Case Law Details
DCIT Vs Kolte Patil Developers Ltd. (ITAT Bangalore)
The assessee issued CCDs/OCDs in 2009 at interest rate of 15%. It was for the first time that the AO for the assessment year 2011-12 treated Arm’s Length rate of interest at 8% on the basis of LIBOR plus certain basis points and made transfer pricing adjustment for the remaining interest equivalent to 7%. The ld. CIT(A), considering the interest paid by the assessee to IDBI Bank as Internal Comparable under the CUP method, determined the ALP of interest at 13.75%. Both the assessee as well as the Revenue preferred appeals against the order passed by the CIT(A) for the assessment year 2011-12. The Revenue did not dispute the determination of the arm’s length rate of interest at 13.75% though it preferred appeal on disallowance u/s 14A of the Act.
The assessee also preferred appeal against restricting the rate of interest at 13.75%, but, the ld. AR submitted that the assessee has filed application for settlement of the dispute under the Vivad Se Vishwas Scheme. It is thus vivid that the decision of the ld. CIT(A) for the assessment year 2011-12, considering internal comparable instance of interest payment by the assessee to IDBI as a benchmark, has attained finality. On a pointed query as to what rate of interest was paid by the assessee during the year under consideration on the borrowings made from IDBI Bank, the ld. AR could not point out any such rate except referring to the Sanction letter dated 07-02-2011 issued by IDBI bank enhancing the assessee’s credit facility to Rs.24.50 crore. However, on examination of the assessee’s Balance sheet for the year under consideration, a copy placed at pages 152 onwards of the paper book, it emerges that the amount payable to IDBI bank stands at Nil. This shows that the interest rate paid by the assessee to IDBI Bank that was considered as an internal comparable under the CUP method for the earlier year, is no more relevant for the year under consideration.
The exercise of ALP determination has to be undertaken each year separately by considering the facts and circumstances that are relevant and germane to the issue for that particular year. Given the fact that the basis for the determination of arm’s length rate of interest for the preceding year 2011-12 does not survive and the ld. AR could not point out the rate of interest at which the assessee made borrowings from bank in the year under consideration, we are satisfied that it would be appropriate if the impugned order on this score is set-aside and the matter is restored to the file of AO.
We order accordingly and direct the AO/TPO to find out the rate at which interest was paid by the assessee to its bank in the year under consideration and then apply the same as arm’s length rate for determining the ALP of the International/Specified Domestic transactions of payment of interest. Needless to say, the assessee will be allowed opportunity of hearing in such fresh determination. The cross grounds raised by both the sides on this issue are allowed for statistical purposes.
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