Cotton Naturals (I) Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 3265/DEL/2011

• Counselvise Citation: 326520114 RSA 2011
• Duration Of Justice: 2 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-05-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 17-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ARCHANA S AWASTHI
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SHRI T.S.KAPOOR, ACCOUNTANT MEMBER I.T.A .NO.-3265/DEL/2011 (ASSESSMENT YEAR-2007-08) COTTON NATURAL (I) PVT. LTD., E-28, CONNAUGHT PLACE, NEW DELHI-110001. P AN-AABCC2214J (APPELLANT) VS DCIT, CIRCLE-3(1), NEW DELHI. (RESPONDENT) APPELLANT BY SH. VED JAIN, CA RESPONDENT BY MS. ARCHANA S. AWASTHI & SH. VIVEK KUMAR, SR. DR ORDER PER DIVA SINGH, JM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER DATED 25.04.2011 PURSUANT TO THE DRPS ORDER U/S 144C(V) DATED 06.04.2011 ON THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE LEARNED AO UNDER SECTION 143(3) READ WITH SECTION 144C OF THE ACT IS BAD BOTH IN THE EYE OF L AW AND ON FACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED AO HAS ERRED, BOTH ON FACTS AND IN LAW IN ASSESSING TH E INCOME OF THE APPELLANT AT RS.60,68,130/- AS AGAINST INCOME OF RS .18,61,323/- DECLARED BY THE ASSESSEE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DIRECTIONS GIVEN BY THE DRP ARE NOT VALID AND BAD IN LAW AS TH E SAME HAS BEEN GIVEN WITHOUT CONSIDERING THE ARGUMENTS, EVIDE NCES AND FACTUAL ERRORS POINTED OUT BY THE ASSESSEE WITHOUT GIVING ANY I.T.A .NO.-3265/DEL/2011 2 REASON FOR NOT ACCEPTING THE SAME. 4.(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED AO HAS ERRED BOTH ON FACTS AND IN LAW IN MAKING AN ADD ITION OF RS.42,06,807/- AS DIFFERENCE IN ARMS LENGTH PRICE DETERMINED BY TRANSFER PRICING OFFICER (TPO) & THE APPELLANT. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED DRP ERRED IN DETERMINING THE REASONABLE INTEREST RATE AT 12.20% PER ANNUM AS AGAINST 4% DETERMINED BY THE AS SESSEE BASED ON TRANSFER PRICING STUDY. (III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED DRP HAS ERRED BOTH ON FACTS AND IN LAW IN RELYING O N COMPARISON WITH UNCOMPARABLES LIKE GOVERNMENT BONDS AND TOPPIN G IT UP WITH THE VARIOUS CONSIDERATIONS IGNORING THE FACT THAT THE ASSESSEE HAS GIVEN LOAN TO AN ASSOCIATED ENTERPRISE WHICH HA PPENS TO A SUBSIDIARY IN A FOREIGN COUNTRY. (IV) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED DRP HAS ERRED BOTH ON FACTS AND IN LAW IN RELYING O N A COMPARISON WITH THE FOREIGN CURRENCY LOAN ADVANCED BY AN INDIAN BANK TO AN INDIAN ENTITY AND TOPPING IT UP W ITH VARIOUS CONSIDERATIONS IGNORING THE FACT THAT COMPARABLES H AVE TO BE PLACED IN A SIMILAR SITUATION AND CIRCUMSTANCES, THAT IS, THE RATE OF