INCOME TAX ACT, 1961

Section 92C

Transfer Pricing - Computation of arm's length price - Rate of interest charged by more than arm's length rate of interest -

Assessee was established with an objective of providing poultry with hygienic, nutritionally balanced and easily digestible diet. Assessee availed ECB from Bank for establishing three entities in Bangladesh, Switzerland and Vietnam. TPO observed that assessee also availed long-term rupee loans carrying rates of interest between 12% to 15.25%. TPO found that though assessee was paying interest, but it did not charge any analogous interest from its AEs. TPO determined arm's length rate of interest at 11.35 per cent. Assessee approached before DRP urging that advances given to AEs carried interest, which was charged @ 15.25 per cent. DRP determined the arm's length rate of interest at 17.50 per cent and directed TPO to compute transfer pricing adjustment. Held: Arm's length rate of interest is the rate prevalent in the country where the loan was received/consumed and not the country in which the assessee advances loans to its AE's. Since rate of interest charged by the assessee is more than the arm's length rate of interest as worked out on the basis of the rates prevalent in the countries where the borrower enterprises are situated, no transfer pricing adjustment can be made.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2012-13

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