Sanjiv Khanna, J.

1. The question raised in the present appeal by the Revenue under Section 260A of the Income Tax Act, 1961 (Act, for short) relates to determination of arm’s length rate of interest, paid to the assessed, i.e. Cotton Naturals (I) Pvt. Ltd., by their subsidiary M/s JPC Equestrian, a company registered in the United States of America. The appeal emanates from the order of the Income Tax Appellate Tribunal (Tribunal, for short), dated 30th October, 2013, and pertains to the assessment year 2007- 08.

2. On the basis of the contentions raised by the parties, the following substantial question of law needs to be answered and decided:

1. Whether the Income-Tax Appellate Tribunal was right in following their earlier order for the assessment year 2008-09, dated 8th February, 2013 in ITA No. 5855/Del./2012 and in holding that the interest @ 4% p.a. charged by the respondent assessee from its subsidiary i.e. the Associated Enterprise was arm’s length rate of interest and the adjustment made in the Assessment Order determining the arms’ length rate of interest at 12.20% was unwarranted?

3. With the consent of the counsel, we had heard them on the aforesaid substantial question.

4. The respondent assessee, an Indian company was engaged during the relevant period, in the business of manufacture and exports of rider apparels like riding breeches, jodhpurs, socks, riding jackets, horse blankets, fly sheets, riding boots, shirts, saddle pads and riding helmets. The Headquarter of the assessed was located in Delhi, India with presence in 10 countries through designated channel partners and distributors. However, for the purpose of marketing and promoting their exports to USA, the respondent assessee had incorporated the aforesaid subsidiary, which was wholly owned by them and their two shareholders.

5. As per 3CEB report and Transfer Price documents, the following international transactions between the respondent assessee and the Associated Enterprise i.e. M/s JPC Equestrian (hereinafter referred to as an AE), were disclosed:

6. The respondent assessee had selected the Comparable Uncontrolled Price method (CUP method, for short) to benchmark sale of equestrian apparels and the interest received on the loan. The respondent assessee had declared that the interest received at the rate of 4% was comparable with the export packing credit rate obtained from independent banks in India.

7. The Transfer Pricing Officer (TPO, for short) in his report enumerated several reasons, which we are not highlighting at this stage to avoid repetition, to hold that the arm’s length interest rate should be taken as 14% p.a. He computed arm’s length interest on the loan at Rs.71, 82, 354/-, in the place of interest received of Rs.20,52,101/-. The aforesaid upward revision was made as per the following table/ chart:-

As the currency in which the loan is extended to the AE is GBP, 6-month GBP LIBOR (sic) is considered. These rates are given as per Annexure - A. The average 6-month GBP LIBOR (sic) is arrived at 5.224% p.a. Thus the CUP rate is arrived at as under.

CUP Rate > LIBOR + 700 basis points

5.224%+7%

12.224%

Keeping in view that no security is offered by the subsidiary and also that the taxpayer is not into lending and borrowing money, a reasonable interest rate of 14% p.a. can be considered.”

8. The respondent assessee filed objections before the Dispute Resolution Panel (DRP, for short) agai