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8,90,20,949/- (+) Rs. 19,32,806/-] from its AEs, viz. (i) Greatship Global Holdings Ltd. (for short "GGHL"); and (ii). Greatship (UK) Limited (for short "GUK") at the rate of LIBOR plus 2.9% mark-up and LIBOR plus 3% mark-up, respectively. Loan to GUK was sanctioned and disbursed in the immediately preceding year i.e F.Y 2010-11. On the other hand the loan to GGHL was sanctioned in the immediately preceding year i.e F.Y 2010-11 and was disbursed in parts in the said preceding year and the current financial year. As the interest rates on both the loans were determined at the time of their respective sanction in the immediately preceding financial year 2010-11, the assessee, thus, had relied upon the benchmarking exercise that was carried out in its TP study report for the said preceding year. Considering itself as the tested party the assessee had benchmarked the interest charged on the loans advanced to its AEs on the basis of the arithmetic mean of the interest rate that was charged by the banks in respect of the foreign currency loans availed by it. Such arithmetic mean of the interest rates charged by the banks in respect of the foreign currency loans availed by the assessee worked out at LIBOR + 1.829%. As the assessee had advanced the loans to its AEs at LIBOR + 2.9% and LIBOR + 3% thus the interest charged on the said respective loans was held by the assessee to be at arm‟s length. However, the Internal CUP adopted by the assessee for benchmarking the interest charged on the loans advanced to its AEs did not find favour with the TPO. It A.Ys.2012-13 & 2014-15 Greatship (India) Ltd., Vs. DCIT-5(1)(1) was observed by the TPO that all the foreign currency loans which had been used as comparable by the assessee were fully secured upto 130% of the value of loan alongwith mortgage of the ship. It was further observed by the TPO that the mortgage, legal, documentation, insurance and other charges as regards the loans availed by the assessee were paid by it. Also, it was observed by the TPO that not only penal interest was provided for in case of default of interest by the assessee, but the borrower was also obligated to comply with certain other requirements like maintaining of cash debt equity ratio, etc. Backed by his aforesaid observations, the TPO was of the view that if the transaction cost, hedging cost, penal cost and cost of security were taken into consideration, then the same would not be less than 700 basis points. Observing, that the assessee had not taken into consideration the aforesaid factors the TPO rejected the internal CUP method applied by the assessee. Further, the TPO was of the view that if the assessee opted to benchmark the loan transaction by treating the AE as a tested party under the external CUP method then the onus was cast upon it to find out comparable transactions where third parties (with same credit rating and in the same geography as the AE) under similar circumstances had borrowed funds in UK and Mauritius. Observing that the Hon‟ble High Court of Delhi in the case of CIT Vs. Cotton Naturals (I) Pvt. Ltd (55 taxmann.com 523), had held, that the ALP of the interest rate should be determined based on the rates prevailing with respect to the currency in which such loans were advanced the TPO conducted search on www.bloomberg.com to find out the average interest rate of foreign currency loans taken by companies in Mauritius and U.K. Based on his search, the TPO observed that though the average rate of interest in case of USD borrowings in UK was comparable to LIBOR + 3% charged by the assessee from its U.K based AE, viz. GUK, however, the average rate of interest on borrowings in Mauritius worked out to 431.25 basis points. On being confronted with the aforesaid set of facts the assessee objected to the adoption of the interest rate w.r.t loan advanced to its Mauritius AE, viz, GGHL at LIBOR + 431.25% on multiple grounds, viz. (i). that as the loan was A.Ys.2012-13 & 2014-15 Greatship (India) Ltd., Vs. DCIT-5(1)(1) sanctioned in financial year 2010-11 therefore the rates applicable to the financial year 2011-12 could not be applied; (ii). that Internal