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2020 (8) TMI 759 - AT - Income TaxTP Adjustment - payment of interest on fully and compulsorily convertible Indian Rupee denominated debentures (“FCCDs”) to the Associated Enterprises - LIBOR based interest rate to bench mark international transaction of payment of interest on FCCDs denominated in Indian Rupees - HELD THAT:- Decision in case of Cotton Naturals [2015 (3) TMI 1031 - DELHI HIGH COURT] categorically held that normally there would be a difference between the lending rate and borrowing rate in each country. Economic purpose and substance of the debt claim or debt for which the grant of credit goes for the lending rate would be determining. Thus, in case of capital investment the borrowing rate will apply where as in case of credit allow to a customer, the lending rate would apply. Thus, the decision of the Hon’ble Delhi High Court supports the case of the assessee. It is an undisputed fact that the assessee entered into a transaction in domestic currency. The details filed with the RBI clearly set out that the payment was received in INR. The interest should be market determined interest rate applicable to the currency concerned in which the loan has be repaid. In the present case the lending rate is in SBI Prime Lending Rate + 300 basis point, which at the time of investment was 14.75% + 300 = 17.75%. In fact, the DRP in A.Y. 2014-15 allowed this claim of assessee. Thus, the AO/TPO and DRP were not correct in using LIBOR based interest rate to bench mark international transaction of payment of interest on FCCDs denominated in Indian Rupees. - Decided in favour of assessee.
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