Daily Archives: April 5, 2013


Cotton Naturals (I) Pvt. Ltd. v DCIT (I.T.A. No. 5855/Del/2012 dtd 8/2/2013) Delhi ITAT Background: The assessee is a company engaged in the business of manufacturing & export of Ready made Garments. The assessee had entered into international transactions with with its associated enterprise (‘AE’) during the year 2007-08. It had provided loan amounting to USD 10,50,000 to its AE at the rate of 4%. As per Form 3CEB, CUP method was chosen to bench mark the interest received on loan. The assessee has contended that since it has received interest at a rate of 4% which is comparable with the export packing credit rate obtained from independent Banks in India, the interest is at arm’s length price. The TPO by making comparison with uncomparables like government bonds and the amount advanced by the Indian banks in foreign currency to entities in India and by making arbitrary additions of transaction cost, security and risk etc. to such rate determined the arm’s length rate of interest at 17.26% per annum and proposed an addition of RS.68,02,619.  The assessee carried the matter to DRP. The DRP ignored all the contentions and held that loan is in Indian currency hence LIBOR is not the relevant rate and ordered that PLR (Prime Lending Rate of RBI for FY 2007-08 be applied. AO accordingly applied the PLR of 13.25%..

LIBOR to be considered for benchmarking intra-group loan transactions – Delhi ITAT