Case Law Details
The Mumbai Tribunal disallowed the claim of the taxpayer in providing interest free loans to its overseas subsidiary. The Tribunal rejected the argument of the tax payer that the loan was extended on account of commercial expediency and out of its own fund (i.e. interest free).
Facts of the case
VVF Limited was a company incorporated in India and owned equally by Mr. Rustom Joshi, Mr Faraz Joshi and M/s Interred Products Limited, Bahamas. The Company had two wholly owned subsidiaries (associated enterprises or AEs) namely, VVF Inc, Canada and VVF FZE, Dubai. The taxpayer advanced certain interest free loans to its AEs and determined the arm’s length price (ALP) of the interest free funds at Nil.
During the course of assessment proceedings for assessment year (AY) 2002- 03, the Transfer Pricing Officer (TPO) held that the international transaction undertaken by the taxpayer, in relation to the interest free loan, was not at arm’s length and made upward adjustment by adopting 14 percent per annum as arm’s length interest. The Commissioner of Income-tax (Appeals) [CIT (A)] upheld the order passed by the TPO.
Taxpayer’s Contentions:
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