INTEREST PREVALENT IN THE COUNTRY IN WHICH THE A MOUNT HAS BEEN ADVANCED. (V) THAT THE ABOVE SAID ADDITION HAS BEEN MADE IGNO RING THE DETAILED TRANSFER PRICING STUDY MADE BY THE APPELLA NT FOR DETERMINING THE ARM'S LENGTH PRICE. (VI) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED AO HAS ERRED BOTH ON FACTS AND IN LAW IN MAKING THE AB OVE-SAID ADDITION WITHOUT QUALIFYING COMPARABLE INSTANCE FOR RATE OF INTEREST ON THE COMPARABLE TRANSACTION. (VII) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED AO HAS ERRED BOTH ON FACTS AND IN LAW IN IGNORING THE CONTENTION OF THE ASSESSEE THAT THE VARIATION OF 5% PLUS-MINUS AR M'S LENGTH INTEREST DETERMINED WILL NOT BE APPLICABLE IN THE C ASE OF THE ASSESSEE IGNORING THE SPECIFIC PROVISIONS OF THE AC T. 5.(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, H ON'BLE DRP HAS ERRED BOTH ON FACTS AND IN LAW IN ADJUSTING 400 BASIS POINTS TO THE LIBOR RATE BEING THE BASIC RATE FOR CREDIT R ATING OF AE. (II). ON THE FACTS AND CIRCUMSTANCES OF THE CASE, H ON'BLE DRP HAS ERRED BOTH ON FACTS AND IN LAW IN MAKING AN ADJ USTMENT OF I.T.A .NO.-3265/DEL/2011 3 300 BASIC POINTS, AS TRANSACTION COST OVER AND ABOV E THE ADJUSTMENT OF 400 BASIS POINTS TO THE LIBOR RATE. (III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LIBOR RATE APPLIED AT 5.224% IS WRONG. (IV) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, HO N'BLE DRP HAS ERRED BOTH ON FACTS AND IN LAW IN IGNORING THE CONTENTION OF THE APPELLANT THAT THE LOAN BEING ADVANCED BY PAREN T COMPANY TO THE SUBSIDIARY COMPANY THERE WAS NO NEED TO MAKE AD JUSTMENT ON ACCOUNT OF SECURITY. 6. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE GROUNDS OF APPEAL. 2. RIGHT AT THE OUTSET, LD. AR SUBMITTED THAT THE P OINT AT ISSUE IS FULLY COVERED IN ASSESSEES FAVOUR BY VIRTUE OF THE ORDER OF THE CO-ORDINATE BENCH IN ASSESSEES CASE FOR 2008-09 ASSESSMENT YEARS. REFE RRING TO THE SAID ORDER IT WAS STATED THAT THE CO-ORDINATE BENCH VIDE ORDER DATED 08.02.2013 IN ITA NO- 5855/DEL/2012 ALLOWED THE APPEAL OF THE ASSESSEE ON IDENTICAL GROUND AGREEING WITH THE CONTENTION OF THE ASSESSEE THAT WHERE THE TRANSACTION WAS OF MONEY IN FOREIGN CURRENCY TO ITS FOREIGN SUBSIDIARY, THE COM PARISON HAD TO BE MADE WITH RESPECT OF ADVANCE AND LOAN IN U.S.A AND NOT BASED ON INDIAN CONDITIONS AND THE COMPARABLE TRANSACTIONS BY UNRELATED PARTIES IN FOR EIGN CURRENCIES WERE RELEVANT. REFERRING TO THE SAID ORDER IT WAS SUBMITTED THAT T HE CO-ORDINATE BENCH HELD THAT IN SUCH A SITUATION THE DOMESTIC PRIME LENDING RATE WOULD HAVE NO APPLICABILITY AND THE INTERNATIONAL RATE FIXED BEING LIBOR SHOULD BE TAKEN AS THE BENCH- MARKED RATE FOR THE INTERNATIONAL TRANSACTION. IT WAS POINTED OUT THAT THE CO- ORDINATE BENCH HAD TAKEN INTO CONSIDERATION THE FAC T THAT THE ASSESSEE HAD ARRANGEMENT FOR LENDING WITH CITI BANK FOR LESS THA N 4% AND ITS PROFIT WERE EXEMPT U/S 10B AS SUCH THERE WOULD BE NO CASE FOR THE ASSESSEE TO BENEFIT BY SHIFTING OF PROFITS OUTSIDE INDIA. COPY AVAILABLE ON RECORD IN SUPPORT OF THE CLAIM WAS RELIED UPON. THE LD. SR. DR ON CONSIDERI NG THE ORDER OF THE CO- I.T.A .NO.