Prolifics Corporatio... v. Dcit, Circle-3(1), H..., Income Tax Appellate Tribunal, Judgment, Law, casemine.com

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Case Number

ITA. No. 1646.Hyd/2014 Assessment Year 2010-2011

Attorney(S)

For assessee: Mr. Raghunathan S
For Revenue: Mr. M. Jagadish Babu

Judges

P. Madhavi Devi, J.M.
S. Rifaur Rahman, A.M.

Acts

Section 143(3) read with section 144C(5) of the Income-tax Act, 1961 (hereinafter referred
section 92CA(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act)
FINANCE ACT 2012
rule 10B of the Income-tax Rules, 1962.5.
section S. 115JB of the I.T. Act, 1961.

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Smart Summary

Factual and Procedural Background

This appeal arises from the assessee's challenge to the assessment for the assessment year 2010-2011. The assessee filed its return of income on 11.10.2010 admitting total income of Rs. 11,41,14,552 under normal provisions and a book profit of Rs. 18,28,79,806 under section 115JB. During assessment proceedings under section 143(3), the Assessing Officer observed international transactions with Associated Enterprises and referred the determination of Arms Length Price (ALP) to the Transfer Pricing Officer (TPO) under section 92CA.

The TPO, by order dated 28.08.2013, computed an ALP adjustment of Rs. 2,48,32,927. A draft assessment followed, the assessee objected to the Dispute Resolution Panel (DRP), and the DRP, by orders dated 28.07.2014, rejected the assessee's objections 1 and 2 and allowed objections 3 and 4. The Assessing Officer passed the final assessment in accordance with the DRP directions. The assessee appealed to the Tribunal.

Two principal factual strands for dispute, as developed in the opinion, are:

Corporate guarantees: During FY 2008-09 the assessee provided bank guarantees amounting to Rs. 62,83,52,637 in favour of its Associated Enterprise (AE). The TPO treated this as an international transaction and applied a guarantee fee of 2%, a finding accepted by the DRP.
Loans & advances: The assessee provided advances of Rs. 9,28,37,001 on behalf of its AE (SST North America Inc.) to facilitate acquisition of JYACC Inc., New York; these advances were to be recovered on a cost-to-cost basis. The TPO treated these as international transactions and charged interest; the DRP confirmed chargeability but directed application of LIBOR + 4.75% (following earlier orders).

Legal Issues Presented

Whether the assessment order passed by the AO under section 143(3) read with section 144C (and with reference to the TPO order under section 92CA(3)) is valid or bad in law and void ab initio (as pleaded by the assessee).
Whether the transfer pricing adjustment of Rs. 2,48,32,927 as determined by the TPO (and upheld by the DRP) is correct.
Whether the corporate guarantee provided by the assessee to its AE is an "international transaction" under section 92B and, if so, whether the guarantee fee determined by the TPO/DRP (2% adopted by TPO; DRP upheld) is appropriate.
Whether loans and advances given by the assessee to its AE constitute international transactions attracting transfer pricing adjustments, and whether the interest rate applied by the TPO/DRP (LIBOR + 4.75%) is appropriate (the assessee sought LIBOR or LIBOR + lower margins).
Relatedly, whether the corporate guarantee fee should be reworked at 0.53% (as argued by the assessee and as directed in the assessee's earlier tribunal decision for AY 2009-10).

Arguments of the Parties

Appellant's (Assessee's) Arguments

The assessee challenged the assessment order and the transfer pricing adjustments generally (grounds 1–8 listed in the appeal).
With respect to the corporate guarantee, the assessee contended (by reference to earlier proceedings) that the Tribunal in AY 2009-10 had directed re-working of the guarantee fee at 0.53% and sought similar relief for AY 2010-11.
The assessee argued that the corporate guarantee provided by the parent did not involve cost or risk to the shareholder and therefore should not be treated as giving rise to a charge, and also raised points about commercial restrictions in the underlying loan agreement that prevented charging a guarantee fee.
On loans & advances, the assessee relied on the Tribunal's decision for AY 2009-10 which directed adoption of LIBOR + 2.75% (rather than LIBOR + 4.75%) and asked for the same rate to be adopted for the impugned year.

