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TMI Blog2018 (8) TMI 1743X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) erred inallowing the ground taken against the upward adjustment under arm's length on loanadvance in foreign currency to its 100% foreign subsidiary." 2. "Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has justifiedin holding that company had advanced a loan in foreign currency to its subsidiary on whichit charged interest @5% which is well above the LIBOR rate without considering the otherissues e.g. credit rating of the debtor, loan term to maturity/ purpose of loan, the currencyin which the issued loan is denominated, the security provided, the country in which thedebtor is located the industry in which the debtor operate, business of the creditor." 3, "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has justifiedin deleting the upward adjustment to the arm's length price made to the tune ofRs.1,25,98,533/-." 4. "Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has justifiedwhile referring the case Siva Industries and holdings Ltd (supra), wherein it was held thatonce the transaction is between the assessee and the AEs is in foreign currency, thetransaction would have to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E)." 4. "Whether on the facts and in the circumstances of the case, the Ld.CIT(A) has justifiedwhile referring the case Siva Industries and holdings Ltd (supra), wherein it was held thatonce the transaction is between the assessee and the AEs is in foreign currency, thetransaction would have to be looked upon by applying commercial principal in regard tointernational transaction without defining "Commercial Principal" 5. "Whether on the facts and in the circumstances of the case, the Ld.CIT(A) has justifiedwhile referring the Aurionpro Solutions Limited Vs. Additional Commissioner of Income Tax in ITA No.7872/Mum/2011 wherein it was observed that appropriate rate would be LIBOR plus 2% and the Ld.CIT(A) was also observed the assessee has charged 5% on the loangiven to its AEs without considering the case is not related to Bank or NBFC." 6. "Whether on the facts and in the circumstances of the case, the Ld.CIT(A) has justified inholding that method used i.e., TNMN to determine ALP was appropriate." 7. "Whether on the facts and in the circumstances of the case the Ld.CIT(A) has justified inholding that if interest determined by the assessee under ALP is more than 2% above ofL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idiary companies. 7. The facts of the issue which can be stated quite shortly are as follows: The assessee is having eleven tea estates in Assam and exports tea to customers including to its subsidiary "Zao Classic" in Russian Federation. On examination of the details available in the Form No. 3CEB and TP Study Report for the assessment year 2012-13, it was noted by TPO that the assessee company has disclosed receipt of interest on loan advanced to it's subsidiary Zao Classic in Russia. On perusal of the A.Y. 2011-12, it was noted that the assessee had charged interest @5% on the loan from 01/01/2010 onwards. The loan was reported in the Form No.3CEB for the A.Y.2011-12 and CUP method was used as a most appropriate method. As per details available no fresh loan was advanced during the F.Y. 2011-12. It was seen by TPO that through an agreement titled 'Credit Agreement No. 2' dated 08 December, 2003, the assessee had advanced a loan of USD 800,000 to its subsidiary ZAO Classic in Russia, a company incorporated under the laws of that country. The principal amount was increased to 1,500,000 USD by an amendment dated 19.02.2004. The rate of interest charged on the loan was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92CA(3) and re-worked the rate of interest of 19% on the opening balance of the loan advanced to the assessee's subsidiary during the previous year ended 31.03.2012 as "arm's length price" aggregating to rupee equivalent to Rs. 1,30,51,586 and recommended an upward adjustment to the tune of Rs. 1,06,04,974 [Rs.1,30,51,586 minus Rs. 24,46,612]. Subsequently, the learned TPO rectified his order dated 31.12.2015 through his order dated 14.03.2016 under section 154 read with section 92CA(3) of the Act recommending the upward adjustment of Rs,67,83,169/- from earlier upward adjustment of Rs. 1,06,04,974/. 