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ITA. NO.209/M/2016:-

7. The revenue has filed the present appeal against the order of Dispute Resolution Panel-2, Mumbai [hereinafter referred to as the "DRP"] relevant to the A.Y.2011-12.

8. The revenue has raised the following grounds: -

"(1) "Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT was right in adopting "LIBOR" (London. Inter Bank Offered Rate) as benchmark for interest on loan given to associate enterprises from India without appreciating the fact that loan was given from India and it ought to have adopted the prevailing rate of interest in India?

(2) Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT erred in directing the AO/TPO to adopt the LIBOR rate plus 2% as the rate of interest, for making adjustment to ALP, without having regard to the following factors which affect the relevant?

(i) That LIBOR cannot be the benchmark where the currency of the origin country of loan is not the currency in which the loan is finally extended.

(ii) That in such cases, LIBOR would have to be adjusted for country risk, currency risk, force market fluctuations, etc.

(iii) That the element of commission for conversion of currency has to be considered, as the LIBOR based rates do not capture this clement.

ITA. No. 587/Mum/2017, 229/Mum/2016 & 209/Mum/2016 A.Ys. 2011-12 & 2012-13 (3) Whether on the facts and circumstances of the case, the Hon'bie ITAT was justified in directing the AO/TPO to adopt the LIBOR rate as the benchmark without fully appreciating the factual matrix of the case. This direction of the Hon'ble ITAT issued without fully appreciating the factual matrix tantamount to being a direction which is "perverse in facts".

8.13 Though in principle we do concur with the view of DRP on this issue, however, since the issue of LIBOR has been considered and decided by the Tribunal in various cases as relied upon by the assessee (supra); therefore, to maintain the rule of consistency, we follow the decision of the coordinate Benches of this Tribunal, and accept LIBOR for benchmarking interest on interest free loans to AEs. Since the LIBOR is a rate applicable in the transactions between the banks and further the loans advanced by the bank to clients are secure by security and guarantee; therefore, a loan which has been advanced without any security or guarantee as in the case of the assessee has to be benchmark by taking the Arm's Length interest rate as LIBOR plus. Thou M/s PMP Auto Components P. Ltd can be made under arm's length price. It is pertinent to note that when the transaction betweeen the assessee and its AE falls under the ambit of International transaction as per the provisions of section 92B, then the arm's length price has to be determined by considering the comparable uncontrolled price and, therefore, the reason for non charging the interest on loan given to the AE has no bearing so far as the determination of arm's length price under the transfer pricing provisions and regulations is concerned. The Tribunal in the case of Aurionpro Solutions Ltd. vs. ACIT (supra) has observed in para 8 to 8.3 as under:- "8. We have considered the rival submissions as well as relevant material on record. The first contention of the ld AR of the assessee is that the advance was given to the AEs towards working ITA. No. 587/Mum/2017, 229/Mum/2016 & 209/Mum/2016 A.Ys. 2011-12 & 2012-13 capital and the assessee is getting good business from the AEs; therefore, having commercial consideration, no adjustment of transfer price is justified. We do not agree with the contention of the ld AR because, though it may be an objective behind the Transfer Pricing Regulation that the profits taxable in India are not shifted out of India by manipulating the price charged between the AEs; however, as per the Transfer Pricing Regulations, there is no such condition of existence or non-existence of commercial consideration between the assessee and the AEs. 8.1 Further, in the case in hand, the advance does not represent the credit period extended to the AEs in respect of the business transaction; but it is a transaction of advancing loans to the AEs. The transaction of advancing loans to the AEs falls under the ambit of international transactions as per the terms of Sec 92B whereby the "international transaction" means a transaction between two or more associated enterprises, inter alia lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprise. 8.2 Thus, the transaction of advancing loans to the AEs undoubtedly falls within the meaning of international transaction as per section 92B. Even otherwise, the Tribunal in the case of Tata Autocomp Systems Ltd(supra) as relied upon by the assessee held in paras 16 & 17 as under: 16. Interest free loan extended to the associated concerns as at arm's length lending or borrowing money between two associated enterprises comes within the ambit of international transaction and whether the same is at arms length price has to be considered. The question of rate of interest on the borrowing loan is an integral part of arms length price re- determination in this context. The fact that the loan has the RBI's approval does not put a seal of approval on the true character of the transaction from the perspective of transfer pricing regulation as the substance of the transaction has to be judged as to whether the transaction is at arms length or not. The Delhi Bench of ITAT in the case of Perot Systems TSI (India) Ltd. v. DCIT (supra) had considered identical argument and held as follows: M/s PMP Auto Components P. Ltd,