Respondent's (Department/DRP/TPO) Arguments

The departmental representative supported the TPO/DRP findings that the corporate guarantee constitutes an international transaction and that an ALP adjustment was warranted.
The DRP/TPO took the position that guarantees increase the creditworthiness of the AE and that, in case of default, the guarantor bears liability — hence guarantees involve risk and fall within transfer pricing provisions (particularly after legislative amendment).
With respect to loans, the DRP followed its earlier order and directed application of LIBOR + 4.75% to the loans and advances, which the department supported before the Tribunal.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Tribunal's order in assessee's own case for A.Y. 2009-2010 (paras 6–8 reproduced)	Considered whether corporate guarantees and loans/advances are subject to transfer pricing; analysed OECD guidance and domestic law; concluded guarantees involve risk and are services to AE; directed adoption of a 0.53% guarantee fee and LIBOR + 2.75% for loans.	The Court relied on and followed this earlier Tribunal conclusion: it upheld that corporate guarantees are international transactions and directed AO to adopt 0.53% as the guarantee commission; it also directed reworking interest on loans at LIBOR + 2.75%.
Four Soft P. Ltd. (ITAT, reported at 44 taxmann.com 479)	Held that corporate guarantees (post-amendment to section 92B) fall within the meaning of "international transaction".	The Court cited this decision to support the conclusion that corporate guarantees fall within section 92B's scope after the retrospective amendment effected by Finance Act, 2012.
Mahindra & Mahindra v. DCIT (ITA No. 8597/Mum/2010, 54 SOT (UR) 146)	Considered the effect of the amendment to section 92B and the need for AOs to follow the amended provision or Tribunal decisions accordingly.	The Court referenced this decision to show that coordinate benches have grappled with whether to apply Tribunal precedent or the amended statutory provision.
Glenmark Pharmaceuticals v. ACIT (ITA No. 5031/Mum/2012, dated 13/11/2013)	Determined that a corporate guarantee rate of 0.53% was appropriate in that factual context.	The Court noted that other Tribunals applied Glenmark's approach and considered 0.53% to be an arm's length rate for corporate guarantees; it directed adoption of 0.53% here as well.
Infotech Enterprises Ltd. (ITA No. 115/Hyd/2011 and ITA No. 2184/Hyd/2011, dated 16/01/2014)	Applied Glenmark Pharmaceuticals' ratio to remand determination of the corporate guarantee rate to the TPO for application of Glenmark's method.	The Court relied on this coordinate-bench application of Glenmark in concluding that the TPO should adopt a 0.53% rate and in remitting rate computation where appropriate.

Court's Reasoning and Analysis

The Tribunal proceeded in a stepwise fashion, addressing the raised grounds and focusing on the two substantive contested items: (a) corporate guarantees and (b) loans & advances.

Preliminary treatment of grounds

The Tribunal observed that ground Nos. 1 to 3 and 8 were general in nature and required no adjudication.

Corporate Guarantee (Ground Nos. 4 and 5)

Facts: the assessee provided absolute, irrevocable and continuing bank guarantees in FY 2008-09 amounting to Rs. 62,83,52,637 in respect of its AE. The TPO treated the guarantee as an international transaction and applied a 2% guarantee fee; the DRP accepted this finding.

Analysis applied:

The Tribunal examined prior reasoning (its own AY 2009-10 decision) which considered OECD Transfer Pricing Guidelines and concluded that guarantees increase the creditworthiness of an AE and, in the event of default, create real liability for the guarantor; therefore guarantees involve an inherent risk and constitute a service to the AE.
The Tribunal noted the statutory context: Explanation I(c) to section 92B (as inserted by Finance Act, 2012, retrospectively from 01/04/2002) expressly includes "capital financing, including ... guarantee" within the scope of "international transaction". That statutory amendment supports treating corporate guarantees as international transactions.
The Tribunal further reasoned that the TPO's application of a 3.75% rate (a bank-guarantee rate) was inappropriate because a corporate guarantee provided by a group company is not equivalent to a bank guarantee. The Tribunal considered other decisions (notably Glenmark) that found 0.53% to be appropriate in circumstances considered there.