9. Aggrieved by the stand of theld TPO/AO, assessee carried the matter in appeal before the CIT(A) with success. The ld CIT(A) after considering the various precedents cited by the assessee noted that in the foreign currency loan the rate of interest is to be adopted on LIBOR and at the most LIBOR plus 2%. The average LIBOR rate for the previous year was 0.89821667% and taking into account mark up of 2%, the rate would be 2.89826667% whereas the assessee charged 5% on the loan given to Associate Enterprise (AE), therefore, ld CIT(A) deleted the upward TP adjustment to the tun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt/currency 800 000/USD(original agreement); amended on 19.02.2004 to 15,00,000 USD 2. Term of the loan 5 years (as per the original agreement); 3. Purpose of loan To expand operations, purchase of goods 4. Borrower's Country Russia 5 Year of Loan 8 December, 2003 6. Rate 4% p.a. (original agreement); increased to 8% on 02.04.2008 7. Put or Call option Both options 8. Security unsecured 9. Seniority N.A. 10. Any other condition n.a. 5. The Transfer Pricing Officer (TPO) examined the rate of interest charged on the loan by the assesee in the light of mandate laid down in section 92 of the Act that the rate of interest on such loans must be at arms length i.e. rate at which similar loan would be given or taken by unrelated parties. 6. The plea of the assessee before the AO was that the loan to the subsidiary ZAO Classic was a trade investment in form of foreign currency loan which in turn provides benefit to the parent company i.e. the assessee in the form of increased market share. It was submitted by the assessee that borrowings in the hands of ZAO Classic was External Commercial Borrowing (ECBs) and the range of rates of interest vary between L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered the facts of the case. The assessee had advanced a loan in foreign currency to its subsidiary ZAO Classic, Russia on which it was charged interest at the rate of 8% p.a. The TPO was of the view that price of the loan i.e. the interest charged has to be worked out on the basis of taking two parties as separate and bench-marking the price of the loan on the basis of what an independent third party would charge from ZAO Classic, Russia based on its analysis of risk associated with the loan. The assessee stated in reply to show cause notice issued by the TPO, that foreign currency loans are given by banks bearing UBOR based rate as a global practice. The average of LIBOR based rate for the year under consideration was 4.68%. Thus the rate of 8% charged by the assessee was higher than the LIBOR rate. The assessee also relied upon a number of decisions, in particular the decision of ITAT, Chennai in the case of Siva Industries and Holdings Ltd vs ACIT, Central Circle-6(1) Chennai 46 SOT 112. In the appellate proceedings the assessee has cited some more decisions such as Four Soft Ltd vs DCIT in ITA No. 1495/Hyd 12010, Cotton Natural (I) Pvt Ltd. vs DCIT in ITA No. 5855/De1/2012. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transaction would have to be looked upon by applying the commercial principles in regard to international transaction. Therefore the domestic prime lending rate would have no applicability and the international rate LIBOR would come into play. It has therefore been held that LIBOR rate has to be considered while determining the arms length rate of interest in respect of transactions of loan in foreign currency between the associated enterprises. This view has also been accepted by the Hon'ble Delhi High Court in the case of CIT vs Cotton Naturals (I) Ltd. 276 CTR 445 (Delhi) and by the Hon'ble Bombay High Court in the case of Tata Auto Comp System Ltd approving the decision of ITAT in the case of Tata Auto Comp Vol.52 SOT 48 (Mum). In view of the above settled legal position we find no merits in ground no.1 and dismiss the same. 14.Respectfully following the above binding precedent, we uphold the contention of the assessee, since the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench in ITA No.2149/Kol/2014 for Assessment Year 2008-09 (supra) and there is no change in facts and law and the Revenue is unable to produce any material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ues.We find no reason to interfere in the said order of the ld. CIT(A) and the same is hereby upheld. Therefore, this ground of appeal of Revenue is dismissed. 18. Ground No.8 raised by the Revenue in ITA No.978/Kol/2017 for Assessment Year 2012-13 relates to addition of Rs. 16,26,43,864/- made by the Assessing Officer on account of delayed deposit of employees' contribution toward PF without considering section 2(24)(x) r.w. Section 36(1)(va). 19. At the outset itself, the ld. Counsel for the assessee has submitted that this issue is also no more res integra and it has already decided in favour of the assessee by several judgments of High Courts and ITAT. The decision of the Hon'ble Rajasthan High Court in the case of ITO vs. Jaipur Vidyut Vitran Nigam Ltd. in Income Tax Appeal No.278/2011and the judgment of the Hon'ble Kolkata High Court in the case of CIT Vs. Vijay Shree Limited ITAT No.245 of 2011, GA No.2607 of 2011, decided on 06.09.2011, in relation to the Assessment Year 2006- 07. Therefore, based on these judgments, the ld. CIT(A) allowed the claim of the assessee, as the issue involved is about the employees` contribution towards PF, paid within due date of submission o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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