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and it will realise the benefit of cost economy in the production. The loan arranged by the assessee was advanced to the Golden Harvest and interest was charged by the assessee to the subsidiary was same rate as has been charged by the ICICI Bank from the assessee i.e. LIBOR plus 250 basis points meaning thereby that assessee fully recovered the interest paid to ICICI Bank from the Golden Harvest and no cost was borne by it. However, according to the TPO, the said loan arranged by the assessee was a secured loan whereas the money advanced to the subsidiary was unsecured and without a security and therefore there was an attendant risk in advancing the said loan.

According to the TPO the assessee should have been compensated for the additional risk borne by the assessee reasoning that had the said loan been advanced to the third party, the transaction would have got marked up over and above the interest paid to ICICI Bank and therefore reached to a conclusion that interest charged from the subsidiary i.e. LIBOR plus 250 basis points is not an arm length price. Therefore, for the purpose of bench marking the loan transaction, a search was undertaken on the Bloomberg database to benchmark the loan transaction and on the basis of said search, interest rate was fixed at 5.82% and accordingly a shortfall of Rs.62,77,368/- in the interest charged from the AE was added to the income of the assessee to make the interest from AE at arm length. . The DRP affirmed the action of the TPO by observing and holding as under:

our view the issue is squarely covered by the various decisions as referred to hereinabove wherein it has been held that loan transactions to the AR have to be benchmarked on the basis of LIBOR. In the present case the transaction is benchmarked by the assessee by following CUP method by charging LIBOR plus 250 basis points i.e. the same rate of interest which is charged by the ICICI Bank from the assessee and it is for this reason we are not in agreement with the direction of the DRP on this issue. The case of the assessee is squarely covered by the decision of co-ordinate bench of the Tribunal in the case of Everest Kanto Cylinder Ltd. v. ACIT (supra). The relevant observation of the Tribunal is reproduced as under:

(viii) Bharti Airtel Ltd. (supra)
(ix) Infotech Enterprises Ltd. v. Addl CIT [2014] 63 SOT 23/41 taxmann.com 364 (Hyd)
(x) Kohinoor Foods Ltd. [IT Appeal Nos. 3688-3691 & 3868-3869 (Delhi) of 2012 & dated 21-7-2014]; and
(xi) Four Soft Ltd. v. Dy. CIT [IT Appeal No. 1495 of2011] M/s. Aries Agro Ltd.

12. In light of the above decisions, the rate to be used for undertaking an adjustment should be LIBOR and not the average yield rates considered by the learned TPO. The LIBOR rate for March 2008 was 2.6798%. However the assessee has charged 7% from its AE as per the internal CUP available. Thus, the assessee haS charged interest to EKC Dubai and EKC China at the rate higher than existing LIBOR rates. Accordingly, the said transaction of providing loan to EKC Dubai and EKC China is at arm's length. Additions made by the AO are accordingly set aside."