TMI Blog2014 (1) TMI 709X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly taken by him - The Ld. CIT(A) also erred in not appreciating the facts in their right perceptive - The Ld. CIT(A) completely ignored the fact that the loan of USD 4 million was given by the assessee to its AE in the earlier years - No TP adjustment was done in the earlier year - This year what the assessee has charged is only on the loan brought forward from the earlier year - The Ld. CIT(A) further erred in not considering the second USD loan of Rs. 17 Million in its right perceptive as the loan was repaid during the same year - The loan of USD 4 million was given in earlier accounting year and as per the agreement, the rate of interest was taken at 5% - The fixed rate of interest cannot be accepted to be changed with the subsequent change in LIBOR - As the loan of USD 17 million has been repaid within the year itself, there is no logic in taking the rate for more than 5 years at 6 months LIBOR plus 350 basis point - The benchmarking done by the assessee are based on the interest paid by it on its own borrowings of loan in foreign currency from KEXIM bank and also from State Bank of India - The interest charged by the assessee on the loan given by it to its AE is at arm's len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is inadequate therefore the AO went on to compute the disallowance applying Rule 8D and computed the figure at Rs. 2,66,53,078/- giving the benefit of suo motu disallowance of Rs. 1,25,98,179/-, the net disallowance was taken at Rs. 1,04,16,439/- and added to the income of the assessee. 4. The assessee strongly agitated this addition before the Ld. CIT(A). It was strongly contended before the Ld. CIT(A) that the assessee had suo motu disallowed a sum of Rs. 1,29,58,179/- u/s. 14A of the Act and has also given the detailed working and the basis for such disallowance. It was explained to the Ld. CIT(A) that the aggregate administrative and other expenditure considered by the AO is erroneous. The aggregate administrative and other expenditure incurred by the treasury department was Rs. 70,67,853/- only which has been bifurcated by the assessee between the taxable and non taxable income on the basis of the gross income received by the treasury division. Therefore, the actual amount of expenditure liable for disallowance comes to Rs. 6,77,095/-. Since the assessee has disallowed the actual amount, no further disallowance was necessary. It was pointed out to the Ld. CIT(A) that in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. It is the say of the Ld. DR that facts of A.Y. 2006-07 are not similar to the facts of the year under consideration. 7. We have considered the rival submissions and carefully perused the orders of the lower authorities and the relevant material evidences brought on record. We have also the benefit of the order of the Tribunal in assessee's own case for A.Y. 2006-07 in ITA No. 4507/M/2011. We find that on identical facts of disallowances of interest expenditure and disallowance of administrative and other expenditure after considering the facts, the Tribunal came to the conclusion at para-11 which reads as under: "We have heard the arguments of both the sides and also perused the relevant material on record. As rightly submitted by the learned counsel for the assessee, the impugned order of the learned CIT(A) is well reasoned and well discussed on this issue and the same is self explanatory as regards the reasons given by him for deleting the addition disallowance of Rs. 5,98,139/- made by the AO u/s. 14A. As held by him relying on the decision of Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. (supra), Rule 8D applied by the AO to work out the disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said loan given to its 100% subsidiary. The TPO further proceeded with these erroneous facts and made a belief that these amounts are in the nature of working capital extended for the purpose of meeting working capital requirements of its AEs. The TPO proceeded with the belief that charging of Arms Length interest is necessary because the assessee has made loans and advances to its AE without charging any interest and came to the conclusion that the international transaction representing loan without charging interest is not at arm's length price within the meaning of Sec. 92C(3) (a), (b) and (c) of the Act r.w. Rule 10B(10)(a) of the Act. The TPO was of the opinion that arm's length interest is to be determined by following CUP method wherein the interest rate is determined under the circumstances in which the assessee and its subsidiary is operating i.e. what is the interest that would have been earned on such loan if given to unrelated parties in similar situation is that of subsidiary. Since the tested party is the assessee the prevalent interest that could have been earned by the assessee by advancing a loan to an unrelated party in India have to be determined. The TPO went on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. Therefore, the interest rate charged by KEXIM forms a comparable uncontrolled price (CUP) in respect of the interest rates charged by the assessee. 