TMI Blog2019 (9) TMI 920X X X X Extracts X X X X X X X X Extracts X X X X ..... year under consideration. As held earlier Delhi High Court which judgment is also followed repeatedly by our Court, in case of Chemvinvest Ltd. Vs. Commissioner of Income Tax [ 2015 (9) TMI 238 - DELHI HIGH COURT] in such a case disallowance of expenditure under section 14A of the Act would not be permissible. The decision of Delhi High Court was carried in the appeal by the revenue. The SLP has been dismissed by the Supreme Court. Addition on account of interest accrued from three parties had become NPA - HELD THAT:- As decided in BAJAJ FINANCE LIMITED [ 2019 (4) TMI 378 - BOMBAY HIGH COURT] interest on NPAs cannot be taxed on accrual basis. It was noted that NBFC would be governed by the directions issued by the Reserve Bank of India and RBI directives provided that under certain circumstances, a loan or advance would be treated as NPA. The Court on the real income theory held that such interest would not be taxable. - Income Tax Appeal No.266 of 2017 - - - Dated:- 15-4-2019 - Akil Kureshi And Sarang V. Kotwal, JJ. For the Appellant : Mr.A.R. Malhotra a/w Mr.N.A Kazi, Advocate For the Respondent : Mr.Jehangir Mistri, Senior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2006. Later borrowings were at higher rate of interest ranging from 9.75 to 14%. Average interest rate of such CCDs came to 11.30%. The Transfer Pricing Officer undertook Arm s length adjustments and held that the interest paid by the assessee to the AEs was not at Arm s length. He made adjustment of a sum of ₹ 48.53 out of total interest payment 98.44 crores paid by the assessee. This issue was therefore carried by the assessee before the tribunal. Tribunal by the impugned judgment deleted the addition making following observations; 13. Now coming to the issue, whether the arm s length interest rate arrived at by the TPO and endorsed by the DRP by adopting USD Corporate Bond Rate and LIBOR interest rate based on external commercial borrowing is justified in the present case or not. First of all, as stated in the foregoing paragraphs and reiterated several times that the CCDs have been issued in INR denominated debt and the interest paid / payable is also in terms of INR. Once the tested transaction is in INR denominated debt, then interest rate must necessarily be based on economic and market factors affecting Indian currency and data av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... currency or legal tender of the place or the country of residence of either party. Interest rates applicable to loans and deposits in the national currency of the borrower or the lender would vary and are dependent upon the fiscal policy of the Central bank, mandate of the Government and several other parameters. Interest rates payable on currency specific loans/ deposits are significantly universal and globally applicable. The currency in which the loan is to be repaid normally determines the rate of return on the money lent, i.e. the rate of interest. Klaus Vogel on Double Taxation Conventions (Third Edition) under Article 11 in paragraph 115 states as under:- x x x x x x x x x x x x x x x x x x x x x x x 40. The aforesaid methodology recommended by Klaus Vogel appeals to us and appears to be the reasonable and proper parameter to decide upon the question of applicability of interest rate. The loan in question was given in foreign currency i.e. US $ and was also to be repaid in the same currency i.e. US $. Interest rate applicable to loans granted and to be returned in Indian Rupees would not be the relevant comparable. Even in India, inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year data for year 2009-10, but, if such a data were not available then it cannot be held that such a tenor adjustment for taking into time period cannot be made under CUP, if it has been made quite accurately taking into account the material factors relating to time of the transaction affecting the price. We though agree that, a high degree of comparability is required under CUP, but in absence of such a comparable data, a minor adjustment can be made to eliminate the material effect of time difference for arriving at a comparable uncontrolled price. Now before us, the assessee had filed two comparable transactions for the year 2009, that is, for the same financial year in the case of Shriram Transport Financial Company Ltd. and Tata Capital Ltd., wherein, for credit rating of AA Enterprises the coupon rate of interest per annum was between 11% to 12% for a tenor of 60 months. The yield on redemption is also around 11.25% to 12%. If for a credit rating company AA or AA(+) the interest rate is ranging between 11% to 12%, then in the case of the assessee which is admittedly BBB() credit rating company, 11.30% interest paid by the assessee to its AE is much within the arm s length r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either party. Interest rates applicable to loans and deposits in the national currency of the borrower or the lender would vary and are dependent upon the fiscal policy of the Central bank, mandate of the Government and several other parameters. Interest rates payable on currency specific loans/deposits are significantly universal and globally applicable. The currency in which the loan is to be repaid normally determines the rate of return on the money lent, i.e. the rate of interest. Klaus Vogel on Double Taxation Conventions (Third Edition) under Article 11 in paragraph 115 states as under: The existing differences in the levels of interest rates do not depend on any place but rather on the currency concerned. The rate of interest on a US $ loan is the same in New York as in Frankfurt-at least within the framework of free capital markets (subject to the arbitrage). In regard to the question as to whether the level of interest rates in the lender's State or that in the borrower's is decisive, therefore, primarily depends on the currency agreed upon (BFH BSt. B1. II 725 (1994), re. 1 AStG). A differentiation between debt-claims or debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. We find that the impugned order of the Tribunal inter alia has followed the decisions of the Bombay Bench of the Tribunal in cases of VVF Ltd. v. Dy. CIT (supra) and Dy. CIT v. Tech Mahindra Ltd. (supra) to reach the conclusion that ALP in the case of loans advanced to AEs would be determined on the basis of rate of interest being charged in the country where the loan is received/consumed. Mr. Suresh Kumar the learned counsel for the Revenue informed us that the Revenue has not preferred any appeal against the decision of the Tribunal in VVF Ltd. v. Dy. CIT (supra) and Dy. CIT v. Tech Mahindra Ltd. (supra) on the above issue. No reason has been shown to us as to why the Revenue seeks to take a different view in respect of the impugned order from that taken in VVF Ltd. v. Dy. CIT (supra) and Dy. CIT v. Tech Mahindra Ltd. (supra). The Revenue not having filed any appeal, has in fact accepted the decision of the Tribunal in VVF Ltd. v. Dy. CIT (supra) and Dy. CIT v. Tech Mahindra Ltd. (supra). 6. Before closing this issue we may note that the tribunal in the impugned judgment has made certain observations suggesting that the ident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. In case of CIT Vs. Deogiri Nagari Sahakari Bank Ltd Ors. 3, this Court had expressed a similar view. We may further clarify that in the said case, the Court was concerned with a similar claim raised by the cooperative bank and the Court did record that the assessee was a cooperative bank and not NBFC. However, this distinction may not have much significance now in view of the fact that this Court in case of CIT Vs. M/s. KEC Holdings Ltd (Income Tax Appeal No. 221 of 2012 decided on 11.6.2014) held and observed as under: 8. The assessee had credited only an amount of ₹ 38,57,933/- as interest on loans. The Assessing Officer was of the view that the interest accrued on the entire loans should have been shown as income. The details as to how the interest income on accrual basis should have been disclosed are, therefore, referred to by the Tribunal. The Tribunal held that the said income was not realized. It held that the assessee follows the mercantile system of accounting. The Tribunal held that the loan advanced by the assessee which was in NBFC had become non-performing asset. That is how following judgments render ..... X X X X Extracts X X X X X X X X Extracts X X X X
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