Salcomp Manufacturing India Private Limited, Sriperambudur V. ACIT, CHENNAI

ITA 2201/CHNY/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8730 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 28-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 04-12-2012
• Court: TRIBUNAL
• Department Lawyers: K PARASHIVAIAHCIT
• Keywords: Capital asset; Transfer pricing; Opportunity of being heard; International transaction; Rule of consistency

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , ! ' , # $% & [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ] ./ I.T.A.NO.2201/MDS./2012 / ASSESSMENT YEAR :2008-09 M/S.SALCOMP MANUFACTURING INDIA PVT LTD., NOKIA TELECOM SEZ, 3 RD PHASE, SIPCOT INDUSTRIAL ESTATE, SRIPERUMBUDUR, TAMIL NADU 602 105 VS. ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(I), CHENNAI. [PAN AAJCS 7988 P ] ( '( / APPELLANT) ( )*'( /RESPONDENT) / APPELLANT BY : MR.RAGHUNATHAN SAMPATH, /RESPONDENT BY : MR.K.PARASHIVAIAH,CIT DR / DATE OF HEARING : 28 - 06 - 201 6 / DATE OF PRONOUNCEMENT : 31 - 08 - 2016 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE ASST. COMMISSIONER OF INCOME TAX, CORPORATE CI RCLE VI(1),CHENNAI DATED 24.09.2012 PASSED U/S.143(3) R.W.S. 92CA(3) OF THE ACT, WHICH IS EMANATED FROM DIRECTION OF THE DISPUTE RESOLUTIO N PANEL (DRP), CHENNAI PASSED U/S.143(3) R.W.S. 92CA(3) R.W.S 144C (5) R.W.S ITA NO.2201/MDS./2012 :- 2 -: 144C(8) OF THE ACT DATED 31.08.2012 OF THE ACT PER TAINING TO ASSESSMENT YEAR 2008-09. 2. THE FIRST GROUND IN THIS APPEAL FOR OUR CONSIDE RATION IS THAT THE AO HAD ERRED IN DETERMINING AN ERRONEOUS ARMS LENGTH PRICE (ALP) OF THE IMPORTS MADE BY THE ASSESSEE. 3. THE FACTS OF THE ISSUE ARE THAT SALCOMP INDIA P URCHASES CRITICAL RAW MATERIALS FROM SALCOMP PLC., FINLAND. SALCOMP PLC., IS RESPONSIBLE FOR INTERNAL AND EXTERNAL SOURCING OF C OMPONENTS USED BY ITS GROUP COMPANIES IN MANUFACTURING OF CHARGERS. S ALCOMP PLC., ALSO PROVIDES EXTENDED CREDIT PERIOD OF 180 DAYS TO 270 DAYS TO THE ASSESSEE, WHILE THE CREDIT PERIOD RECEIVED BY SALCO MP PLC., FROM ITS THIRD PARTY VENDORS WAS 30 TO 60 DAYS. SALCOMP PLC ., IS A SOURCING AGENT FOR ALL THE GROUP ENTITIES AND PROCURES THESE COMPONENTS FROM UNRELATED SUPPLIERS, AND APPLIES A MARK-UP OF 5% ON THE THIRD PARTY PURCHASE PRICE FOR ITS SUPPLY CHAIN MANAGEMENT SERV ICES. FOR THE PURPOSE OF SUBSTANTIATING THE ARMS LENGTH NATURE O F INTERNATIONAL TRANSACTION, THE ASSESSEE MADE ADJUSTMENT FOR THE A CTUAL CREDIT PERIOD AVAILED BY THE ASSESSEE AND DEMONSTRATED THE ALP US ING COMPARABLE UNCONTROLLED PRICE (CUP) METHOD. THE TPO VIDE HER O RDER DATED 27.10.2011 EXAMINED THE TP DOCUMENTATION AND PROPOS ED DOWNWARD ADJUSTMENTS ON ACCOUNT OF EXCESS PAYMENT ON PURCHAS ES ( ` 32,88,820/-), EXCESS INTEREST PAID ON ECB CASH-I( ` 23,15,746/-) AND ITA NO.2201/MDS./2012 :- 3 -: EXCESS INTEREST PAID ON ECB CASH II( ` 49,58,113). THE AO IN HIS DRAFT ASSESSMENT ORDER DATED 29.11.2011 MADE THE CORRESPO NDING ADDITIONS BASED ON THE TP ORDER. 