CUP adopted by the assessee, viz. average mean of interest paid by it on its foreign currency loans was to be preferred as against the external CUP i.e interest rates paid by third parties; (iii). that the unsecured loans advanced by companies in Mauritius as per details gathered by the TPO from the data available on www.bloomberg.com were not comparable to the loan advanced by the assessee to its AE, viz. GGHL, Mauritius, for the reason that that as GGHL was a wholly owned subsidiary of the assessee company, the assessee company had full control over the said AE and consequently also on the repayment of loan and interest thereon; (iv). that the benchmarking carried out by the assessee of the interest charged on the loan advanced to its AE, viz. GGHL was accepted by the DRP in A.Y 2011-12; and (v). that the comparables selected by the TPO being financially inferior in terms of their balance sheets were thus incomparable. On the basis of the assessee‟s objection that the loan to the aforesaid AE, viz. GGHL, Mauritius was advanced in the financial year 2010-11 and not in financial year 2011-12 the TPO carried out fresh search on www.bloomberg.com and on the basis of comparables for the financial year 2010-11 determined the ALP of the interest charged on loans at LIBOR + 3.32%. Accordingly, the TPO reworked out the ALP of the interest on the loans advanced by the assessee to its aforesaid AE, viz. GGHL, Mauritius at Rs. 9,87,60,852/- and made a consequential TP adjustment of Rs. 97,39,903/-. Objection filed by the assessee as regards the TP adjustment w.r.t interest on loan advanced to its AE, viz. GGHL, Mauritius, did not find favour with the DRP. It was observed by the panel that the Internal CUP selected by the assessee was not correct and the TPO had rightly applied the external CUP. Further, it was observed by the DRP that the TPO had rightly held that as the credit rating of the assessee and its AE could not be same thus, the loans raised by the assessee could not be used to benchmark the loans given by it to its AE. Also, the DRP was of the view that the directions given by it in the assessee‟s case for the preceding year as A.Ys.2012-13 & 2014-15 Greatship (India) Ltd., Vs. DCIT-5(1)(1) regards a loan that was advanced by the assessee to its AE at Singapore could not be applied as a precedent for determining the ALP of the interest paid on the loan that was advanced to its AE, viz. GGHL, Mauritius. Accordingly, in the backdrop of its aforesaid observations the panel rejected the objection of the assessee as regards the TP adjustment w.r.t the interest charged by the assessee on the loan advanced to its Mauritius based AE, viz. GGHL. After receiving the order passed by the DRP under Sec. 144C(5), dated 29.12.2016 the A.O vide his order passed under Sec. 143(3) r.w.s 144C(13), dated 06.01.2017 inter alia made an addition towards TP adjustment of Rs. 97,39,903/- as regards the ALP of interest paid on loan advanced by the assessee to its AE, viz. GGHL, Mauritius.

12. The assessee has assailed the TP adjustment carried out by the A.O/TPO as regards the interest charged on the loan advanced by it to its AE, viz. GGHL, Mauritius. Before us, it was submitted by the ld. A.R that the TPO/DRP had wrongly rejected the Internal CUP i.e average mean of the interest rate that was paid by the assessee on its foreign currency loans, as was applied by the assessee for the purpose of benchmarking the interest charged on the loan advanced to its AE, viz. GGHL, Mauritius. It was submitted by the ld. A.R that it had advanced a loan of USD 71.5 million to its AE, viz. GGHL, Mauritius, out of which USD 58.5 million was repaid during the year in question and the balance outstanding remained at USD 13 million. It was submitted by the ld. A.R that as the assessee had charged interest from its AE at LIBOR + 2.9% p.a i.e at a rate higher than the arithmetic mean of the rate of interest that was paid by it on the foreign loans that were availed by it from various banks thus, the charging of interest by the assessee from its AE viz. GGHL, Mauritius was at arm‟s length. It was further submitted by the ld. A.R that the comparables selected by the TPO for