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6. Coming to grounds 4 & 5, which are on upward adjustment for interest charged on "Optionally and Fully Convertible Debentures'' (OFCD). Ld. Counsel for the assessee submitted that ld. TPO had considered the investments in OFCD by the assessee in its Associated Enterprise, which carried an interest of 2% as not at Arm's Length. According to the ld. Authorised Representative, the ld. TPO had considered the LIBOR rate of 0.95% and added such LIBOR rate to 2% interest applicable on OFCD and erroneously took 2.95% as the Arms Length Interest rate. Contention of the ld. Authorised Representative was that if the LIBOR rate of 0.95% was considered, assessee's rate of interest of 2% being more than such rate, it was at Arms Length. According to him, no reason was given by the ld. TPO for adopting 2% plus LIBOR rate as the Arms Length rate of interest chargeable on OFCD. As per the ld. Authorised Representative, the ld. DRP has confirmed the upward adjustment without properly appreciating the submissions made by the assessee. Reliance was placed on the decision of Co-ordinate Bench in assessee's own case in ITA No.2148/Mds/2010, dated 20.05.2011 for assessment year 2006-07.

Though the ld. TPO had given a clear finding that LIBOR rate applicable for interest was 0.95%, he had adopted the Arms Length interest rate as 2.95%. No reason whatsoever has been given by the considered the interest rate at LIBOR plus 2%. Though adoption of LIBOR as the appropriate rate cannot be faulted, in our opinion ld.

TPO erred in adopting 2+ LIBOR. At this juncture it is apposite to have a look at para 11 of the decision of this Tribunal in assessee's own case for assessment year 2006-07 in ITA No.2148/Mds/2010, dated 25.05.2011.

'11.We have considered the rival submissions. A perusal of the order of the TPO clearly shows that the assessee had raised the funds by way of issuance of 0% optional convertible preferential shares. Thus it IS noticed that the funds . raised by the assessee company for giving the loan to India Telecom Holdings Ltd., Mauritius, which is its Associated Enterprises and which is the subsidiary company, is out of the funds of the assessee company. It is not borrowed funds. The assessee has given the loan to the Associated Enterprises in US dollars. The assessee is also receiving interest from the Associated Enterprises in Indian rupees. Once the transaction between the assessee and the Associated Enterprises is in foreign currency and the transaction is an international transaction, then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. If this is so, then the domestic prime lending rate would have no applicability and the international rate fixed being LIBOR would come into play. In the circumstances, we are of the view that it LIBOR rate which has to be considered while determining the arm's length interest rate in respect of the transaction between the assessee and the Associated Enterprises. As it is noticed that the average of the LIBOR rate for 1.4.2005 to 31.03.2006 is 4.42% and the assessee has charged interest at 6% which is higher than the LIBOR rate, we are of the view that no addition on this count is liable to be made in the hands of the assessee. In the circumstances, the addition as made by the Assessing Officer on this count is deleted''.

Once assessee had charged rate of interest more than the LIBOR rate, there could be no question of any Transfer pricing adjustment. Nevertheless, how the ld. TPO had arrived at the LIBOR rate of 0.95% is not clear. LIBOR rate for assessment year 2006-07 was 4.42% whereas what was considered by the ld. TPO as LIBOR rate for the impugned assessment year is 0.95%. We are therefore of the opinion that ld. Assessing Officer/TPO has to revisit the issue to fix the correct LIBOR rate, before deciding whether any adjustment for Arms Length Pricing is required. We set aside the orders of the lower authorities on the Arms Length Price adjustment, if any, required on interest on OFCD, and remit it back to the file of the ld. Assessing Officer/ld. TPO for consideration afresh in accordance with law. Ground 4 & 5 of the assessee are allowed for statistical purpose.