3.1 FOR BENCHMARKING THE TRANSACTIONS, THE ASSESSE E HAD ADOPTED CUP METHOD. THE TPO OBSERVED THAT AE PROCUR ES MATERIAL FROM THIRD PARTIES AND SUPPLIES THE SAME TO THE ASS ESSEE WHEREAS THE CREDIT PERIOD AVAILABLE TO AE FROM ITS SUPPLIERS IS 30 DAYS, IT ALLOWS THE ASSESSEE TO PAY IN 180 DAYS. THEREFORE, THE ASSESSE E ENJOYED THE BENEFIT OF ADDITIONAL CREDIT PERIOD AND HENCE, THE PRICE CHARGED BY ITS AE WOULD INCLUDE A MARKUP FOR THIS ADDITIONAL BENEF IT. THE TPO FOUND THAT THERE WAS A DIFFERENCE TO THE EXTENT OF US$ 3, 32,964 IN THE PRICE CHARGED BY THE AE BEING HIGHER THAN THE PRICE CHARG ED BY THE THIRD PARTY. WHEN CONFRONTED, THE ASSESSEE CLAIMED THAT T HE AE PROVIDED IT WITH AN EXTENDED CREDIT PERIOD OF 180 DAYS TO 270 D AYS WHICH WAS FACTORED INTO THE PRICE CHARGED BY THE AE. HOWEVER, THE TPO FOUND THAT THE INVOICES RAISED BY THE AE MENTION THAT INT EREST ON OVERDUE PAYMENT IS 11% WHICH MEANS THAT THE PRICE STATED IN THE INVOICE CAN BE HELD TO HAVE BEEN LOADED WITH INTEREST UP TO THE DUE DATE ONLY AND NOT UP TO THE DATE OF PAYMENT. ANY INTEREST PAID ON THE DELAYED PAYMENT IS OVER AND ABOVE THE INVOICE PRICE. BASED ON THIS REASONING, THE TPO COMPUTED THE ADJUSTED CUP PRICE BY LOADING THE CUP PRICE WITH INTEREST ATTRIBUTABLE TO CREDIT PERIOD OF 120 DAYS AT 11% RATE OF ITA NO.2201/MDS./2012 :- 4 -: INTEREST AS MENTIONED IN THE INVOICE AND WORKED OUT THE ALP VALUE OF PURCHASES OF RAW MATERIAL AT US$ 61,75,658.70 AS AG AINST THE ACTUAL PURCHASE PRICE PAID BY THE ASSESSEE TO ITS AE OF US $ 62,52,633.29. THUS, TPO ARRIVED AT THE EXCESS PURCHASE PRICE PAID TO THE AE AT US$ 81,974/- WHICH AMOUNTED TO 32,88,820/- AT THE AVERA GE EXCHANGE RATE OF 40.12 PER USD. FURTHER, AS PER THE TP DOCUMENTAT ION, THE ASSESSEE PAID TO ITS AE AN AMOUNT OF 3,08,57,511/- TOWARDS I NTEREST ON 5 MILLIONS USD (ECB-1), 2 MILLION EUROS (ECB-II) AND 2.55 MILLION EURO (ECB-III) FROM ITS AE. IT WAS STATED THE RATE OF IN TEREST IS LEBORE IS 2% PER ANNUM. IT WAS FOUND FROM THE DETAILED WORKING T HAT THE EFFECTIVE RATE OF INTEREST ON THE LOANS WORKED OUT TO 6.43%, 6.63% AND 6.72% PER ANNUM RESPECTIVELY. 