Case Law Details
DCIT Vs JSW Steel Ltd. (ITAT Mumbai)
ITAT Mumbai held that Corporate Guarantee facility provided to overseas AE by the assessee is an international transaction and hence addition towards Arm’s Length Guarantee Fee confirmed.
Facts- The assessee is public limited company deriving income from manufacturing and selling of steel pellets, hot and cold rolled coils/ sheets, galvanized coils / sheets and plates, blooms, billets, bars, roads and slag cement.
The issue is that the assessee had advanced intra-group unsecured loan of USD 15,00,000/- to its AE, JSW Netherlands on 14.01.2008 and was in receipt of interest of Rs 1,92,949/- against the same. The said loan was provided by the assessee company to its AE at Libor plus 100 basis points. Since the said loan was in the nature of short term loan, the same was benchmarked using buyer credit facility availed by the assessee from foreign banks. The buyers credit facility availed from foreign banks is at Libor plus 22 basis points. The assessee explained that since the interest rate charged by Assessee Company is more that the interest rate charged by foreign banks for short term credit facility, the transaction of interest received is at Arm’s Length.
However, TPO came to a conclusion that interest on outbound loan was not to be benchmarked with LIBOR since no company would like to advance loans outside India without security as the interest rate in India would be higher than those prevailing in the developed country. Finally, TPO considered the rate of 12.75% out of three rates to benchmark the stated transactions. Adjusting the interest of Rs 1,92,949/- as charged by the assessee from its AE, the net TP adjustment, thus proposed, worked out to be Rs 2,84,526/-.
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