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2015 (11) TMI 12 - AT - Income TaxTransaction of foreign currency loan given to the Associate Enterprise - Transfer pricing adjustment - addition made by TPO taking the rate of interest at 12.7% in respect of the foreign currency loan given to Associate Enterprise - Held that - In the eight case laws cited by the assessee, it has been held that it is the LIBOR, which has to be applied in the case of foreign currency loan given to AE. All these case laws were cited by the assessee before the ld. DRP. However, the ld. DRP has not followed these case laws, contending that the decision in Perot Systems TSI (I) Ltd. 2009 (10) TMI 638 - ITAT DELHI was not considered by the Tribunal in any of these eight cases. Now, as rightly contended on behalf of the assessee, the judicial hierarchy is to be respected and an order passed by a higher court/authority cannot be disregarded/distinguished for any reason, including for non-consideration of some case laws, as has been done by the ld. DRP in the present case. There is no gainsaying that the orders of the Tribunal are binding on the lower authorities, including the DRP. Agarwal Warehousing & Leasing Co. Ltd. , (2002 (7) TMI 86 - MADHYA PRADESH High Court), as pointed out, is the authority on the point. Therein, the decision of the Hon ble Supreme Court in the case of Kamlakshi Finance Corporation Ltd. , 1991 (9) TMI 72 - SUPREME COURT OF INDIA is also a case in point. - Decided in favour of assessee.
Issues:
1. Addition made in the hands of the appellant in respect of a foreign currency loan given to the Associate Enterprise. 2. Confirmation of the addition made by the Transfer Pricing Officer regarding the international transaction of the foreign currency loan. 3. Confirmation of the addition made by the Transfer Pricing Officer taking the rate of interest at 12.7% in respect of the foreign currency loan. 4. Applicability of External Commercial Borrowing rates in the international market for the foreign currency loan instead of the determined interest rate. Detailed Analysis: Issue 1: The appellant appealed against the addition made in the hands of the appellant in respect of a foreign currency loan given to the Associate Enterprise. The appellant prayed for the deletion of the addition amounting to Rs. 27,635,849. The grounds raised by the appellant were based on the facts and circumstances of the case. Issue 2: The Dispute Resolution Panel confirmed the addition made by the Transfer Pricing Officer regarding the international transaction of the foreign currency loan. The appellant contended that the conclusion reached by the Panel was not justified and contrary to the provisions of the law and various judicial pronouncements. The appellant requested the deletion of the addition made by the Transfer Pricing Officer. Issue 3: The Dispute Resolution Panel confirmed the addition made by the Transfer Pricing Officer, taking the rate of interest at 12.7% in respect of the foreign currency loan. The appellant argued that the Panel erred in determining the applicable interest rate at 12.7% and requested a different approach. Issue 4: The appellant prayed that the External Commercial Borrowing rates applicable in the international market should be applied for the foreign currency loan given to the Associate Enterprise instead of the 12.7% interest rate determined by the Transfer Pricing Officer and confirmed by the Dispute Resolution Panel. The appellant contended that the loan was given in US dollars, and thus, a different rate should be considered. The Tribunal analyzed the case, considering the arm's length price in respect of interest charged to the associate enterprise. The appellant had provided a loan in US Dollars and charged interest in the same currency. The Tribunal discussed the prevailing international rate of interest in the currency of the loan and the arguments presented by both parties. The Tribunal also reviewed various case laws cited by the appellant to support their position. In the final decision, the Tribunal found that the grievance of the appellant regarding the rate of interest applied to the foreign currency loan was justified. The Tribunal accepted the arguments presented by the appellant and partially allowed the appeal. The decision was pronounced in the open court on 7th August 2015.
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