3.2 THE LD. TPO RESTRICTED THE ADJUSTMENT CLAIMED BY THE ASSESSEE TO THE EXTENT OF CREDIT PERIOD AS MENTIONE D IN THE INVOICE AS AGAINST THE ACTUAL CREDIT PERIOD CLAIMED BY THE ASS ESSEE AND MADE CONSEQUENT ADJUSTMENT TO PRICING OF RAW MATERIAL. H ENCE, TPO MADE A DOWNWARD ADJUSTMENT TO THE PRICE OF RAW MATERIAL TO THE EXTENT OF ` 32,88,820/-. THE DRP ENDORSED THE VIEW TAKEN BY TH E LD. TPO. 3.3 IN THE ASSESSMENT ORDER, LD. ASSESSING OFFICER OBSERVED THAT THE ASSESSEES CLAIM OF 5% VARIATION IS REJECTED S INCE THE BENEFIT IS AVAILABLE ONLY IN CASES WHERE MORE THAN ONE ALP IS DETERMINED AND THE MEAN OF THEM IS CONSIDERED FOR COMPARISON. IN A SSESSEES CASE, ITA NO.2201/MDS./2012 :- 5 -: ONLY ONE PRICE IS TAKEN AS ALP FOR COMPARISON. SINC E THE ALP VALUE OF PURCHASE IS LESS THAN THE ACTUAL PURCHASE, AN ADJUS TMENT TO THE INTERNATIONAL TRANSACTION IS WARRANTED. THE SUMMARY OF ACTUAL PURCHASE PRICE PAID BY THE ASSESSEE AND THE ALP VAL UE OF PURCHASE IS AS FOLLOWS:- US$ ACTUAL PURCHASE PAID BY ASSESSEE TO ITS AE 6,257, 633.29 ALP VALUE OF PURCHASES 6,175,658.70 EXCESS PAID TO AE BY ASSESSEE 85,974.59 AVERAGE ANNUAL EXCHANGE RATE = RS.40.12 /USD EXCESS PAYMENT MADE BY ASSESSEE IN INR=81,974.50X 4 0.12 = ` 32,88,820.55. HENCE, A DOWNWARD ADJUSTMENT TO THE EXPENDITURE OF THE ASSESSEE TO THE TUNE OF ` 32,88,820.55.WAS MADE U/S.92CA(3) OF THE ACT BY THE AO. AGGRIEVED WITH THE ORDER OF THE AO, THE ASSES SEE IS IN APPEAL BEFORE US. 4. LD.A.R SUBMITTED BEFORE US THAT THE AO HAD NOT MADE ANY ADJUSTMENT ON SIMILAR PURCHASES FROM THE SAME AE IN NEXT ASSESSMENT YEAR 2009-10 VIDE ASSESSMENT ORDER DATED 27.12.2012 WHEREIN THE AO OBSERVED THAT THE ASSESSEE HAS ADOPTED INTERNAL CUP FOR THE IMPORT OF RAW MATERIALS. THE LD.A.R MADE SUBMISSIONS JUSTIFYI NG THE MARK-UP 5% VARIATION ON COST OF IMPORT OF CAPITAL ASSET AN D SUBMITTED THAT DUE CONSIDERATION OF THE FACTS PRESENTED AND THE EX AMINATION OF FINANCIALS SUBMITTED BY THE ASSESSEE, THE VALUE OF INTERNATIONAL ITA NO.2201/MDS./2012 :- 6 -: TRANSACTIONS ARE FOUND TO BE AT ARMS LENGTH AND TH EREFORE, NO ADJUSTMENT IS CALLED FOR. ACCORDING TO HIM, THE AO CANNOT FOLLOW DIFFERENT STANDARDS FOR DIFFERENT ASSESSMENT YEARS. WITHOUT PREJUDICE TO THE ABOVE, HE SUBMITTED THAT THE ASSESSEE IS IN FIRST YEAR OPERATION AND THE ASSESSEE ENJOYED THE CREDIT PERIOD 120 DAYS TO 240 DAYS, WHICH IS TO BE CONSIDERED FOR PRICE CHARGED BY AE A ND THE TREATMENT OF PAYMENT MENTIONED IN THE INVOICE AT 180 DAYS CANNOT BE CONSIDERED AND ACTUAL PERIOD OF CREDIT TO BE CONSIDERED. 5. ON THE OTHER HAND, LD.D.R RELIED ON THE ORDER O F LOWER AUTHORITIES. