Case Law Details
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.
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