Conclusion on guarantees: the Tribunal upheld the DRP/TPO in principle that the guarantee is an international transaction, but directed that the guarantee commission should be adopted at 0.53% (as applied in earlier/coordinate decisions) rather than the 2% (or 3.75% bank rate) adopted by the TPO.

Loans & Advances (Ground Nos. 6 and 7)

Facts: the assessee advanced Rs. 9,28,37,001 on behalf of its AE to SST North America Inc. for acquisition of JYACC Inc.; amounts were to be reimbursed. The TPO treated the advances as international transactions, charged interest, and the DRP directed LIBOR + 4.75% (relying on earlier orders).

Analysis applied:

The Tribunal accepted that providing loans to AEs is an international transaction and that an adjustment in principle is permissible; commercial motivations do not negate transfer pricing scrutiny.
The Tribunal rejected use of an internal Comparable Uncontrolled Price (CUP) derived from rates applied in later years (e.g., AY 2012-13) as an inappropriate measure for the earlier year, because interest rates are dynamic and vary by period and circumstances.
On the facts, since the AE borrowed from ICICI Bank, U.K. at LIBOR + 2.75%, the Tribunal considered this rate to be the appropriate ALP benchmark for interest on the loan provided by the assessee and directed the Assessing Officer to compute interest at LIBOR + 2.75% rather than LIBOR + 4.75%.

Conclusion on loans: the Tribunal directed reworking the interest on loans/advances at LIBOR + 2.75% (in line with the Tribunal's earlier AY 2009-10 decision) and thus modified the quantum of adjustment made by the TPO/AO.

Holding and Implications

Core Ruling: The assessee's appeal is partly allowed.

Direct effects on the parties:

The Tribunal upheld the position that corporate guarantees provided by the assessee to its AE are "international transactions" within the meaning of section 92B (taking into account the retrospective amendment by Finance Act, 2012 and analytical reasoning set out in the Tribunal's earlier order).
However, the Tribunal directed that the guarantee commission be adopted at 0.53% (following Glenmark Pharmaceuticals and the Tribunal's own earlier decision), and directed the Assessing Officer/TPO to re-work the guarantee-related adjustment on that basis.
With respect to loans and advances, the Tribunal directed the Assessing Officer to re-compute interest at LIBOR + 2.75% (instead of LIBOR + 4.75%), thereby reducing the transfer pricing adjustment on interest charged.
Grounds 1–3 and 8 were treated as general and not adjudicated further; other grounds were partly allowed or rejected as described above.

Broader implications: The Tribunal applied and followed existing coordinate-bench authorities (including Glenmark Pharmaceuticals, Four Soft, Infotech Enterprises and its own prior decision for AY 2009-10) in determining appropriate ALP rates and in concluding that corporate guarantees are subject to transfer pricing provisions. The opinion does not purport to set a new, novel legal precedent beyond applying and following these earlier authorities; its effect is to direct re-computation of the disputed adjustments for the parties in this assessment year.

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Prolifics Corporation Ltd., (Previously Known As Semantic Space Technologies Ltd.,) Hyderabad500 032 v. Dcit, Circle-3(1), Hyderabad .

P. Madhavi Devi, J.M.:— This is assessee's appeal for the A.Y. 2010-2011. In this appeal, the assessee has raised the following grounds of appeal:

1. “Based on the facts and circumstances of the case and in contrary to law, the Appellant respectfully craves leave to prefer an appeal against the order passed by the Deputy Commissioner of Income Tax, Circle-3(1), Hyderabad (hereinafter referred to as ‘AO’) in pursuance of the directions of the Dispute Resolution Panel (hereinafter referred as ‘DRP’), Hyderabad dated 20 August 2014 under Section 143(3) read with section 144C(5) of the Income-tax Act, 1961 (hereinafter referred to as ‘Act’).

2. The assessment order passed by the Learned AO under section 143(3) read with section 144C and read with the order passed by the Learned Transfer Pricing Officer (hereinafter referred to as ‘TPO’), under section 92CA(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) is bad in law and void ab-initio.

3. The Learned AO/DRP erred in upholding the transfer pricing adjustment of Rs. 2,48,32,927 as determined by the Learned TPO without appreciating the functions performed, assets employed and risk assumed by the Appellant with regard to the international transactions.

4. On the facts and circumstances of the case and in contrary to law, the Learned AO/DRP erred in confirming the TPO's stand with regard to the corporate guarantee given by the Appellant.

4.1. In not appreciating the fact that the transaction of corporate guarantee given as a shareholder is not in the nature of “international transaction” as defined in section 92B and hence is outside the purview and scope of Chapter X of the Act.

4.2. In making a transfer pricing adjustment for the corporate guarantees given by the Appellant to various third parties on behalf of its Associated Enterprise (‘AE’) which is continuing from prior years and was also subjected to transfer pricing adjustment in A.Y. 2009-10.

4.3. In not appreciating the fact that as per the loan agreement between ICICI bank and the AE for which the corporate guarantee was provided by the Appellant, the Appellant was commercially restricted from charging any guarantee fee to the A.E.

4.4. In not appreciating the concept of shareholder services as contained in the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations released by the Organisation for Economic Cooperation and Development (‘OECD guidelines’).

4.5. In adopting corporate guarantee rate of @ 2% in an ad-hoc manner without following one of the prescribed methods as provided under rule 10B of the Income-tax Rules, 1962.

5. Without prejudice to the ground nos. 4.1, 4.2, 4.3, 4.4 and 4.5, on facts and circumstances of the case, the Hon'Ble DRP/Ld.TPO ought to have considered the corporate guarantee fees @ 0.5% instead of 2% by following various judicial precedents.

6. On the facts and circumstances of the case and in contrary to law, the Learned AO/DRP erred in confirming the TPO's stand with regard to Loans & Advances given by the Appellant.

6.1. In making a transfer pricing adjustment of INR. 1,22,65,874/- (INR. 98,67,002 on account of loan + INR. 23,98,872 on account of reimbursements) by determining the interest rate @ 6 month Libor plus 4.75% on loans & advances given by the Appellant to its AE.

6.2. In not appreciating the fact that the loan & advances given by the Appellant to the AE is for the business and commercial exigency and thereby not appreciating the concept of shareholders activity as given in the OECD guidelines.

6.3. In considering the promissory note entered into between SST North America and the Appellant as internal Comparable Uncontrolled Price for arriving at the ALP of interest on loans & advances provided by the Appellant to its AE; and

7. Without prejudice to the ground nos. 6.1, 6.2 and 6.3, on the facts and circumstances of the case, the Hon'Ble DRP/Ld.TPO ought to have considered only LIBOR as the maximum rate of interest on the loans & advances given by the Appellant to its AE.

8. The Appellant craves leave to add to/alter/amend/substitute any of the above grounds of appeal, at the time, before or at the time of hearing of the appeal, so as to enable the Appellate authority to decide this appeal according to law.”

2. Brief facts of the case are that the assessee company, engaged in the business of providing software development and support services, has filed its return of income for the A.Y. 2010-2011 on 11.10.2010 admitting total income of Rs. 11,41,14,552 under normal provisions and book profit of Rs. 18,28,79,806 under section S. 115JB of the I.T. Act, 1961. During the assessment proceedings under section 143(3) of the Act, the Assessing Officer observed that the assessee has entered into international transactions with it's A.E. Therefore, the determination of the Arms Length Price (“ALP”) of the international transactions was referred to the TPO under section 92CA of the Act. The TPO, by order dated 28.08.2013, computed the ALP adjustment at Rs. 2,48,32,927. The Assessing Officer accordingly, proposed draft assessment order, against which the assessee preferred its objections before the DRP. The DRP, vide orders dated 28.07.2014, rejected the objections 1 and 2 of the assessee and allowed the objections 3 and 4. In consonance with the directions of the DRP, final assessment order is passed and aggrieved by the denial of the relief to the assessee by the DRP, the assessee is in appeal before us.

3. We find that ground Nos. 1 to 3 and 8 are general in nature which need no adjudication.

4. As regards ground No. 4, brief facts of the case are that during the F.Y. 2008-09, the assessee had provided bank guarantee to the extent of Rs. 62,83,52,637 to it's A.E. The bank guarantee provided by the assessee to it's A.E. is absolute, irrevocable and continued guarantee. Therefore, according to the TPO, this is an international transaction and the fee of 2% thereon was found to be reasonable by the TPO. The DRP accepted the finding of the TPO and held the issue against the assessee. Against the same, the assessee has preferred this appeal before us.

5. The Learned Counsel for the assessee, submitted that similar issue had arisen in the assessee's own case for the earlier A.Y. 2009-2010 wherein the Tribunal has held the corporate guarantee to be an international transaction and therefore, this issue is covered against the assessee. However, he submitted that the Tribunal had directed the Assessing Officer to re-work-out the corporate guarantee fee at 0.53% as an arms length adjustment. He prayed for similar directions in the relevant assessment year also.

6. The Ld. D.R. supported the orders of the authorities below.

7. Having regard to the rival contentions and the material on record, we find that the Tribunal vide orders dated 31.12.2014 in assessee's own case for the A.Y. 2009-2010 has considered the issue at length at paras 6 to 8 which are reproduced hereunder for ready reference:

“6. Coming to the issue of guarantee fee, one of the fundamental fact patterns in the evolution of international transfer pricing concepts and rules involves an enterprise's use of a financial resource belonging to an associated enterprise. An aspect of the use of money relates to the use of a credit enhancement instrument, which typically arises in the context of guarantees of the obligations of one controlled entity by another. Although the GECD Transfer Pricing Guidelines, 2010 acknowledge the role of the use of money in transfer pricing matters, they do not yet provide specific guidelines regarding how such issues are to be addressed and resolved. Nonetheless, the elements that are typically important in evaluating transfer pricing issues involving the use of money within multinational enterprise groups can be outlined by drawing on general arm's length principles. Whether the mere presence of a guarantee support to an A.E. is subject to T.P. provisions has been a contentious issue in the Indian context. However, the issue of whether a charge should be imposed for provision of a guarantee is primarily a factual inquiry. The assessee argued that the corporate guarantee is an additional guarantee provided by the parent company and it does not involve any cost or risk to the shareholders. The assessee also argued that the retrospective amendment to section 928 of the ITL, by Finance Act, 2012 does not enlarge the scope of the term “International Transaction” to include the corporate guarantee in the nature provided by assessee. DR on the other hand, contended that the transaction of providing the corporate guarantee is covered by the definition of international transaction after the retrospective amendment made by Finance Act, 2012. Therefore, the transaction was subject to T.P. provisions and needed ALP determination. It was the submission that there is no service rendered by assessee to the A.E. Assessee relied on the views expressed by Australian Tax Officer placing relevant copy before us which was issued in 2008. Law has changed subsequently and provisions of Income Tax also were amended so as to include providing guarantees as service to the A.E. However guarantees involve express guarantee or implied guarantee which increases credit worthiness of AEs, if provided by main company. In case of default Guarantor has to fulfill the liability. Therefore, there is always an inherent risk in providing guarantees. That may be a reason that Finance provider insist on non charging any commission from AE as a commercial principle. This indicates that, provision of guarantee always involve risk and there is a service provided to AE in increasing is creditworthiness in obtaining loans in market, be from Financial institutions or from others. There may not be immediate charge on P & L account but inherent risk can not be ruled out in providing guarantees.