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IT IS NOT DISPUTED THAT THE ASSESSEE IS ENJ OYING LARGER CREDIT THAN PRINTED IN THE INVOICE; IT RANGES 120 DAYS TO 240 DAYS. IN VIEW OF THIS, THE PRICE CHARGED BY AE TO THE ASSESSEE MORE THAN PRICE CHARGED TO THIRD PARTIES. HENCE, IT IS APPROPRIATE TO BE C ONSIDERED THE EXTRA CREDIT PERIOD ENJOYED BY THE ASSESSEE SO AS TO DETE RMINE THE ALP. FURTHER, IT IS ALSO ON RECORD THAT FOR ASSESSMENT Y EAR 2009-10, THE TPO/AO HAD NOT MADE ANY ADJUSTMENT TOWARDS THIS ISS UE AS THERE SHOULD BE CONSISTENCY IN PROCEEDINGS. HENCE, IN OU R OPINION, THE ARGUMENT OF LD.A.R TO BE UPHELD. ACCORDINGLY, WE AL LOW THE GROUND TAKEN BY THE ASSESSEE. ITA NO.2201/MDS./2012 :- 7 -: 7. THE NEXT GROUND IS WITH REGARD TO THE TPO/AO ER RED IN DETERMINING AN INAPPROPRIATE ALP INTEREST RATE ON T HE ASSESSEES EXTERNAL COMMERCIAL BORROWING AND BY NOT PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 8. THE FACTS OF THE ISSUE RELATING TO THE DETERMINING AN INAPPROPRIATE ALP INTEREST RATE ON THE ASSESSECS EXTERNAL COMMER CIAL BORROWING, ARE THAT THE TPO HAS NOT GIVEN AN OPPORTUNITY OF BEING HEARD AND THAT HE HAS RELIED ON AN INAPPROPRIATE SOURCE TO ERRONEOUSLY BENCHMARK THE ECBS AVAILED FROM THE AE AND THAT THE TPO HAS COMPUTED THE ADJUSTMENT BY USING AN INCORRECT TIME-PERIOD AND THAT THE TPO HAS ADOPTED AN INAPPRO PRIATE METHODOLOGY IN ERRONEOUSLY COMPUTING ARMS LENGTH INTEREST RATE WI THOUT CONSIDERING CRITICAL FACTORS WHICH ARE AN ESSENTIAL PRE-REQUISITE IN DET ERMINING, THE INTEREST RATE FOR A LOAN. IT IS FOUND FROM THE RECORD THAT THE TP O HAD ISSUED A NOTICE U/S 92(CA)(2) TO THE ASSESSEE ON 28-12-2010 TO FURNISH THE DETAILS CALLED FOR IN ENCLOSED QUESTIONNAIRE IN RESPONSE TO WHICH THE AUT HORIZED REPRESENTATIVES OF THE ASSESSEE HAVE ATTENDED BEFORE HIM AND FURNI SHED THE DETAILS CALLED FOR. THEREFORE, THE DRP OBSERVED THAT OPPORTUNITY W HICH WAS REQUIRED TO BE GIVEN STATUTORILY WAS GIVEN TO THE ASSESSEE BY THE TPO. FURTHER, AFTER RECEIVING THE T.P.O ORDER, THE AO HAS GIVEN THE ASS ESSEE AN OPPORTUNITY OF BEING HEAD BY DISCUSSING THE CONTENTS OF THE TPO OR DER WITH ASSESSEES AUTHORISED REPRESENTATIVES. THEREFORE, DRP HELD THA T THERE WAS NO MERIT IN THE ASSESSEE A OBJECTION THAT NO OPPORTUNITY OF BEI NG HEARD WAS GIVEN THOUGH THE ASSESSEE STATES THAT THE TPO HAS RELIED ON AN INAPPROPRIATE ITA NO.2201/MDS./2012 :- 8 -: SOURCE TO ERRONEOUSLY BENCH MARK THE ECB, IN ITS SU BMISSIONS, THE ASSCSSEE ALSO RELIED ON INDIAS EXTERNAL DEBT A STATUS RE PORT FY 2010-11 ISSUED BY THE MINISTRY OF FINANCE. IT HAS NOT STATED AS TO WHAT WAS WRONG WITH THE USAGE OF DATA CONTAINED IN THE STATUS REPORT ON IND IAS EXTERNAL DEBT. 2008 ISSUED BY THE MINISTRY OF FINANCE. THOUGH THE ASSES SEE HAS GENERALLY MENTIONED, THE VARIOUS DIFFICULT FACTORS WHICH DETE RMINE THE INTEREST RATE LIKE CREDIT RATING, DURATION, COLLATERAL, FIXED VS FLOAT ING RATE, AND