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03-07-2019, Uttara Foods and Feeds, Section 144C(13), 92B(1), Tribunal Pune

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3 months 1 week ago #9979 by amit
Section - 144C(13), 92B(1), 245-I, 245D
Order Date - 03-07-2019
Favouring - Assessee Partly
Court - Tribunal Pune
Appellant - Uttara Foods and Feeds Pvt. Ltd.
Respondent - ACIT
Citation - 719Taxpundit68
Appeal No. - ITA No.1987/PUN/2017
Asstt. Year - 2012-13



This appeal by the assessee is directed against the final assessment order dated 26.02.2017 passed by the Assessing Officer (AO) u/s.143(3) read with section 144C(13) of the Income tax Act, 1961 (hereinafter also called „the Act‟) in relation to the assessment year 2012-13.

2. The only effective ground pressed by the Ld. AR is against determining the interest rate of 17.50% as arm‟s length interest rate for loans advanced by the assessee to its Associated Enterprises (AEs).

3. Succinctly, the facts of the case are that the assessee company was established with an objective of providing poultry with hygienic, nutritionally balanced and easily digestible diet. It began operations in 1998. The assessee filed its return for the year under consideration declaring total income of Rs.15,66,20,820/-. Certain international transactions were reported in Form No. 3CEB. The Assessing Officer made reference to the Transfer Pricing Officer (TPO) for determining the arm‟s length price (ALP) of the international transactions. During the course of proceedings before the TPO, which remained unrepresented by the assessee, it was observed that the assessee availed External Commercial Borrowings (ECB) from ICICI Bank, Singapore amounting to USD 17 Million for establishing three entities in Bangladesh, Switzerland and Vietnam. The TPO further observed that the assessee also availed Long Term Rupee Loans carrying rates of interest between 12% to 15.25%. The TPO found that though the assessee was paying interest, but it did not charge any analogous interest from its AEs. Considering these transactions of advancing loans to its AEs as international transactions in terms of section 92B(1) of the Act, the TPO determined arm‟s length rate of interest at 11.35%. This resulted into proposing of transfer pricing adjustment of Rs.6,64,77,625/-. The Assessing Officer made the transfer pricing addition in the draft assessment order. The assessee approached before the Dispute Resolution Panel (DRP) urging that advances given to the AEs carried interest, which was charged at the rate of 15.25% amounting to Rs.9,65,45,886/-. The DRP determined the arm‟s length rate of interest at 17.50% and
directed the TPO to compute transfer pricing adjustment afresh after verifying the assessee‟s submission that the interest was charged at the rate of 15.25%. In the final impugned assessment order, an addition of Rs.1,31,78,383/- has been made for the differential rate of interest at 2.25% (17.50% as determined by the DRP minus 15.25% as charged by the assessee). The assessee is aggrieved by such an addition.

4. We have heard both the sides and gone through the relevant material available on record. The facts of the case which are not disputed by the ld. DR as well that the assessee made certain advances to its AEs in Bangalesh, Switzerland and Vietnam, on which it charged interest at the rate of 15.25% as against the TPO originally determining the arm‟s length rate of interest at 11.35%. Such determination was done in ex parte proceedings without knowing that the assessee had already charged interest from its AEs at the rate of 15.25%. When the assessee brought this fact to the notice of the DRP, the Panel revised upwards the arm‟s length rate of interest to 17.50% on the basis of 300 basis points above the prime lending rate in India.

5. It is a matter of record that the assessee was subjected to search and seizure proceedings. The assessee moved Income Tax Settlement Commission (ITSC) for the assessment years 2012-13 to 2017-18. One of the issues raised before the ITSC was the interest rate to be charged by the assessee from its AEs. The assessee contended before the Settlement Commission that interest rate charged by it from the three subsidiaries was over and above the prevailing interest rates in the respective countries where loans were utilized. The ITSC, vide its order dated 02.04.2019, a copy available at page 76 onwards of the paper book, called for a report from the TPO, who gave three options for determining the arm‟s length rate of interest on loans given by the assessee to its AEs. The first option was to work out the ALP as per the directions given by the DRP in the case of the assessee for the assessment year 2012-13, leading to determination of the ALP at Rs.205.30 crore for all the six assessment years. The second

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