ELICOKEM INDIA P. LTD,RAIGAD vs. DCIT 3(1), MUMBAI

The issue raised is that ld CIT-A erred in confirming the transfer pricing adjustment considering the rate of interest paid to fully convertible debentures should be at 6.13% instead of 10% as paid by the assessee company.

Brief facts of the case are that assessee in this case has borrowed Rs.120 crores from its holding company in France. It had allotted 1.20 crors fully and compulsory convertible debentures of rupees hundred each. The rate of interest was 10% per annum. The transaction took place in assessment year 2008–09. In this year the assessing officer accepted the same without referring the same to transfer pricing officer. In assessment year 2009–10 the matter was referred to the transfer pricing officer and no adjustment was made by the transfer pricing officer.

Upon assessee’s appeal the learned CIT-A sustained the order of assessing officer.

Against above order assessee is in appeal before us. Learned counsel of the assessee submitted that this is the third year. In earlier years the rate of interest of 10% has been accepted. Hence learned counsel submitted that without any change in facts of law the rate of interest in this year should not have been disturbed. Further the learned counsel submitted that the rate was duly accepted by the reserve bank of India. He further submitted that assessee has given five instances and according to them the rate of interest of 10% compared favourably. He submitted that the transfer pricing officer has distinguished only one and has not bothered to deal with the other four

Per Contra learned departmental representative relied upon the order’s of authorities below. He submitted that he is not in a position to throw light on the facts prevailing in the previous two years. Further he would not point out anything as to why the four comparable submitted by the assessee has not been commented upon by the authorities below. Learned counsel also did not submit anything as to why the equity portion raised by the holding company for which the transfer pricing officer himself has accepted to be costing 15% should not be given any weightage in arriving at the arm’s-length rate of interest.

Up on careful consideration we find ourselves in agreement with the submission of the learned counsel of the assessee. The said loan was raised three years ago. The revenue has accepted the rate of interest of 10% for the same in the past two years and without any change in facts and law it now wants to change the same without any cogent reason. Undoubtedly tax proceedings are not subject to the res judicata. However honourable apex court in a Catena of case laws has expounded that there has to be an element of consistency and dihors any change in facts and law the settled situation should not be disturbed.

The assessee also deserves to succeed on the ground that assessee has given five comparables. The authorities below have only discussed one and 4 M/s. Eliokem India Pvt. Ltd. (Currently known as Apcotex Industries Ltd.) have not at all commented upon the other four. This clearly shows that the rate of interest charged by the assessee was in accordance with the rate charged by the comparables.

Furthermore it is clear that only a part of the loan was granted by the holding company by raising loans at the rate of 6.13%. The holding company has also given sums out of equity portion and convertible bond portion of its resources. The transfer pricing officer has himself accepted that the cost of equity portion would be 15% and bond would be 10 %. Still the transfer pricing officer has totally ignored the same and held that assessee should have paid only 6.13%. In these circumstances in our considered opinion the order’s of authorities below is liable to be set aside. They are not at all in accordance with the facts clearly shown hereinabove. Facts discussed above show that TPO has adopted rate of interest of 6.13% totally arbitrarily. He has totally ignored comparables shown. He has also ignored cost of funds of the assessee holding company raised by way of equity shares and convertible bonds which were carrying interest rate of 15% and 10% respectively. Furthermore, rate of interest having been accepted in two assessment years cannot be changed without any change in facts or law for the present assessment year.

Accordingly in the background of aforesaid discussion we set aside the order’s of authorities below and decide the issue in favour of assessee

In the result assessee’s appeal stands allowed