As per the transfer pricing study report, the assessee is engaged in the business of acquiring non-performing loans, other assets and providing medium to long-term finance to corporate borrowers. As the assessee would require finance from time to time to engage in the activities described above, assessee requested its associated enterprises (CCP Cyprus) to provide such finance by subscribing to FCDs issued by the assessee on a private placement basis. All the FCDs issued by assessee to the associated enterprise carried interest at the rate of 12%, during the year under consideration. The assessee benchmarked this international transaction by applying Comparable Uncontrolled Price (‘CUP’) method as the most appropriate method. Further, the assessee considered the lending rates offered by other banks, as published by RBI on a quarterly basis, in respect of advances other than export credits to be an appropriate benchmark for the rate of interest paid by the assessee to its associated enterprise. Thus, accordingly arm’s length rate of interest was worked out to 11.48%. As the assessee was paying interest at the rate of 12% on FCDs issued to the associated enterprise, the assessee claimed the international transaction to be at arm’s length. During the course of transfer pricing assessment, TPO noted that the assessee has paid interest at the rate of 12% amounting to Rs. 15,69,82,378 on FCDs issued to its associated enterprise and same has been debited in the books of accounts. The TPO vide order passed under section 92CA(3) of the Act held that similar uncontrolled transaction would have provided FCD for lower interest and thus the international transaction representing issue of FCDs at higher interest rate is not at ALP. Accordingly, TPO computed the ALP by applying the interest calculated on the basis of 6 month average USD LIBOR + 800 basis point (i.e. 8.5% p.a.). As a result, TPO made an upward adjustment of Rs. 4,57,86,527 to the international transaction of ‘Payment of Interest on FCDs’. In conformity, the Assessing Officer, inter-alia, passed the order under section 143(3) r.w.s. 144C(3) of the Act. In appeal, learned CIT(A) vide impugned order upheld the upward adjustment made by the TPO. Being aggrieved, assessee is in appeal before Tribunal.

The Tribunal observed that the coordinate bench in assessee’s own case for preceding assessment years while considering similar issue upheld the TPO’s approach of adopting average PLR of Indian banks. Accordingly, the appeal of the assessee is dismissed.  (AY. 2011-12)