BENCHMARK PRIME LENDING RATE, IT HAS NOT SUBSTANTIATED WHICH CRITIC AL FACTOR HAS AFFECTED THE INTEREST RATE IN WHAT WAY. THEREFORE, DRP HELD THAT THERE IS NO SUBSTANCE OR MERIT IN THIS OBJECTION. ACCORDINGLY THE AO MADE A DJUSTMENTS AS FOLLOWS:- ECB-I 23,15,746 ECB-III 49,58,113 AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE CONTENTION OF THE ASSESSEE IS THAT IMPU GNED TRANSACTION OF THE ASSESSEE WITH ITS AE IS AT ARMS LENGTH. IN VIEW O F THE FACT THAT THE INTEREST PAID BY THE ASSESSEE IS IN ACCORDANCE WITH LIBOR, W HICH IS ACCEPTED AND BENCH MARKING FOR SUCH TRANSACTION, FOR WHICH HE H AS PLACED RELIANCE ON THE VARIOUS JUDGEMENTS. ACCORDING TO HIM, THE IMPLICIT INTEREST RATE ON INDIAS EXTERNAL DEBT FOLLOWED BY THE AO IS AN UNADJUSTED I NDUSTRIAL AVERAGE, WHICH CANNOT BE CONSIDERED IN VIEW OF THE OECD GUIDELINES , WHICH WAS CONSIDERED BY THE SPECIAL BENCH OF BANGALORE BENCH OF THE TRIB UNAL IN THE CASE OF AZTEC SOFTWARE & TECHNOLOGY SERVICES LTD. VS. ACIT 107 ITD 141(BANG.) WHEREIN THE TRIBUNAL HAS HELD AS UNDER:- ITA NO.2201/MDS./2012 :- 9 -: 163. THE REVENUE HAS JUSTIFIED CONSIDERATION OF IN DUSTRIAL AVERAGE AS COMPARABLE UNCONTROLLED TRANSACTION. BEFORE THE TRANSFER PRICING OFFICER AS ALSO IN PROCEEDINGS BEFORE THE COMMISSIO NER OF INCOME- TAX (APPEALS), THE TAXPAYER HAD OBJECTED TO ADOPTIO N OF AVERAGE AND OBJECTION IS NOTED IN PARA 7.13.1(PAGE 42) OF T HE COMMISSIONER OF INCOME-TAX (APPEALS)S ORDER AS UNDER: AS PER OECD GUIDELINES UNADJUSTED INDUSTRY AVERAGE S CANNOT BE TAKEN TO REPRESENT ARMS LENGTH CONDITIONS . 164. TRANSFER PRICING OFFICER COULD NOT MEET ABOVE OBJECTION AND GAVE ROUND ABOUT ANSWER. BUT OBJECTION RAISED ON BE HALF OF THE ASSESSEE, IN OUR VIEW, IS VALID AND JUSTIFIED AND I S REQUIRED TO BE UPHELD. IN COMMENTARIES ON INTERNATIONAL TRANSFER P RICING 2006 PUBLISHED BY PRICE WATER HOUSE COOPERS IN CHAPTER THE WORK OF THE OECD AND OTHER TECHNICAL CONSIDERATIONS, IT HA S BEEN OBSERVED AS UNDER: GUIDANCE FOR APPLYING THE ARMS LENGTH PRINCIPLE THE ARMS LENGTH PRINCIPLE IS USUALLY APPLIED BY CO MPARING THE CONDITIONS (E.G. PRICE OR MARGIN) OF A CONTROLLED TRANSACTION WITH THOSE OF INDEPENDENT TRANSACTIONS. THE GUIDELINES A LLOW THE USE OF INEXACT COMPARABLES THAT ARE SIMILAR TO THE CONTR OLLED TRANSACTION BUT NOT THE USE OF UNADJUSTED INDUSTRY AVERAGE RET URNS. THE FACTORS THAT SHOULD BE CONSIDERED WHEN ASSESSING TH E COMPARABILITY OF A TRANSACTION, INCLUDE: - THE SPECIFIC CHARACTERISTICS OF THE PROPERTY OR S ERVICES; - THE FUNCTIONS THAT EACH ENTERPRISE PERFORMS, INCL UDING THE ASSETS USED AND, MOST IMPORTANTLY, THE RISKS UNDERT AKEN; - THE CONTRACTUAL TERMS; - THE ECONOMIC CIRCUMSTANCES OF DIFFERENT MARKETS, FOR EXAMPLE, DIFFERENT COUNTRIES, WHOLESALE VERSUS RETA IL; AND ITA NO.2201/MDS./2012 :- 10 - : - BUSINESS STRATEGIES, FOR EXAMPLE, MARKET PENETRAT ION SCHEMES WHEN A PRICE IS TEMPORARILY LOWERED. 