Transfer Pricing: CUP method will determine ALP of interest-free loan

Aithent Technologies Pvt Ltd vs. ITO (ITAT Delhi)

 

The assessee advanced Rs. 7.39 crores to its AE on interest-free terms. For transfer pricing purposes, It claimed that no external comparable uncontrolled price was available for benchmarking the transaction and so the Transactional Net Margin Method (TNMM) was applicable to determine the arm’s length basis of the loan. Applying TNMM, the assessee claimed that the notional interest was factored in the software development income and no separate addition could be made. This was rejected by the TPO & CIT (A) on the ground that the giving of interest-free loans to the AE was an entirely separate transaction not in conjunction with the activity of software development and hence merited a separate analysis. On appeal by the assessee, HELD by the Tribunal: