The Income Tax Appellate Tribunal (ITAT) Delhi Bench ruled that LIBOR is appropriate benchmarking rate for determining Arm’s Length Price (ALP) on outbound loan transactions. Therefore, the bench dismissed the appeal.
The assessee JSW Steel Ltd.is public limited company deriving income from manufacturing and selling of steel pellets, hot and cold rolled coils/ sheets, galvanized coils / sheets and plates, blooms, billets, bars, roads and slag cement.
During assessment proceedings, it was found that certain International Transactions as carried out by the assessee with its Associated Enterprises [AE] and as reported in Form 3CEB were referred to Ld. Transfer Pricing Officer– [TPO] for determination of Arm’s Length Price [ALP].
The assessee had advanced intra-group unsecured loan of USD 15,00,000/- to its AE, JSW Netherlands on 14.01.2008 and was in receipt of interest of Rs 1,92,949/- against the same. The said loan was provided by the assessee company to its AE at Libor plus 100 basis points.
Since the said loan was in the nature of short-term loan, the same was benchmarked using buyer credit facility availed by the assessee from foreign banks.
TPO opined that the benchmarking by credit facility is not proper as the facility was available for purchase of goods whereas the loan transaction to AE is not against purchase or sale of goods but a pure loan transaction.
Further, the assessee failed to substantiate the details regarding the bank transfer and banks. And the TPO concluded that interest on outbound loans was not to be benchmarked with LIBOR since no company would like to advance loans outside India without security as the interest rate in India would be higher than those prevailing in the developed country.
Finally, the TPO benchmarked the transaction using external CUP methods. Accordingly, the AO passed the assessment order.
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeal) {CIT(A)}, who held that LIBOR would be appropriate benchmarking rate on such outbound loan transactions.
Accordingly, against the order revenue filed an appeal before the tribunal.
Manoj Mishra Departmental representatives supported the decision of lower authorities and TPO order.
During the proceedings, Rakesh Joshi, the counsel for the assessee submitted that identical benchmarking was carried out by the TPO which was subsequently deleted by the CIT(A) in assessee’s sister concern case JSW Energy Limited in the assessment year 2012- 13.
It was observed by the tribunal that ALP rate of interest in case of loans advanced to Associate Enterprises would be determined on the basis of rate of interest being charged in the country where the loan is received /consumed.
The tribunal after reviewing the facts and submissions of the both parties, a single member bench of Amarjit Singh, (Accountant Member) and Amit Shukla, (Judicial Member) upheld the loan to foreign AE benchmarked on the basis of LIBOR.
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