9.1 IN OUR OPINION, THERE IS A FORCE IN THE ARGUM ENT OF THE ID. AR. THE ASSESSING OFFICER CANNOT APPLY THE IMPLICIT INTEREST RATE ON INDIAS EXTERNAL DEBT, WHICH IS UNADJUSTED INDUSTRI AL AVERAGE. AS HELD BY THE SPECIAL BENCH OF THE BANGALORE BENCH IN THE CASE OF AZTEC SOFTWARE & TECHNOLOGY SERVICES LTD. V. ACIT (SUPRA) , WE ARE OF THE OPINION THAT THE UNADJUSTED INTEREST RATE IN RESPEC T OF INDIAS EXTERNAL DEBT CANNOT BE APPLIED IN ASSESSEES CASE. BEFORE U S, THE ID. AR HAS RAISED A PLEA THAT EURIBOR RATE AS TO BE APPLIED IN VIEW OF THE ORDER OF THE TRIBUNAL IN THE CASE OF TATA AUTOCOMP SYSTEMS L TD. V. ACIT IN I.T.A. NO. 7354/MUM/IL FOR THE ASSESSMENT YEAR 2007 -08 VIDE ORDER DATED 30.04.2012, WHEREIN, HAS HELD AS UNDER: 19. IN THE PRESENT CASE THE AE IS A GERMAN COMPANY . EUROBIOR RATES ARE BASED ON THE AVERAGE INTEREST RATES AT WH ICH A PANEL OF MORE THAN 50 EUROPEAN BANKS BORROW FUNDS FROM ONE A NOTHER. THERE ARE DIFFERENT MATURITIES, RANGING FROM ONE WE EK TO ONE YEAR. THESE RATES ARE CONSIDERED TO BE THE MOST IMPORTANT RATE IN THE EUROPEAN MONEY MARKET. THE INTEREST RATES DO PROVID E THE BASIS FOR THE PRICE AND INTEREST RATES OF ALL KINDS OF FI NANCIAL PRODUCTS LIKE INTEREST RATE SWAPS, INTEREST RATE FUTURES, SAVING ACCOUNT AND MORTGAGES. WE FIND THAT THE RBI IN RESPECT OF EXPOR T CREDIT TO EXPORTERS AT INTERNATIONALLY COMPETITIVE RATES UNDE R THE SCHEME OF PRE-SHIPMENT CREDIT IN FOREIGN CURRENCY (PCFC) AND REDISCOUNTING OF EXPORT BILLS ABROAD (EBR), HAS PERMITTED BANKS T O FIX THE RATES OF INTEREST WITH REFERENCE TO RULING LIBOR, EURO UB OR OR EURIBOR, WHEREVER APPLICABLE AND THERETO APPROPRIAT E PERCENTAGE RANGING FROM 1% TO 2%. THE REFERENCE TO THE SAID CI RCULAR IS AT PAGE - 80 OF THE ASSESSEES PAPER BOOK. IN OUR VIEW THE CLAIM OF ITA NO.2201/MDS./2012 :- 11 - : THE ASSESSEE TO ADOPT EURIBOR RATE AS STATED BEFORE THE TPO IS REASONABLE AND DESERVES TO BE ACCEPTED. FOLLOWING T HE RULING OF THE TRIBUNAL IN THE AFORESAID CASES, WE ARE OF THE VIEW THAT THE CLAIM MADE BY THE ASSESSEE IN THIS REGARD HAS TO BE ACCEPTED. THE AO IS DIRECTED TO WORK OUT THE TP ADJUSTMENT ACCORD INGLY. GR.NO. 1 TO 4 ARE THUS PARTLY ALLOWED. 