TMI Blog2018 (8) TMI 1743X X X X Extracts X X X X X X X X Extracts X X X X ..... D - Held that:- As decided in DEPUTY COMMISSIONER OF INCOME-TAX VERSUS ASHISH JHUNJHUNWALA [2013 (6) TMI 545 - ITAT KOLKATA] AO has not examined the accounts of the assessee and there is no satisfaction recorded by the AO about the correctness of the claim of the assessee and without the same he invoked Rule 8D of the Rules. While rejecting the claim of the assessee with regard to expenditure or no expenditure in relation to exempted income, the AO has to indicate cogent reasons for the same but from the facts of the present case it is noticed that the AO has not considered the claim of the assessee and straight away embarked upon computing disallowance under Rule 8D of the Rules on presuming the average value of investment at ½% of the total value. - decided against revenue Delayed deposit of employees’ contribution toward PF without considering section 2(24)(x) r.w. Section 36(1)(va) - Held that:- As the issue is squarely covered by the various judgments of Hon’ble High Courts and Tribunals in assessee’s case wherein it was held that if the assessee paid the employee’s contribution towards Provident Fund within the due date of filing return of income u/s 139(1) of the Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustries 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 in this kind of transaction. 5. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has justifiedwhile referring the Aurionpro Solutions Limited Vs. Additional Commissioner of Income Taxin ITA No.7872/Mum/2011 wherein it was observed that appropriate rate would be LIBORplus 2% and the Ld.CIT(A) was also observed even if a mark-up is given the rate would be 2.901241667% whereas the assessee has charged 5% on the loan given its AEs, However,it is pertinent to mention that the instant case is not related to Bank or NBFC nor thecompany is in the business of money lending. 6. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) erred in allowing the ground taken against disallowance made to the tune of ₹ 70,301- under Sec.14A read with Rule 8D. 7. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) erred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riate. 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 ofLIBOR then no upward adjustment is necessary. 8. That on the facts and in the circumstances of the case, the Ld.CIT(A) has erred in deletingthe addition of ₹ 16,26,43,864/- made by the AO on account of delayed deposit of employees contribution toward PF without considering Section 2(24)(x) read with Section 36(1)(va). 9. That on the facts and in the circumstances of the case, the Ld.CIT(A) has erred in allowingthe ground taken against disallowance made to the tune of ₹ 1,11,600/- U/s.14A read withRule 8D. 10. That on the facts and in the circumstances of the case, the Ld.CIT(A) has erred in allowingthe ground taken against disallowance made U/s.144 without considering Circular No.5/2014 issued by the Board. 11. That the assessee craves for leave to add, delete, amend or modify any ground before or at the time of assessee proceedings. 5. We note that in these two appeals, the Revenue has raised a multiple grounds of appeal, as mentioned above, but at the time o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idiary 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 increased from 4% p.a. to 8% p.a. through an amendment dated 02.04.2007, i.e. during the financial year pertaining to assessment year 2008-09. This agreement was extended for further 5 years vide Minutes of Meeting of Board of Directors on 23.11.2007 regarding Loan to Wholly Owned Subsidiary (WOS) Abroad Under the Automatic Route and the ceiling for the loan amount was increased to USD 25,00,000 (rate of interest remained unaltered), Further, on account of this extension and upward revision of the ceiling, additional USD 4,05,000 were advanced during F.Y. 2008-09. Net USD 206014 was advanced in F.Y. 2009-10 also. The basic terms of this Agreement, can be construed as follows: Sl. No. Description Details 1 Loan Amount/currency 800,000/USD (original agreement); ceiling revised on 19.02.2004 to 15,00,000 USD; ceiling furtherrevised on23.11.2007 to 25,00,000 USD. Net US ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 ₹ 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 tune of ₹ 67,83,169/-. 10. The Revenue is not satisfied and is in further appeal before this Tribunal. 11. When this appeal was called out for hearing, learned counsel for the assessee invited our attention to the order dated order dated 12.05.2017, in ITA No.2149/Kol/2014, passed by the Division Bench of this Tribunal in assessee s own case for the Assessment Year 2008-09 whereby the upwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ai in the case of Siva Industries Holdings Limited vs. The Assistant Commissioner of Income Tax (supra) . The following were the relevant observations of CIT(A): 4.2. I have considered 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised by the revenue. It has been consistently held in several decisions by the tribunal that wherever the transaction of loan between the associated enterprises is in foreign currency then the 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd law and the Revenue is unable to produce any material to controvert the aforesaid findings and the ld. CIT(A) has allowed the appeal of the assessee by following the decision of the Tribunal on identical issues.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 ₹ 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 As ..... X X X X Extracts X X X X X X X X Extracts X X X X
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