-3265/DEL/2011 4 ORDINATE BENCH SUBMITTED THAT THE ISSUE IS COVERED, HOWEVER RELIANCE WAS PLACED UPON THE IMPUGNED ORDER. HOWEVER AT THE TIME OF DI CTATING IT WAS CONSIDERED NECESSARY TO CONSIDER WHETHER THE CO-ORDINATE BENC H HAS CONSIDERED THE SAME LOAN OR A DIFFERENT LOAN. ACCORDINGLY THE APPEAL W AS LISTED FOR CLARIFICATION. IN RESPONSE THERETO AN ADJOURNMENT WAS MOVED BY THE DE PARTMENT. SINCE CLARIFICATION WAS SOUGHT FROM THE ASSESSEE ON FACTS CONSIDERING THE DEPARTMENTAL REQUEST ADJOURNMENT WAS GRANTED. ON THE NEXT DATE THE PARTIES WERE HEARD WHEREIN THE CLARIFICATION WHICH WAS REQUIRED TO BE ADDRESSED BY THE LD. AR WAS ADDRESSED AND IT WAS STATED THAT IT WAS THE VERY SA ME LOAN. SINCE SUFFICIENT TIME HAD LAPSED FROM THE LAST DATE OF HEARING, THE LD. A R WAS REQUIRED TO POINT OUT AND ADDRESS AGAIN THE BASIS OF THE ARGUMENTS THAT THE I SSUE IS COVERED IN ITS FAVOUR. IN RESPONSE THERETO THE LD. DR PLACED RELIANCE UPON TH E IMPUGNED ORDER AND DID NOT OPPOSE THE STAND THAT THE ISSUE IS COVERED. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. A PERUSAL OF THE RECORD SHOWS THAT COTTON NATURAL INDIA GROUP (HEREINAFTER REFERRED TO AS CNIPL) IS STATED TO B E A LEADING MANUFACTURER OF POPULAR, AFFORDABLE AND INNOVATIVE RIDER APPAREL WH ICH INCLUDES A SELECTION OF RIDING BREECHES, JODHPURS, SOCKS, RIDING JACKETS, H ORSE BLANKETS, FLY SHEETS, RIDING BOOTS, SHIRTS, SADDLE PADS AND HALTERS. AS PER THE IMPUGNED ORDER CNIPL HAS DESIGNER RIDER APPAREL AND HORSE CLOTHING, ENGLISH SADDLES, LEATHER GOODS, HORSE TACK, GROOMING SUPPLIES, HORSE SUPPLEMENTS AND RIDI NG HELMETS. THE HEADQUARTER OF CNIPL IS STATED TO BE LOCATED IN DELHI, INDIA A ND IS STATED TO HAVE BEEN OPERATING IN THE APPAREL MARKET SINCE 2002. IN ADD ITION, CNIPL IS ALSO STATED TO HAVE A PRESENCE AT THE RELEVANT POINT OF TIME IN OV ER 10 COUNTRIES THROUGH DESIGNATED CHANNEL PARTNERS AND DISTRIBUTORS. 3.1. THE OWNERSHIP STRUCTURE AS ON 31.03.2007 AS PE R RECORD IS AS UNDER :- I.T.A .NO.