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7. Learned DR, however, relied on the Orders of the A.O. and CIT(A) to submit that Revenue is in cross appeal on the same issue of reduction of interest given by the learned CIT(A).

8. We have considered the issue and examined the facts. As far as the loans advanced and source of funds these are the details as furnished by the assessee :

Aurobindo (Datong) Bio-Pharma Co. Ltd., China :

Date           Amount (USD) /     Rate      of    Source        Rate         of
               Rs.                Interest                      Interest paid
                                  Received
2002-03        $5,610,000         LIBOR+2.6%      Exim Bank     LIBOR     +
               (Rs.266,362,800)                                 2.1%
2003-04        $4.230,000         LIBOR+2.61%     IOB           LIBOR+ 2%
&              $6,000,000         LIBOR+3.5%      FEDERAL       LIBOR+3.25%
2003-04        Rs.424,261,200                     BANK
2004-05        $4,5000,000        LIBOR+3.5%      Internal      ---
                                                  Accruals

                                          ITA.No.1096,1041,2073/H/2011

                                              M/s. Aurobindo Pharma Ltd.



APL Holdings Inc :

Date         Amount (USD) Rate         of Source         Rate       of
(Sic.)       / Rs.         Interest                      Interest paid
                           Received
2002-03      $1,660,000    8.65%          Federal        LIBOR        +
             Rs.78,816,800                Bank           3.25%
2003-04      $500,000      8.65%          Federal        LIBOR+
             Rs.15,359,200                Bank           3.25%

2004-05      $500,000      8.65%          Internal       ---
             Rs.22,172,400                Accruals

AB Farmo Quimica Ltd :

Date         Amount (USD) Rate         of Source         Rate       of
(Sic.)       / Rs.        Interest                       Interest paid
                          Received
2002-03      $200,000     13.60%          Federal        LIBOR        +
             Rs.8,748,000                 Bank           3.25%

Aurobindo USA Inc., :

Date         Amount   (USD) Rate     of Source            Rate       of
(Sic.)       / Rs.          Interest                      Interest
                            Received                      paid
2004-05      $2,850,000     5.00%       Internal          --
             Rs.124,659,000             Accruals

and Federal Bank where the rate of interest paid was LIBOR +2.1% and LIBOR +3.25%. On these loans Assessee seems to have advanced at LIBOR +3% to Aurbindo whereas rate of interest received in Aurobindo Farmo industria Farmaceutica LTDA is 13.06%. Therefore, to the extent of advances which were given at a rate lesser than the rate at which those are obtained, the AO is directed to examine and if so, the rate of interest paid should be considered as ALP in order to determine the interest received. With these directions, this ground considered partly allowed".

10. Respectfully following the above, we direct the A.O. to examine whether the rate of interest received was at LIBOR + percentage points. The adoption of Prime lending rates is not approved in various coordinate bench decisions. Therfore assessee lending at LIBOR plus rates can be considered as arms length provided there is no other expenditure on the borrowed funds. Since some of the loans are reflecting rate at ordinary percentage points, conversion to LIBOR plus is required. The A.O. is directed to examine and decide accordingly on the loans advanced by the assessee company, keeping in mind directions in earlier year which has an effect as loans are advanced in earlier years. As can be seen assessee has advanced funds to Aurobindo (Dataong Biopharma) at LIBOR + 3.5% even on the internal accruals during the year. Therefore, that can also be taken as arms length rate for the loans advanced during the year. AO is directed to examine. With these directions, assessee's grounds on this issue are allowed for statistical purposes. Consequently, there is no merit in the Revenue's grounds and accordingly, they are dismissed.

19. After considering the rival contentions, we are of the opinion that the transactions should be benchmarked against LIBOR + certain percentage points. The dispute is only with reference to prime lending rate of the respective countries to be considered or LIBOR + 2% points are to be considered. Consistent with the view taken in earlier years in all those cases where assessee has charged more than LIBOR + 2% points, the same should be accepted as arms length unless the borrowals was at higher percentage points. Another case, where a benchmark is not done with LIBOR + 2% rate like 5 to 13% in some of the loans advanced, the same can be benchmarked at LIBOR + certain percentage as in last year and if there is any shortfall in the interest charged, the same can be considered for making adjustment in T.P. proceedings. Keeping in view the directions given in earlier years, this issue is restored to the file of the A.O. to examine the rates and benchmark with LIBOR + percentage points. Assessee's grounds are considered as allowed.