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Income Tax Appellate Tribunal, MUMBAI ‘K’ BENCH, MUMBAI
These two appeals to the same assessee, involve a common issue and were heard together. As a matter of convenience, therefore, both of these appeals are being disposed of by way of this consolidated order.
By way of these appeals, the assessee has called into question correctness of two separate, but materially similar orders of even date i.e. 30th November 2018, in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment years 2012- 13 and 2013-14. Grievances raised in these appeals, which are common for both of these assessment years, are as follows: Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in providing partial relief from the original transfer pricing adjustment of Rs. 93,45,305 as prescribed in the order under section 92CA(3) read with section 154 of the Income Tax Act, 1961? On comparables: and 643/Mum/2019 Assessment years: 2012-13 and 2013-14 Page 2 of 3 Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding the interest rate swap of 8,336% (only the fixed component (8.336%) while ignoring / side-lining the floating interest rate (Libor + 389bps)) as the benchmark for determining the interest rate for transfer pricing purposes? Whether the Ld. CIT(A) has erred by looking at the concept of arms-length as tool to determine taxable income, instead of real income arising to the appellant from 'realistically available options acceptable to both the parties'? Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in disregarding the arm's length character and economic substance of the international transaction? Whether the comparable relied upon by the Ld. TPO and thereby upheld by the Ld. CIT(A) fall within the factors prescribed for application of CUP method and factors prescribed for abiding with comparability analysis? On earlier year's order passed by Ld. CIT(A) Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the suo moto adjustment made by the appellant to the extent of interest rate of 4.03%, in order to avoid litigation? Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) has erred by not taking into account the earlier year's order passed by the Ld. CIT(A) in favour of the appellant that determined the aims-length interest rate at 3.99% for both the assessment years, viz. A.Y. 2010-11 and A.Y. 2011-12? On judicial precedents Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in providing partial relief (instead of full relief) by not taking into account the interest rate determined by various courts, including the jurisdictional Bombay High Court in the case of Aurionpro Solutions Limited (ITA 1869/2014), wherein the High Court approved the interest rate of Libor+200 bps as determined at arms-lenght, in the case of loans provided to assosicated enterprise?
The short issue requiring our adjudication, as learned representatives reasonably agree, is as to at what rate the interest-free loans granted by the assessee to its associated enterprise in Mauritius should be benchmarked as at an arm’s length. This issue is no longer res integra. The issue in the appeal is squarely covered, in favour of the assessee, by a coordinate bench decision dated 7th June 2019 in assessee’s own case for the assessment years 2009-10 and 2010-11, wherein the coordinate bench has, inter alia, observed as follows: 10. We have carefully considered the submission and perused the records. We find that the commercial expediency aspect of granting interest-free loans is already against the assessee by a Catena of case laws in this regard. The learned counsel of the assessee submission that, commercial rationality should be considered in distinction from commercial expediency is not at all convincing. It is evident from the submissions of the learned counsel of the assessee himself that ITAT as well as honourable jurisdictional High Court in several case laws have upheld the applicability of interest rate of LIBOR +200 bps to 300 bps. In the present case the learned CIT-A has adopted rate of interest of labour +300 bps for assessment year 2010 – 11 which the assessee accepts. In our considered opinion on the facts and circumstances of the case following the precedent’s from ITAT and honourable judicial High Court we hold that arm’s-length interest should be computed at the rate of interest of libor +300 bps. That is and 643/Mum/2019 Assessment years: 2012-13 and 2013-14 Page 3 of 3 the rate adopted by the learned CIT-A for assessment year 2010-11 is also directed to be adopted for assessment year 2009-10.
It is indeed disappointing that even after taking note of the above fidnings of the coordinate bench, the authorioties below have justified a higher ALP on the basis of some new arguments. Given the findings of the coordinate bench-as extracted above, the reference to the fixed rate of interest and swap variable, with reference to the LIBOR, as has been done by the authorities below to go beyond LIBOR plus 300 bps, is irrelevant. There is no point in making these efforts to circumvent the conclusions arrived at by the coordinate bench, and justifying the same on the basis of a new set of arguments. As for the facets not argued nor not considered, even if any, as is laid down by the apex Court in the case of Ambika Prasad Mishra v. State of UP AIR 1980 SC 1762 : [1980] 3 SCC 719 (p. 1764 of AIR 1980 SC) "Every new discovery nor argumentative novelty cannot undo or compel reconsideration of a binding precedent A decision does not lose its authority merely because it was badly argued, inadequately considered or fallaciously reasoned...." Similarly, in the case of Kesho Ram & Co. v. Union of India [1989] 3 SCC 151, it was stated by the Supreme Court thus: "The binding effect of a decision of this Court (as indeed any superior court) does not depend upon whether a particular argument was considered or not, provided the point with reference to which the argument is advanced subsequently was actually decided in the earlier decision". We see no reasons to take any other view of the matter than the view so taken by the coordinate bench. Respectfully following the same, we direct the Assessing Officer to delete any arm’s length price adjustment beyond the difference, if any, between 4.01% interest charged by the assessee and LIBOR plus 300 bps. If suo motu adjustment by the assessee, i.e. adopting an interest rate of 4.01%, is below this rate, obviously no further ALP adjustment is called for. With these specific directions, the matter is restored to the file of the Assessing Officer for giving such relief as may be admissible in the terms indicated above. 5. In the result, both the appeals are allowed, in principle, and in the terms indicated above. Pronounced in the open court today on the 05th day of October, 2021.