benchmarking the interest charged on the loan advanced to its AE, viz. GGHL, Mauritius unlike the assessee were all non-indian companies. It was submitted by the ld. A.R that the DRP in the assessee‟s own case for the immediately preceding year i.e A.Ys.2012-13 & 2014-15 Greatship (India) Ltd., Vs. DCIT-5(1)(1) A.Y 2011-12 had held the interest charged by the assessee on the loan advanced to its AE, viz. GGHL, Mauritius at LIBOR + 2.9% p.a at arm‟s length. Elaborating on his aforesaid contention, it was submitted by the ld. A.R that the board of directors of the assessee company had sanctioned a loan of USD 75 million in the immediately preceding year i.e financial year 2010-11 on which the interest rate of LIBOR + 2.9% p.a was fixed. Out of the aforesaid loan an amount of USD 40 million was disbursed by the assessee to its AE in the year of sanction itself. Further, during the year in question i.e financial year 2011-12 a further loan of 31.5 million was disbursed by the assessee to its AE. It was submitted by the ld. A.R that the TPO in the immediately preceding year i.e the period relevant to A.Y 2011-12 had made a transfer pricing adjustment in respect of the loan of USD 40 million that was advanced to the AE and had taken the ALP of the interest charged on the said loan at 6.17% p.a. However, as submitted by the ld. A.R the DRP had vide its order for A.Y 2011-12 had therein vacated the view taken by the TPO and had accepted that the interest charged by the assessee at LIBOR + 2.9% p.a on the said loan was at arm‟s length. It was further submitted by the ld. A.R that the DRP in the assessee‟s case for A.Y 2010-11 had accepted the interest rate of LIBOR + 300 basis points to be at arm‟s length in respect of loan of USD 4 million that was given to its another AE, viz. GGES and was repaid by the latter during the said year itself. In the backdrop of the aforesaid facts, it was submitted by the ld. A.R that the DRP had consistently been holding the interest rate of LIBOR + 2.9% / 3% p.a charged by the assessee on the loans advanced to its AEs as being at arm‟s length. It was the claim of the ld. A.R that qua the loan transaction in question the DRP had in the immediately preceding year held that the interest charged by the assessee at LIBOR + 2.9% p.a was at arm‟s length. Ld. A.R in order to drive home his claim that the interest charged by the assessee on the loan advanced to its AE, viz. GGHL, Mauritius was at arm‟s length, relied on the order of the Tribunal passed in the case of its holding company, viz. The Great Eastern Shipping Co. Ltd. Vs. ACIT, Mumbai, ITA No. 397 and 437/Mum/2012, dated 10.01.2014 for A.Y A.Ys.2012-13 & 2014-15 Greatship (India) Ltd., Vs. DCIT-5(1)(1) 2007-08 (copy placed on record). It was submitted by the ld. A.R that the Tribunal in its aforesaid order had observed that the interest paid by an assessee on foreign currency loans raised from banks could safely be taken as an Internal CUP for determining the ALP of interest charged by the assessee on the loans advanced to its foreign AEs. It was further submitted by the ld. A.R that the TPO had wrongly observed that the Internal CUP adopted by the assessee was to be rejected as the foreign loans availed by the assessee were secured and could not be compared with the loans advanced to its AEs. It was averred by the ld. A.R that the TPO while concluding as hereinabove had lost sight of the fact that as the assessee company had an indirect control over its AEs thus, the risk in transactions between them was lower as in comparison to the risk involved in the transactions inter se independent entities. It was further submitted by the ld. A.R that the TPO had erred in applying the external CUP when the Internal CUP was therein available.

13. Per contra, the ld. D.R relied on the orders of the lower authorities. It was submitted by the ld. D.R that as the Internal CUP i.e arithmetic mean of the interest paid by the assessee on its foreign currency loans was not found to be a good comparable for benchmarking the interest charged by the assessee on the loan advanced to its AE thus, the TPO had rightly applied the external CUP for determining the ALP of the same.