-3265/DEL/2011 5 S.NO. LIST OF SHAREHOLDERS NO. OF SHARE PERCENTAGE OF HOLDING 1. VARUN SHARMA 995000 50% 2. TOKIE SHARMA 995000 50% 3.2. THE FACTS GIVING RISE TO THE SUBJECT MATTER OF DISPUTE AS PER RECORD IS THAT A LOAN WAS GIVEN FROM SEPTEMBER 2003 UNDER A FIXED TE RM BASIS AT 4%. IT WAS ALSO OBSERVED THAT THE ASSESSEE HAD ALSO INVESTED ITS SU RPLUS FUNDS IN FDRS WITH BANK AT 5%. THE LOAN AS PER RECORD HAD BEEN GIVEN BY TH E ASSESSEE TO ITS 100% SUBSIDIARY VIZ. M/S JPC EQUESTRIAN, USA. 3.3. A PERUSAL OF THE RECORD FURTHER SHOWS THAT FRO M THE BALANCE SHEET FOR FINANCIAL YEAR 2006-07, THE TPO OBSERVED THAT CERTA IN AMOUNTS GIVEN AS LOANS BY ASSESSEE TO ITS AE WERE OUTSTANDING AS ON 31.03.200 6. THE AMOUNT OF INTERNATIONAL TRANSACTION REPORTED IN 3CEB WAS $ 10 ,50,000. THE INTEREST WAS RECEIVED AT THE RATE OF 4%. 3.4. IN VIEW OF THE ABOVE, THE TPO ISSUE A DETAILED SHOW CAUSE NOTICE TO THE ASSESSEE ON 18.08.2010 STATING THAT ARMS LENGTH RA TE OF INTEREST ON DEBT CONTRACTS OF THIS NATURE IS 14% & THE SAME WAS PROP OSED TO BE ADOPTED FOR DETERMINING THE ALP. 3.5. THE TPO AS PER PARA 4 OF HIS ORDER SHOW CAUSED THE ASSESSEE ON ACCOUNT OF THE FOLLOWING FACTS :- (A) THE TAX PAYER HAS EXTENDED LOAN TO ITS ASSOCIA TED ENTERPRISE AT 4%. (B) LENDING OR BORROWING IS NOT ONE OF THE MAIN BUSINES SES OF THE TAXPAYER. (C) TWO INDEPENDENT ENTERPRISES IN THE SIMILAR CIRCUMST ANCES AS THAT OF THE TAX PAYER AND ITS SUBSIDIARY WOULD H AVE CHARGED ARMS LENGTH INTEREST AS COMPENSATION FOR T HE FINANCIAL FACILITY PROVIDED BY ONE PARTY TO ANOTHER KEEPING IN VIEW THE FINANCIALS OF THE SUBSIDIARY AND NO SEC URITY BEING OFFERED. I.T.A .NO.-3265/DEL/2011 6 (D) BUT FOR THE RELATIONSHIP BETWEEN THE TAX PAYER AND ITS SUBSIDIARY, THE TAX PAYER WOULD HAVE EARNED INTERES T ON THE LOAN EXTENDED BY IT IN TERMS THAT AN INDEPENDENT EN TERPRISE WOULD HAVE EARNED. (E) THE BUSINESS PRUDENCE OR NECESSITY OF ADVANCING LOA NS TO SUBSIDIARY IS NOT RELEVANT FOR COMPUTING ARMS LENG TH PRICE IN UNRELATED TRANSACTIONS. 3.6. THE ASSESSEES CLAIM THAT THE COMPARISON HAS TO BE MADE WITH RESPECT OF ADVANCE OR LOAN IN USA & NOT BASED ON INDIAN CONDIT IONS WAS NOT ACCEPTED BY THE TPO. AGGRIEVED BY THIS, THE ASSESSEE WENT BEFO RE THE DISPUTE RESOLUTION PANEL (HEREINAFTER REFERRED TO AS DRP). IT WAS A RGUED THAT THE COMPARISON COULD ALSO BE WITH RATE OF INTEREST BEING PAID BY T HE MULTINATIONAL COMPANIES OR BANKS IN RESPECT OF MONEY BORROWED FROM INDIA. INST EAD TPO HAS ADOPTED RATE OF INTEREST PREVALENT ON GOVERNMENT BONDS IN RUPEES IN INDIA & THEN BY APPLYING VARIOUS IFS & BUTS COMPUTED THE INTEREST RATE AT 14 %. 4. THE DRP CONSIDERING THE OBJECTIONS OF THE ASSESS EE ROUNDED THE INTEREST RATE AT 12.20% ON THE FOLLOWING REASONING :- BASIC INTEREST RATE FOR CREDIT RATING OF AE LIBOR+ 400 BASIS POINT ADD: TRANSACTION COST 300BASIS POINT CUP RATE LIBOR + 700 POINT ADD ADJUSTMENT FOR SECURITY NOT COMPUTED LIBOR RATE 5.224% CUP RATE LIBOR+ 700 BASIS POINTS RATE 5.224 + 7%=12.224% SINCE NO SECURITY WAS OFFERED BY THE SUBSIDIARY & THE MAIN BUSINESS OF THE ASSESSEE WAS NOT LENDING & BORROWIN G MONEY, THE TPO CONSIDERED THAT A RATE OF 14% WAS REASONABLE IN THI S CONTEXT. 