YIZUMI ADVANCED PROCESSING TECHNOLOGY PRIVATE LIMITED,AHMEDABAD vs. THE ITO, WARD-4(1)(1), AHMEDABAD

The following grounds have been taken in this appeal:

The brief facts of the case are that the assesse company is engaged in the business of manufacturing and trading of machinery in the field of Plastic Industry. The assessee had filed its return of income for A.Y. 2021-22 on 07.03.2022 declaring total income of Rs. 8,68,550/-. The case was selected for scrutiny under CASS to examine the “International transaction(s) in respect of lending or borrowing of money (T.P. Risk Parameter)”. The assessee had taken ECB loan of Rs. 24,12,63,000/- from its associated enterprise (AE) viz. Yizumi Precision Machinery (HK) Co. Ltd., on which interest was charged at the rate of 5% and the assessee had paid interest of Rs.1,15,82,346/- by using “other method” as most appropriate method (MAM). The matter was referred to the Transfer Pricing Officer (TPO) to determine the arm’s length price (ALP) of this international transaction and the TPO vide order u/s. 92CA(3) of the Act had proposed transfer pricing downward adjustment of Rs.32,66,222/-. After receipt of the order of the TPO, a draft assessment order u/s. 143(3) r.w.s. 144C(1) was passed on 12.12.2023 by making TP adjustment (downward) amounting to Rs.32,66,222/- and determining the

Shri Sanjay Devadiya, the Ld. AR of the assessee submitted that the terms & conditions of the loans raised from the AE was approved by the Government of India and the RBI. Therefore, the TPO was not correct in holding that the interest paid by the assessee to the AE was not at arm’s length price. The Ld. AR submitted that the TPO had adopted Libor plus approach to benchmark the international transaction and had used Bloomberg database to arrive at the interest rate of 3.5958%. The interest rate difference of 1.41% [5%-3.59%] was the arm’s length adjustment in respect of interest rate, made by the TPO. He submitted that before the TPO, the assessee had requested an alternate benchmarking using CUP as the MAM and had sought to benchmark the transaction as per Libor plus rate, which was rejected by the TPO as an afterthought. The Ld. AR pointed out that the rejection of the alternate benchmarking request of the assessee by the TPO, was held as erroneous by the Ld. DRP. Still the Ld. DRP had approved the ALP adjustment as made by the TPO on the basis of Bloomberg database which was not correct. According to the Ld. AR, when the DRP had accepted that the rejection of benchmarking the international transactions as per alternate method suggested by the assessee was incorrect, then the matter should have been referred back to the TPO for doing the benchmarking as per the request of the assessee.

We have considered the rival submissions. The assessee had benchmarked the international transaction of payment of interest to AE on ECB loan considering the “other method” as the MAM and the benchmarking was done on the basis of data taken from RBI website. As per the finding given by the Ld. DRP, the assessee had come up with only two comparable out of 1106 data comparable containing issuance of apparently similar loans. The TPO, on the other hand, had used CUP as the MAM and conducted a more scientific search by using the Bloomberg database for benchmarking the interest paid on ECB loan obtained from AE. The assessee had, however, requested the TPO to benchmark the transaction by using CUP method by considering PLI as Base Rate (Libor) + Interest rate Margin; which was rejected by the TPO as an afterthought.

For benchmarking interest paid on an ECB obtained from an AE, the generally accepted position in Indian transfer pricing jurisprudence is that the Comparable Uncontrolled Price (CUP) Method is the Most Appropriate Method (MAM). Interest on a loan is a financial transaction where the price is directly measurable. Therefore, CUP provides the most reliable comparison by examining the rate of interest charged in comparable uncontrolled lending transactions. For benchmarking the interest on foreign currency loan, the relevant international inter-bank

In view of the above facts, we are of the considered opinion that the matter required to be set aside to the file of the TPO with a direction to rework the ALP of international transactions of the assessee by using CUP method, on the basis of Libor plus approach. Accordingly, the grounds taken by the assessee in this respect are treated as allowed for statistical purpose.

Ground No. 3 – pertains to not allowing full credit of TDS by the AO. The Ld. AR pointed out that the assessee had claimed TDS of Rs.67,456/-, whereas the Assessment Unit had allowed TDS credit of Rs.3,052/- only. The AO is directed to verify the TDS claim made by the assessee in the return of income and thereafter allow the credit for the same, as per law. The ground is allowed for statistical purpose.

In the result, the appeal of the assessee is allowed for statistical purpose.