9.2 FURTHER, IT IS TO BE NOTED THAT THE CHENNAI BE NCH OF TRIBUNAL IN THE CASE OF SIVA INDUSTRIES & HOLDINGS LTD. VS. ACIT REPORTED IN [2012] 145 TTJ 497 (ITAT[CHEN]) WHEREIN IT WAS H ELD AS UNDER:- 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE ORDER OF THE TPO CLEARLY SHOWS THAT THE ASSESSEE HA D RAISED THE FUNDS BY WAY OF ISSUANCE OF ZERO PER CENT OPTIO NAL CONVERTIBLE PREFERENTIAL SHARES. THUS IT IS NOTICED THAT THE FUNDS RAISED BY THE ASSESSEE COMPANY FOR GIVING THE LOAN TO INDIA TELECOM HOLDINGS LTD., MAURITIUS, WHICH IS ITS AE A ND WHICH IS THE SUBSIDIARY COMPANY, ARE OUT OF THE FUNDS OF THE ASSESSEE COMPANY. IT IS NOT BORROWED FUND. THE ASSESSEE HAS GIVEN THE LOAN TO THE AE IN US DOLLARS. THE ASSESSEE IS ALSO RECEIVING INTEREST FROM THE AE IN INDIAN RUPEES. ONCE THE TRA NSACTION BETWEEN THE ASSESSEE AND THE AE IS IN FOREIGN CURRE NCY AND THE TRANSACTION IS AN INTERNATIONAL TRANSACTION, TH EN THE TRANSACTION WOULD HAVE TO BE LOOKED UPON BY APPLYIN G THE COMMERCIAL PRINCIPLES IN REGARD TO INTERNATIONAL TR ANSACTION. IF THIS IS SO, THEN THE DOMESTIC PRIME LENDING RATE WO ULD HAVE NO APPLICABILITY AND THE INTERNATIONAL RATE FIXED BEIN G LIBOR WOULD COME INTO PLAY. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT IT LIBOR RATE WHICH HAS TO BE CONSIDERED WHILE DETERMI NING THE ITA NO.2201/MDS./2012 :- 12 - : ARM'S LENGTH INTEREST RATE IN RESPECT OF THE TRANSA CTION BETWEEN THE ASSESSEE AND THE AES. AS IT IS NOTICED THAT THE AVERAGE OF THE LIBOR RATE FOR 1ST APRIL, 2005 TO 31ST MARCH, 2 006 IS 4.42 PER CENT AND THE ASSESSEE HAS CHARGED INTEREST AT 6 PER CENT WHICH IS HIGHER THAN THE LIBOR RATE, WE ARE OF THE VIEW THAT NO ADDITION ON THIS COUNT IS LIABLE TO BE MADE IN T HE HANDS OF THE ASSESSEE. IN THE CIRCUMSTANCES, THE ADDITION AS MADE BY THE AO ON THIS COUNT IS DELETED. 9.3. FURTHER, CO-ORDINATE BENCH OF MUMBAI IN THE CA SE OF AURIONPRO SOLUTION LTD. REPORTED IN 33 TAXMANN.COM 187 9. ON PRINCIPLE, WE DO CONCUR WITH THE VIEW OF THE CO-ORDINATE BENCH IN THE ABOVE SAID DECISION THAT THE ASSESSEE IS A TESTED P ARTY AND ECONOMIC/COMMERCIAL AS WELL AS GEOGRAPHICAL CONDITI ON IN WHICH THE ASSESSEE IS DOING BUSINESS ARE RELEVANT TO HE CONSI DERED FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PRICE. HOWEVER, THE TR IBUNAL HAS FOLLOWED THE EARLIER DECISION OF THE CO-ORDINATE BENCH TO MAINTA IN THE RULE OF CONSISTENCY AND ACCORDINGLY DIRECTED THE TPO/ASSESSING OFFICER TO DETERMINED THE ARMS LENGTH PRICE BY CONSIDERING THE LIBOR + 2% ON THE L OAN GIVEN TO THE AE. ACCORDINGLY, TO MAINTAIN THE CONSISTENCY ON THE POI NT, WE DIRECT THE ASSESSING OFFICER/TPO TO DETERMINE THE ARMS LENGTH INTEREST BY CONSIDERING THE UBOR + 2% ON THE TRANSACTION OF LOAN GIVEN TO T HE AE. 9.4 FURTHER IN THE CASE OF COTTON NATURALS (I) (P. ) LTD. VS. DCIT IN [2014] 146 ITD 662 (ITAT[DEL]) WHEREIN HELD THAT : 14. WE NOTE THAT CUP METHOD IS THE MOST APPROPRIA TE