4.2. WE FIND THAT THE AE BEING NEW DID NOT HAVE A DEQUATE CREDIT RATING IN USA SO THE INDIAN PARENT COMPANY GAVE THE LOAN; HENCE ADDITION OF 400 BASIS POINT ON THIS ACCOUNT IS REAS ONABLE. SIMILARLY THERE WOULD BE TRANSACTION COSTS, IF THE LOAN IS TA KEN FROM THIRD PARTY. THIS FACTOR WOULD HAVE TO BE TAKEN INTO ACC OUNT FOR COMPUTING ARMS LENGTH PRICE. FURTHER, LOAN WAS GI VEN ON FIXED RATE OF INTEREST OUT OF SHAREHOLDER FUNDS. THUS, THE LO AN HAS FLOWN FROM I.T.A .NO.-3265/DEL/2011 7 ONE SET OF SHAREHOLDERS TO ANOTHER SET OF SHAREHOLD ERS. IN REALITY BOTH SETS OF SHAREHOLDERS ARE SAME AND SECURITY ASP ECT IS THEREFORE EMBEDDED BY DEFAULT IN THIS TRANSACTION. IN THE CI RCUMSTANCES, THERE IS NO REQUIREMENT FOR FURTHER ADDITION ON ACCOUNT O F SECURITY. ALSO THE PLR RATE OF RBI RANGES FROM 10.25%-10.75% IN AP RIL 2006 TO 12.25%-12.50% IN MARCH 2007. SO CONSIDERING FACTS AND CIRCUMSTANCES, DRP FINDS THAT INTEREST RATE OF 12.2 24% TO BE ARMS LENGTH RATE. THE SAME IS ROUNDED OFF TO 12.20%. 4.1. ACCORDINGLY THE ALP WAS COMPUTED IN THE FOLLOW ING MANNER:- INTEREST IS CALCULATED @ 12.20% PER ANNUM ON BALAN CES AS ON 31.03.2007 SINCE NO MONTHLY CLOSING BALANCES HAVE B EEN PROVIDED. THE OBJECTIONS OF ASSESSEE ARE PARTLY ACCEPTED. TH E A.O. IS DIRECTED TO AMEND THE ORDER ACCORDINGLY. 5. THE SAID DIRECTION WAS IMPLEMENTED BY THE AO WHO PASS THE IMPUGNED ORDER. AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEA L BEFORE THE TRIBUNAL WITH THE CONTENTION THAT THE ISSUE IS COVERED IN FAVOUR OF T HE ASSESSEE BY THE ORDER OF THE CO-ORDINATE BENCH WHICH STAND HAS NOT BEEN REBUTTED BY THE REVENUE. THE RELEVANT FINDING IS GIVEN IN PARAS 11-20 WHICH READ AS UNDER :- 11. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS A ND PERUSED THE RECORDS, WE FIND THAT THE ASSESSEE COMPANY IN T HIS CASE IS A LEADING MANUFACTURER OF RIDER APPAREL. ASSESSEE E NTERED INTO INTERNATIONAL TRANSACTION AS UNDER:- EQUESTRIAN APPAREL SOLD TO JPC EQUESTRIAN INC ` 48191540/- LOAN PROVIDED TO JPC EQUESTRIAN INC 10, 50,000 $ 12. AS PER THE TP DOCUMENT, CUP METHOD HAS BEEN CHO SEN TO BENCH MARK THE SALE OF APPAREL AS WELL AS INTEREST RECEIVED ON LOAN. THE TPO ACCEPTED THE ASSESSEES SUBMISSION QUA SALE OF APPAREL THAT THE SAME WAS AT ARMS LENGTH. AS REGARDS INTER EST THE ASSESSEE MENTIONED THAT IT HAS RECEIVED INTEREST AT A RATE O F 4% WHICH WAS COMPARABLE WITH THE EXPORT PACKING CREDIT RATE OBTA INED FROM INDEPENDENT BANKS IN INDIA. THE TPO WAS NOT IN AGR EEMENT WITH THE ABOVE CONTENTION OF THE ASSESSEE. HE OBSERVED THAT IT IS TO BE SEEN THAT WHAT THE ASSESSEE WOULD HAVE EARNED BY GIVING LOANS IN THE INDIAN MARKET. HE NOTED THAT LENDING OR BORROWING IS NOT ONE OF THE MAIN BUSINESSES OF THE TAXPAYER. HE OPINED THAT W HAT IS TO BE I.T.A .NO.