7. Considering the above, we are of the opinion that there is service rendered to A.E. by providing guarantees and therefore, invoking provisions of T.P. does arise on the facts of the case. The Coordinate Bench of Hyderabad Tribunal has already considered similar issues in the case of Four Soft P. Ltd., reported at, 44 taxmann.com 479 (wherein one of us a Member] and held as under:

“25.2. Having considered the submissions of the parties, we are unable to accept the contention of the learned AR that corporate guarantee of the nature provided by the assessee will not come within the meaning of international transaction in terms with section 92B of the Act. It is not disputed that section 92B of the Act has been amended by the Finance Act, 2012 with the insertion of Explanation I (c) with retrospective effect from 01/04/2002. Explanation (i)(c) to section 92B, reads as under:

“capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business.”

25.3. A reading of the aforesaid clause from the Explanation would make it clear that the corporate guarantee provided by the assessee comes within the scope and ambit of ‘international transaction’ as per the aforesaid clause. Therefore, the contention of the learned AR that the issue is covered in favour of the assessee by virtue of the order passed in assessee's own case for AY 200607 no longer holds good since the order passed by the coordinate bench is prior to the amendment made to provision of section 92B of the Act. It will be pertinent to mention here that this issue was also considered by the ITAT Mumbai Bench in case of Mahindra & Mahindra v. DCIT in ITA No. 8597/Mum/2010, 54 SOT (UR) 146. The coordinate bench of this Tribunal while considering similar argument advanced on behalf of the assessee by placing reliance on the decision of the Four Soft Ltd. (supra), held as under:

“15.2. After hearing the rival submissions we feel that Assessing Officer will have to follow the decision of the ITAT Hyderabad or the amended provision of the Act in this regard. If the Finance Bill of 2012 is passed by the Parliament amending the provisions of section 92B, with effect from 1st April, 2002, he will have to ignore the decision of the ITAT Hyderabad. In case section 92B is not amended with retrospective effect, he should grant relief to the appellant.”

25.4. In the aforesaid view of the matter, we agree with the TPO that ALP of the corporate guarantee has to be determined as it falls within the scope and ambit of all international transaction after the retrospective amendment to section 92B. However, it appears that the TPO has applied the rate of 3.75%, which is applicable to bank guarantee issued by the bank. As the corporate guarantee is not in the nature of bank guarantee, the rate applicable to bank guarantee provided by the bank cannot be applied to corporate guarantee which is provided by a group company. In case of Glenmark Pharmaceuticals v. ACIT in ITA No. 5031/Mum/2012, dated 13/11/2013, the Mumbai Bench of the Tribunal after analysing the facts in that case had held that 0.53% corporate guarantee rate in that case was appropriate. The ITAT Hyderabad Bench in case of Infotech Enterprises Ltd. in ITA No. 115/Hyd/2011 and in ITA No. 2184/Hyd/2011, dated 16/01/2014 while considering identical issue of determining ALP of corporate guarantee provided by the assessee to its AE followed the ratio laid down in case of Glenmark Pharmaceuticals v. ACIT (supra) and remitted the issue back to the TPO to decide the quantum of corporate guarantee rate by following the method adopted in case of Glenmark Pharmaceuticals (supra).

8. In view of this, we uphold the adjustment made on guarantee commission both on the guarantee provided to Bank directly and also on the guarantee provided to the erstwhile shareholders of JYACC for assuring the payment by AE. However, we direct the TPO to adopt the rate to 0.53% which is considered as arms length in other cases. With these directions, grounds are considered partly allowed.”