12.1. It was explained to the Ld. CIT(A) that assessee is a cash rich company and it borrows money only for the purpose of acquiring of ships. The bank statements were furnished before the Ld. CIT(A) to substantiate its claim. The assessee further explained the basis for charging interest on first loan at the rate of 5% which was based on 2 year USD IRS rate plus 100 basis point. It was explained that the IRS i.e. interest charged for swap is the rate of interest charged for swapping rate of borrowing to fixed rate. It was explained that the two year USD fixed IRS rate prevailing at the time when the assessee gave the loan of. 4 Million USD was at 3,9560%, the assessee has charged interest at 5%. To substantiate its claim, the assessee also filed a letter from the Hongkong and Shanghai Banking Corporation Ltd. To further substantiate its claim, the assessee relied upon the RBI Circular A.P (DIR series) Circular No. 87 dt. 17th April, 2004. 13. After considering the facts and the submissions and the material evidences placed be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5% as per the rates prevailing as on 31.5.2005. The Ld. Counsel further submitted that at that point in time 6 months LIBOR was 3.531% so effective rate for 6 months LIBOR + 147 basis point would be approximately the same what the assessee has charged. The Ld. Counsel further submitted that so far as the loan of USD 17 million, it was disbursed on 23.6.2006 at that point in time 6 months LIBOR was 5.6382%, the assessee has charged 7.3% per annum which comes to LIBOR plus 166 basis point. The Ld. Counsel further stated that there was a CUP available inasmuch as three loans have been obtained by the assessee at lower rates of interest USD 21.46 million loan was availed from KEXIM at the rate of 4.79% per annum. Second USD 34.8 million loan availed by the assessee again from KEXIM at the rate of 4.79%. Third loan of USD 37.40 million was availed by the assessee from State Bank of India at LIBOR+ 100 basis point. It is the say of the Ld. Counsel that considering these facts from every possible angle, the interest rate charged by the assessee is at arm's length and therefore, no further adjustment is required. 15. Per contra, the Ld. Departmental Representative strongly supported the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ixed rate of interest cannot be accepted to be changed with the subsequent change in LIBOR , if any , and as the loan of USD 17 million has been repaid within the year itself, there is no logic in taking the rate for more than 5 years at 6 months LIBOR plus 350 basis point. In our humble opinion, the benchmarking done by the assessee are based on the interest paid by it on its own borrowings of loan in foreign currency from KEXIM bank and also from State Bank of India as mentioned elsewhere in this order we find that the interest charged by the assessee on the loan given by it to its AE is at arm's length and therefore, no further adjustment is required. We, accordingly, reverse the findings of the Ld. CIT(A) with a direction that no Transfer Pricing adjustment is required on the interest charged by the assessee to its AE. Ground No. 6 to 11 are accordingly allowed. 17. In the result, the appeal filed by the assessee is partly allowed. ITA No. 437/M/2012 - Revenue's appeal 18. The Revenue has raised following substantial grounds of appeal: "1. i) Whether on the facts, circumstances and in the law, the Ld. CIT(A) erred in deleting the addition of Rs. 6,35,32,753/- being inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances u/s. 14A are covered in favour of the assessee by the decision of the Tribunal in assessee's own case for A.Y. 2006-07. The issue of disallowance u/s. 14A r.w. Rule 8D has also been considered in assessee's appeal in ITA No. 397/M/12. Since the issue has been decided in favour of the assessee, ground No. 1(i) and 1(ii) are accordingly dismissed. 20. Ground No. 1 (iii) relates to the grievance of treating three income (a) tonnage income (b) refund amount for supply of crude oil culmination proceeds from court for the vessel and (c) sale of miscellaneous items. 21. Similar issue came up before the Tribunal in A.Y. 2006-07 in ITA No. 4507 and 4992/M/2011 which were considered by the Tribunal at para-12 on page 13 of its order wherein the Tribunal has followed the ratio of the decision of the Tribunal in the case of Shipping Corporation of India in ITA No. 145/M/2011. The findings of the Tribunal can be found at para-15 on page-16 of the order. As the Ld. Departmental Representative has fairly conceded, the facts are identical, respectfully following the findings of the Tribunal in assessee's own case, ground No. 1 (iii) is dismissed. 22. Ground No. 1(iv) relates to the tre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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