METHOD IN ORDER TO ASCERTAIN ARMS LENGTH PRICE OF THE INTERNA TIONAL TRANSACTION AS THAT OF THE ASSESSEE. WE AGREE WITH THE ASSESSEE 'S CONTENTION THAT WHERE THE TRANSACTION WAS OF LENDING MONEY IN FOREIGN CURRENCY ITA NO.2201/MDS./2012 :- 13 - : TO ITS FOREIGN SUBSIDIARIES THE COMPARABLE TRANSACT IONS, THEREFORE, WAS OF FOREIGN CURRENCY LENDED BY UNRELATED PARTIES . THE FINANCIAL POSITION AND CREDIT RATING OF THE SUBSIDIARIES WILL BE BROADLY THE SAME AS THE HOLDING COMPANY. IN SUCH A SITUATION, D OMESTIC PRIME LENDING RATE WOULD HAVE NO APPLICABILITY AND THE IN TERNATIONAL RATE FIXED BEING LIBOR SHOULD BE TAKEN AS THE BENCHMARK RATE FOR INTERNATIONAL TRANSACTIONS. 15. THE ABOVE VIEW IS DULY SUPPORTED BY FOLLOWING C ASE LAWS RELIED UPON BY THE ASSESSEE'S COUNSEL. IN SIVA INDUSTRIES & HOLDINGS LTD. V. ASSTT. CIT [2011] 11 TAXMANN.COM 404(CHENNAI) IT WA S HELD BY ITAT THAT THE ASSESSEE HAD GIVEN THE LOAN TO THE AS SOCIATE ENTERPRISE IN U.S. DOLLARS, AND IN SUCH A SITUATION WHEN THE TRANSACTION WAS IN FOREIGN CURRENCY, AND THE TRANSA CTION WAS AN INTERNATIONAL TRANSACTIONS, THEN THE TRANSACTION WO ULD HAVE TO BE LOOKED UPON BY APPLYING THE COMMERCIAL PRINCIPLES I N REGARD TO INTERNATIONAL TRANSACTIONS. IN SUCH A SITUATION DOM ESTIC PRIME LENDING WOULD HAVE NO APPLICABILITY AND THE INTERNA TIONAL RATE FIXED BEING LIBOR RATE WOULD HAVE TO BE ADOPTED. 16. SIMILAR VIEW AS ABOVE WAS EXPRESSED BY THE ITAT IN THE CASE OF FOUR SOFT LTD. V. DY. CIT [IT APPEAL NO. 1495 (HYD. ) OF 2010], DY. CIT V. TECH. MAHINDRA LTD. [2011 46 SOT 141(URO)/ 1 2 TAXMANN.COM 132(MUM.)], TATA AUTOCOMP SYSTEMS LTD. V. ASSTT. CIT [2012] 21 TAXMANN.COM 6(MUM.). 17. WE FURTHER NOTE THAT ASSESSEE HAS ARRANGEMENT, FOR LOAN WITH CITI BANK, FOR LESS THAN 4%. HOWEVER, FOR LOAN PROV IDED TO ITS AE'S IT HAS CHARGED 4% P.A. INTEREST. HENCE, ADJUSTMENT SUG GESTED BY THE TPO IS NOT WARRANTED. 9.5 IN VIEW OF ABOVE DISCUSSION, WE ARE OF THE OPIN ION THAT SINCE THE ASSESSEE CHARGED INTEREST TO ITS AE AT LEBORE 2% WHICH IS ITA NO.2201/MDS./2012 :- 14 - : APPROPRIATE IN FOLLOWING THE ABOVE CASES AND ACCORD INGLY, THE SAME IS TO BE CONSIDERED BY TPO/AO AND WE ARE OF THE OPINIO N THAT THERE IS NO ADJUSTMENT REQUIRED TOWARDS INTEREST PAYMENT TO ITS AE TO DETERMINE ALP. 9.6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 31 ST AUGUST, 2016, AT CHENNAI. SD/ - SD/ - ( . . . ! ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! ' ) (CHANDRA POOJARI) # / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED: 31 ST AUGUST, 2016 K S SUNDARAM %&'' ()'*) / COPY TO: ' 1 . / APPELLANT 3. ' +',! / CIT(A) 5. )-.' / / DR 2. / RESPONDENT 4. ' + / CIT 6. .0'1 / GF