7.1. Since the DRP has also followed its earlier order for the A.Y. 2009-2010, we uphold the finding of the DRP that the corporate guarantee is an international transaction. Thereafter, we also direct the Assessing Officer to adopt rate as 0.53% as corporate guarantee commission as done in the earlier assessment year. Thus, Ground of appeal No. 4 is rejected and ground of appeal No. 5 is treated as allowed for statistical purposes.

8. As regards ground No. 6, brief facts of the case are that the assessee had provided an advance of Rs. 9,28,37,001 on behalf of it's A.E., to SST North America Inc., due to business and commercial exigencies for the sole purpose of acquisition of JYACC Inc, New York and the same were to be recovered from SST later on cost-to-cost basis. The TPO observed that SST was a start-up company with no significant business activities. The TPO therefore, treated the same as an international transaction and charged interest on the same. The DRP confirmed the chargeability of interest thereon but however, directed the TPO to adopt LIBOR+ 4.75% basis points. For coming to this conclusion also, the DRP relied upon its order for the A.Y. 2009-2010. The Learned Counsel for the assessee submitted that this issue also was decided by the Coordinate Bench of this Tribunal for the A.Y. 2009-2010 wherein the Tribunal has directed the Assessing Officer to adopt LIBOR+ 2.75% only as against the LIBOR+ 4.75% charged by the Assessing Officer/TPO. He therefore, prayed for similar direction for the impugned A.Y. as well.

9. The Ld. D.R. was also heard.

10. Having regard to the rival contentions and the material on record, we find that the Tribunal in the A.Y. 2009-2010 has considered this issue at para-5 which is reproduced hereunder for ready reference.

“5. We have considered the issue and perused the documents on record. The two issues to be considered are whether the interest free loans and guarantees provided by assessee to AE calls for any adjustment. As far as adjustment of interest on loans provided, assessee even though is objecting to adjustment per se but main thrust is on rate on which the adjustments were made. There is no dispute to the fact that providing of loans to AE is an International Transaction as per the TP provisions. Therefore, the commercial considerations advanced by assessee can not be considered while examining the ALP of the transactions. We are of the opinion that the transaction of providing loans to subsidiary whether a direct loan or providing credit for initial expenditure, which is stated to be reimbursable, do call for adjustment. Therefore, in principle we approve the adjustment made on these transactions. As far as the rate of interest is concerned, the A.O./TPO in our opinion, has considered the subsequent collection of interest in A.Y. 2012-2013 at LIBOR + 4.75 basis points as an internal CUP. This cannot be accepted as rate of interest in each year is a dynamic figure which varies according to the period, demand and supply. The rate at which assessee charged interest from the sister concern in A.Y. 20122013 cannot be accepted as internal CUP in AY. 2009-2010. A.O. has not only went beyond the rules which does not provide for later years information to be adopted, but also ignored assessee's objections why a higher rate was charged in those years. Since, AE. borrowed funds from ICICI Bank, U.K. @ LIBOR + 2.75%, we are of the opinion that, that rate should be considered as ALP of interest and A.O. is directed to workout the interest at that rate on the loan provided to SSTL north America. Assessee is also objecting to the adjustment on loan given to Arsin Corporation, another A.E. of Assessee. Here, assessee has charged interest at LIBOR + 1.50 BPS. Since, we have approved LIBOR + 2.75 points on the loan given to SST, North America (A.E.) we direct the Assessing Officer to re-workout the interest on the loan provided to this A.E. at LIBOR + 2.75% only as against LIBOR + 4.75% charged by A.O./TPO. With this direction, the grounds raised by assessee in ground Nos. 2 and 3 are considered as allowed partly.”

10.1. Respectfully following the same, we direct the Assessing Officer to re-workout the interest on the loan brought by the assessee to it's a.E. at LIBOR+ 2.75% as against LIBOR+ 4.75% charged by the Assessing Officer/TPO. Grounds of appeal No. 6 is accordingly rejected and grounds of appeal No. 7 is partly allowed.

11. In the result, assessee's appeal is partly allowed.

Prolifics Corporatio... v. Dcit, Circle-3(1), H...