-3265/DEL/2011 8 CONSIDERED IS THE PREVALENT INTEREST THAT COULD HAV E BEEN EARNED BY ADVANCING A LOAN TO AN UNRELATED PARTY IN INDIA WIT H THE SAME FINANCIAL HEALTH AS THAT OF THE TAX PAYERS SUBSIDI ARY. THE TPO FURTHER OBSERVED THAT THE TAXPAYER HAS NOT SUBMITTE D THE FINANCIAL OF THE SUBSIDIARY, HENCE THE FINANCIAL HEALTHY OF THE SUBSIDIARY CANNOT BE JUDGED. THE TPO FURTHER NOTED THAT WHILE DECIDI NG THE INTEREST RATE THAT MAY BE CHARGED ON RECEIVABLES FROM AES, LIBOR RATE FOR CALCULATING INTEREST IS NOT PROPER. HE OPINED THAT INSTEAD OF US RATE, INDIAN RATE IS TO BE ADOPTED. HE OBSERVED THAT AN INDEPENDENT PERSON IN INDIA WOULD EXPECT THE MAXIMUM RETURN ON ITS INVESTMENT, AND IF THE LENDING RATE IS HIGHER IN INDIAN CURRENC Y THEN HE WOULD NOT LEND IN FOREIGN CURRENCY WHERE THE LENDING RATE IS NOT SO ATTRACTIVE. THE TPO FURTHER NOTED THAT IT SHOUL D NOT BE FORGOTTEN THAT, HAD THE AE OF THE ASSESSEE COMPANY WOULD H AVE GOT LOAN FROM ANY BANK OR FINANCIAL INSTITUTION IN THE PLA CE OF RESIDENCY AT LIBOR RATE, THEN WHY IT DID NOT AVAIL OF LOAN AT SUCH A RATE. ASSESSING OFFICER OBSERVED THAT, NO COMPANY IN INDI A WOULD LIKE TO INVEST IN THE FORM OF LOAN OUTSIDE INDIA AND THAT A LSO WITHOUT SECURITY AS THE INTEREST RETURNS IN INDIA WOULD BE HIGHER THAN THOSE PREVAILING IN DEVELOPED MARKETS. FINALLY, ASSESSIN G OFFICER HELD THAT INTEREST RATE AT 17.26% WOULD BE FAIR AND RE ASONABLE. 13. BEFORE THE DRP ASSESSEE INTER-ALIA CONTENDED TH AT COMPARISON HAS TO BE MADE WITH RESPECT OF ADVANCE O R LOAN IN USA AND NOT BASED ON INDIAN CONDITIONS. THE COMPARISO N COULD ALSO BE WITH RATE OF INTEREST BEING PAID BY THE MULTINATION AL COMPANIES OR BANKS IN RESPECT OF MONEY BORROWED FROM INDIA. HO WEVER, THE DRP AGREED WITH TPOS POINT OF VIEW. BUT, IT HELD THAT FURTHER ADDITION ON ACCOUNT OF SECURITY IS NOT NEEDED. IT OPINED T HAT ARMS LENGTH INTEREST RATE MAY BE TAKEN AS THE PLR OF RBI FOR T HE FINANCIAL YEAR 2007-08. IN ACCORDANCE WITH THE ABOVE DECISION, TH E TPO ADOPTED 13.25% AS THE RATE OF ARMS LENGTH INTEREST RATE. 14. WE NOTE THAT CUP METHOD IS THE MOST APPROPRIATE METHOD IN ORDER TO ASCERTAIN ARMS LENGTH PRICE OF THE INTERNA TIONAL TRANSACTION AS THAT OF THE ASSESSEE. WE AGREE WITH THE ASSESS EES CONTENTION THAT WHERE THE TRANSACTION WAS OF LENDING MONEY IN FOREIGN CURRENCY TO ITS FOREIGN SUBSIDIARIES THE COMPARABLE TRANSAC TIONS, THEREFORE, WAS OF FOREIGN CURRENCY LENDED BY UNRELATED PARTIE S. THE FINANCIAL POSITION AND CREDIT RATING OF THE SUBSIDIARIES WILL BE BROADLY THE SAME AS THE HOLDING COMPANY. IN SUCH A SITUATION, DOMESTIC PRIME LENDING RATE WOULD HAVE NO APPLICABILITY AND THE IN TERNATIONAL RATE I.T.A .NO.