Ld. TPO by benchmarking the interest rate paid to AEs against the interest rate paid to M/s Silver Cross Marketing Private Limited. This Tribunal however noted that the AE, SKCPL had borrowed funds from SBI which was in turn advanced to the assessee. Upholding the application of the cost plus method, this Tribunal held that when the interest rate charged by SBI from SKCPL was 12.05%, the interest of 12.5% charged by the latter from the assessee was at arm’s length. In the said order, this Tribunal found the benchmarking exercise undertaken by the Ld. TPO to be untenable by observing as under:- “10. Coming to the comparable, i.e M/s Silver Cross Marketing Pvt. Ltd, the assessee availed loan from Silver Cross Marketing Pvt. Ltd. in earlier years and the rate of interest @ 9.5% was fixed in the year itself. we find the loan was Rs.9.5 crores which according to assessee is small as compared to loan in the present appeal is of Rs.115 crores, interest rate was not revised and continued to remain the same as per the terms of agreement. We find force in the arguments of Ld.AR, the loan from M/s SCPKL was linked to a floating rate loan taken by M/s SCKPL, is subjected to change based on the rate charged by the bank. Therefore, in our opinion, the comparable i.e., M/s Silver Cross Marketing Pvt. Ltd, cannot be considered as a comparable for determination of arm's length price in the present case.” 15. Following the above findings, the Ld. CIT(A) had rightly found that Ld. TPO was incorrect on facts and in law in benchmarking the interest paid by the assessee to AEs with the interest paid to M/s Silver Cross Marketing Private Limited. Coming back to the determination of ALP, the assessee has placed on record the Prime Lending Rate (‘PLR’) of 14.55% as notified by the State Bank of India for the year 2013 at Pages 31 to 32 of the Paper book. Accordingly, I.T.A. No. 200/Kol/2023 Assessment Year: 2014-15 & I.T.A. No. 201/Kol/2023 Assessment Year: 2015-16 M/s. A.A. Infraproperties Private Limited 17 when the prime lending rate itself had increased over the years and stood at 14.55% for the relevant period, the comparable rate of interest could not be considered at erstwhile rates in a dynamic interest rate environment. Hence, the interest rate of 13.5% paid by the assessee to its AEs being comparable to the prevailing PLR cannot be said to be excessive. For this view, we find support from the decision of the Hon’ble Delhi High Court in the case of CIT vs Cotton Naturals (I) Pvt. Ltd. [276 CTR 475]. Also, the facts on record show that the AE, SKCPL had itself paid interest at the rate of 12.75% to SBI during the relevant year and therefore the interest rate of 13.5% i.e. 12.75% plus mark-up (as amended with effect 01.04.2013) charged from the AEs was fair & reasonable. The ld. D/R, could not controvert this factual matrix. In view of the above discussion, we find no reason to interfere with the findings of the ld. CIT(A) and, uphold the same. Ground Nos. 6 to 8, raised by the revenue are dismissed. 16. Now we take up the appeal in ITA No. 201/Kol/2023 for AY 2015-16. The grounds taken in this appeal relates to the transfer pricing adjustment made in respect of the corporate guarantee commission charged from AE, IDPL in relation to the SBLC issued by the holding company, SKCPL in which the assessee is also a party/signatory. The facts and circumstances involved are mutatis mutandis to the preceding AY 2014-15. In view of the submissions made in the earlier AY 2014- 15, and having regard to the fact that the assessee along with SCKPL had charged 1.2% (1% by SCKPL & 0.2% by the assessee) which was I.T.A. No. 200/Kol/2023 Assessment Year: 2014-15 & I.T.A. No. 201/Kol/2023 Assessment Year: 2015-16 M/s. A.A. Infraproperties Private Limited 18 comparable to the ALP rate of 0.5%, we find that the order of the Ld. CIT(A) deleting the TP adjustment deserves to be upheld. Accordingly, we uphold the finding of the ld. CIT(A), and dismiss the effective grounds raised in this appeal for Assessment Year 2015-16. 17. In the result, both the appeals of the revenue are dismissed. Order pronounced in the Court on 13 th July, 2023 at Kolkata. Sd/- Sd/- (SANJAY GARG) (DR. MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER Kolkata, Dated 13/07/2023 *SC SrPs आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent 3. संबंिधत आयकर आयुƅ / Concerned Pr. CIT 4. आयकर आयुƅ)अपील (/ The CIT(A)- 5. िवभागीय Ůितिनिध ,आयकर अपीलीय अिधकरण, कोलकाता/DR,ITAT, Kolkata, 6. गाडŊ फाई/ Guard file. आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Kolkata
Other Referred Cases
CIT vs. Cotton Naturals (I) Pvt. Ltd., Siva Industries & Holdings Ltd. vs. ACIT, Tata Autocomp System Ltd. vs. ACIT, CIT vs. Tata Autocomp System Ltd.
Laws Referred To
Income Tax Act
360 Brand Audit (30 mins)
₹299
1:1 Consultation on Startup Fundraising
₹5000
1:1 Consultation on Salary Structuring
₹1
Startup Valuation Certificate
₹0
Startup Dissolution Resolution
₹0
Finance Bill, 2026: Key GST Reforms that will Reshape Compliance and Cash Flows
Team Counselvise - February 03, 2026
When Global Talent Meets GST: The Huawei Secondment Ruling explained
Team Counselvise - March 09, 2026
Transfer Pricing and International Tax Reforms under Finance Bill, 2026: A Practical Overview
Team Counselvise - February 07, 2026