14. We have in the backdrop of the contentions advanced by the authorised representatives for both the parties and perusing the orders of the lower authorities in context thereto, deliberated at length on the issue pertaining to benchmarking of the interest charged by the assessee on the loan advanced by it to its AE, viz. GGHL, Mauritius. Succinctly stated, the assessee had charged interest of Rs. 8,90,20,949/- from its AE, viz. Greatship Global Holdings Ltd. (for short "GGHL") at the rate of LIBOR plus 2.9% mark-up. As noticed by us hereinabove, the loan to GGHL was sanctioned in the immediately preceding year i.e F.Y 2010-11 and was disbursed in parts in the A.Ys.2012-13 & 2014-15 Greatship (India) Ltd., Vs. DCIT-5(1)(1) said preceding year and the current financial year. Considering itself as the tested party, the assessee had benchmarked the interest charged on the loans advanced to its AE, viz. GGHL on the basis of the arithmetic mean of the interest rate that was paid by it on the foreign currency loans that were availed by it from foreign banks. As the arithmetic mean of the interest rates charged by the banks in respect of the foreign currency loans availed by the assessee worked out at LIBOR + 1.829%, as against the interest that was charged by the assessee on the loan given by it to its AE, viz. GGHL, Mauritius at LIBOR + 2.9% thus, the interest charged on the loan advanced to the AE was claimed to be at arm‟s length. As observed by us at length hereinabove, the TPO had rejected the Internal CUP that was applied by the assessee for benchmarking the interest charged on the loan advanced to its aforesaid AE, viz. GGHL, Mauritius, primarily for the reason that all the foreign currency loans which had been used as comparable by the assessee were fully secured upto 130% of the value of loan alongwith mortgage of the ship. Further, it was observed by the TPO that the assessee while benchmarking the interest transaction had failed to take cognizance of the mortgage, legal, documentation, insurance and other charges that were paid by the borrower. Also, it was observed by the TPO that not only penal interest was provided for in case of default of interest by the assessee, but the borrower assessee was also obligated to satisfy certain other requirements like maintaining of cash debt equity ratio etc. Backed by his aforesaid observations, the TPO was of the view that if the transaction cost, hedging cost, penal cost and cost of security were taken into consideration then rate of such borrowing would not be less than 700 basis points. On the basis of his aforesaid observations the TPO conducted search on www.bloomberg.com to find out the average interest rate of foreign currency loans taken by companies in Mauritius and finally determined the ALP of interest charged by the assessee on loan advanced to its AE, viz. GGHL, Mauritius at LIBOR + 3.32%. Accordingly, the TPO reworked out the ALP of the interest on the loans advanced by the A.Ys.2012-13 & 2014-15 Greatship (India) Ltd., Vs. DCIT-5(1)(1) assessee to its aforesaid AE, viz. GGHL, Mauritius at Rs. 9,87,60,852/- and made an consequential TP adjustment of Rs. 97,39,903/-.

"Internal comparables may have a more direct and closer relationship to the transaction under review than external comparable."

As observed by us hereinabove, the Board of Directors of the assessee company had sanctioned a loan of USD 75 million in the immediately preceding financial year 2010-11 on which interest rate of LIBOR + 2.9% p.a was fixed. Loan of USD 40 million was disbursed by the assessee to its AE in the financial year 201-11. Further, during the year in question i.e period relevant to A.Y 2012-13 a further loan of USD 31.5 million was disbursed to the AE. TPO in the immediately preceding year i.e period relevant to A.Y 2011-12 had made a TP adjustment in respect of the loan of USD 40 million that was disbursed during the said preceding year and had determined the ALP of the interest charged by the assessee on the said loan at 6.17% p.a. However, the DRP had vide its order for A.Y 2011-12 held that the interest charged by the assessee on the loan advanced to its AE was at arm‟s length. In our considered view, now when DRP in the case of the assessee for A.Y 2011-12 had held that the interest charged by the assessee on the loan advanced to its AE at LIBOR + 2.9% was at arm‟s length, therefore, there would be no justification in holding the same as not being at arm‟s length during the year in question i.e A.Y 2012-13. Also, the DRP in the assessee‟s case for A.Y 2010-11 had held that the interest rate of LIBOR + 300 basis points that was charged by the assessee on a loan of USD 4 million given to A.Ys.2012-13 & 2014-15 Greatship (India) Ltd., Vs. DCIT-5(1)(1) its AE, viz. GGES (and repaid) as being at arm‟s length. In the backdrop of the aforesaid facts, we find that the DRP had consistently been holding the interest rate of LIBOR + 2.9% / 3% charged by the assessee on the loans advanced to its AEs as at arm‟s length. On the basis of our aforesaid observations, we uphold the Internal CUP applied by the assessee for benchmarking the interest charged on the loans advanced to its AE, viz. GGHL; and hold the interest charged by it on the loan advanced to its AE, viz. GGHL at LIBOR + 2.9% as being at arm‟s length. The Grounds of appeal Nos. 8 to 11 are allowed in terms of our aforesaid observations.