-3265/DEL/2011 9 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 ASSESSEES COUNSEL. IN SIVA IN DUSTRIES AND HOLDING LTD. VS. ACIT SUPRA IT WAS HELD BY ITAT THA T THE ASSESSEE HAD GIVEN THE LOAN TO THE ASSOCIATE ENTERPRISE IN U.S. DOLLARS, AND IN SUCH A SITUATION WHEN THE TRANSACTION WAS IN FOR EIGN CURRENCY, AND THE TRANSACTION WAS AN INTERNATIONAL TRANSACTIO NS, THEN THE TRANSACTION WOULD HAVE TO BE LOOKED UPON BY APPLYIN G THE COMMERCIAL PRINCIPLES IN REGARD TO INTERNATIONAL TR ANSACTIONS. IN SUCH A SITUATION DOMESTIC PRIME LENDING WOULD HAVE NO APPLICABILITY AND THE INTERNATIONAL RATE FIXED BEING LIBOR RATE W OULD HAVE TO BE ADOPTED. 16. SIMILAR VIEW AS ABOVE WAS EXPRESSED BY THE ITAT IN THE CASE OF M/S FOUR SOFT LTD., HYDERABAD VS. DCIT SUPRA, D Y. C.I.T. VS. TECH. MAHINDRA SUPRA, TATA AUTOCOMP SYSTEMS VS. ACI T SUPRA. 17. WE FURTHER NOTE THAT ASSESSEE HAS ARRANGEMENT, FOR LOAN WITH CITI BANK, FOR LESS THAN 4%. HOWEVER, FOR LOAN PRO VIDED TO ITS AES IT HAS CHARGED 4% P.A. INTEREST. HENCE, ADJUSTME NT SUGGESTED BY THE TPO IS NOT WARRANTED. 18. WE FURTHER NOTE THAT ASSESSEES PROFITS ARE EX EMPT U/S. 10B. HENCE, THERE IS NO CASE THAT ASSESSEE WOULD BENEFIT BY SHIFTING PROFITS OUTSIDE INDIA. THIS VIEW IS SUPPORTED BY BANGALORE TRIBUNAL DECISION IN THIS CASE PHILIPS SOFTWARE CEN TRE P LTD. VS. ACIT SUPRA AND MUMBAI TRIBUNAL IN THE CASE OF I.T.O . VS. ZYDUS ALTANA HEALTH CARE P LTD. SUPRA. 19. WE FURTHER NOTE THAT IN THIS CASE THE LOAN AGRE EMENT WAS FOR FIXED RATE OF INTEREST. THE LIBOR HAS BEEN ACCEPTE D IN DECISION REFERRED ABOVE AS THE MOST SUITABLE BENCH MARK FOR JUDGING ARMS LENGTH PRICE IN CASE FOR FOREIGN CURRENCY LOAN. HE NCE, ADJUSTMENT AS MADE BY THE TPO IS NOT WARRANTED. 20. IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND PRECEDENTS, WE HOLD THAT THE RATE OF INTEREST CHARG ED BY THE ASSESSEE FOR THE LOANS TRANSACTIONS WITH THE AE WAS ARMS LEN GTH PRICE. HENCE, NO TRANSFER PRICING ADJUSTMENT IS CALLED FOR . 6. IN THE AFORE-MENTIONED PECULIAR FACTS AND CIRCUM STANCES ON RECORD WHICH ARE NOT DISPUTED AND CONSIDERING THE ARGUMENTS OF T HE PARTIES BEFORE THE BENCH, WE FIND OURSELVES UNABLE TO COME TO A CONTRARY FIND ING AS NO CONTRARY DECISION OR I.T.A .NO.-3265/DEL/2011 10 DISTINCTION ON FACTS HAS BEEN REFERRED TO BY THE RE VENUE. THUS IN THE ABSENCE OF ANY ARGUMENT EITHER ON FACTS OR LAW TO THE CONTRARY , WE RESPECTFULLY FOLLOW THE ORDER OF THE CO-ORDINATE BENCH AND DISMISS THE APPE AL OF THE REVENUE. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 30 TH OCTOBER, 2013. SD/- SD/- (T.S.KAPOOR) (DIVA SINGH) ACCOUNTANT MEMBER JU DICIAL MEMBER DATED: 30/10/2013 *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI