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The Tax Publishers2020 TaxPub(DT) 2848 (Mum-Trib) INCOME TAX ACT, 1961
Section 92C
Arm's length rate of interest in case of loans advanced to AE's was to be determined on the basis of rate of interest charged in countries where loan was received/consumed and ECB rate as per RBI circular could not serve the purpose.
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Transfer pricing - Determination of ALP - Interest on loan given to AE -
Assessee advanced intrest free loan to AE abroad. TPO made ALP adjustment on account of interest by adopting 7.75% SBI Prime Lending rate. CIT(A) directed AO to compute ALP on interest on loan granted by assessee to its AE by adopting the rate prescribed by RBI for External Commercial Borrowing (ECB) i.e. six month libor + 200 basic point for loan with average maturity period and six month libor +300 basic point for loan with average maturity purpose more than five years.Held: ECB rate as per Reserve Bank of India (RBI) Circular was applicable to the ECB and trade credit availed of residents, whereas assessee had provided loan to its non-resident AE and thus, RBI Circular relied on by CIT(A) was not applicable. Arm's length rate of interest in case of loans advanced to AE's was to be determined on the basis of rate of interest charged in countries where loan was received/consumed. As AEs also availed of loan from DBS Bank Singapore and documents evidencing interest rate at 6.22% charged by DBS Bank was filed on record, it was to be considered as internal CUP and thus, AO was directed to recompute ALP afresh.
REFERRED :
FAVOUR : Partly in assessee's favour.
A.Y. : 2007-08
INCOME TAX ACT, 1961
Section 92C
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