Maharashtra Seamless Ltd Vs DCIT (ITAT Delhi)
The appeal by Maharashtra Seamless Ltd against the order of CIT(A)-44, New Delhi, dated 28.06.2019, revolves around transfer pricing adjustments concerning interest charged on a foreign currency loan extended to an Associated Enterprise (AE), Jindal Pipes (Singapore) Pte. Ltd. The crux of the matter lies in whether the interest rate charged by the assessee is at arm’s length, thus warranting no transfer pricing adjustment.
Analysis: The assessee, engaged in the manufacturing and trading of pipes and tubes, advanced a loan to its Associated Enterprise, Jindal Pipes (Singapore) Pte. Ltd. The interest charged on this loan was benchmarked using the Comparable Uncontrolled Price (CUP) method. The assessee argued that the interest rate charged, based on 1 month LIBOR plus 300 basis points, was already higher than the rate charged by Citibank, Singapore, making the transaction at arm’s length.
However, the Transfer Pricing Officer (TPO) disagreed, citing various reasons, including the duration of the loan, existence of a guarantee, and differences in financial years. Despite the TPO’s assessment, the CIT(A) upheld the adjustment, albeit reducing the interest rate to LIBOR plus 350 basis points.
Upon further review, the Tribunal found merit in the assessee’s arguments. It highlighted that the loan’s short-term nature, the necessity of guarantees for substantial loans, and the alignment of financial years supported the assessee’s position. Additionally, precedent cases were cited to bolster the argument.
Conclusion: The Tribunal’s decision in favor of Maharashtra Seamless Ltd signifies a meticulous analysis of transfer pricing intricacies. By determining that the interest earned by the assessee was at arm’s length, the Tribunal deemed the adjustment unnecessary. This ruling sets a precedent for similar cases, emphasizing the importance of thorough scrutiny in transfer pricing assessments and ensuring fair treatment for taxpayers.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal has been filed by the assessee against the order of ld. CIT(A)-44, New Delhi dated 28.06.2019.
2. Following grounds have been raised by the assessee:
“1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) (CIT(A)} is bad both in the eye of law and on facts.
2. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in sustaining the transfer pricing adjustment of Rs.5,81,986/- made by the TPO on account of interest charged on foreign currency loan extended to the Associated Enterprise (AE), Jindal Pipes (Singapore) Pte. Ltd.
3. (1) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in sustaining the above adjustment computing the interest at the rate of 6 months LIBOR plus 350 basis points as the Arms’ Length rate as against the 1 month LIBOR plus 320 basis points charged by the assessee.
(ii) That the above addition has been confirmed by taking the above rate of LIBOR plus 350 basis points without there being any basis for the same
4. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the above addition rejecting the contention of the assessee that rate at which the Associated Enterprise has availed the loan from financial institution, being the internal comparable, should be preferable comparable.
5. On the facts and circumstances of the case, the learned CIT(A) has grossly erred both on facts and in law in confirming the action of the AO/TPO rejecting the additional evidences filed by the assessee under rule 46A of the Income Tax Rules, 1962.
6. On the facts and circumstances of the case, the learned CIT(A) has grossly erred both on facts and in law in confirming the above addition by indulging in surmises without bringing on any adverse evidence against the assessee, only on the basis of presumption and assumption.”
3. The brief facts of the case are that the assessee is a company engaged in the business of manufacturing of Seamless, ERW Pipes and Tubes, and trading of Pipes and Tubes. The assessee has filed its return of income in original on 28.09.2012. During the year under consideration, the assessee has advanced loan to Jindal Pipes (Singapore) Pte. Ltd (JPSPL) of around US$ 33,64,847.52, equivalent to Rs. 16,99,24,281/-. The assessee has charged interest of Rs. 19,88,755/- on such advances at the rate of 1 months LIBOR plus 300 basis points which is 3.23% p.a. approx and the same was declared in the return of income filed by the assessee.
4. The above International transaction of interest received of Rs. 19,88,755/-was benchmarked by the assessee adopting CUP method, being the appropriate method. The assessee has considered JPSPL, its Associated Enterprise as the internal comparable because JPSPL (AE) has also taken the loan from Citibank N.A. Singapore for the tenure of 3 months at the rate of 6 months LIBOR + 225 basis points i.e. 2.937% p.a. approx. and the assessee has charged the higher rate of interest from JPSPL, AE, being 1 month LIBOR + 300 basis points i.e. 3.23% p.a. approx., thus the transaction of the assessee is at arm’s length.
5. During the course of Transfer Pricing proceeding, the assessee submitted the rate charged by assessee to JPSPL is 1 month LIBOR + 300 basis points which comes out to be 3.23% p.a. approx. is already more than the rate of interest charged by Citibank, Singapore, and the transaction is considered at arm’s length.
6. The TPO rejected the comparable provided by assessee citing following reasons:
