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TMI Blog2014 (4) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... IBOR +2.1% and LIBOR +3.25% - Assessee seems to have advanced at LIBOR +3% to Aurbindo whereas rate of interest received in Aurobindo Farmo industria Farmaceutica LTDA is 13.06% - to the extent of advances which were given at a rate lesser than the rate at which those are obtained, the AO is directed to examine, and the rate of interest paid should be considered as ALP in order to determine the interest received – Decided partly in favour of Assessee. Claim u/s 35D of the Act – Loans obtained in foreign currency convertible points – Held that:- Both legally and factually the addition cannot be sustained – the AO is bound to follow the directions of the DRP - AO cannot pass the order against the directions of DRP as per the provisions of law - Assessee’s claim is allowable as decided in M&M Ltd. Vs. JCIT [2009 (10) TMI 639 - ITAT MUMBAI] – debentures when issued is a loan, whether it is convertible or non- convertible, does not militate against the nature of the debenture being loan - the expenditure incurred would be admissible as revenue expenditure – Decided in favour of Assessee. Claim u/s 10B of the Act – Exclusion of freight charges - Held that:- In case any amount is ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... van,JJ. For the Petitioner : Shri P. V. S. S. Prasad For the Respondent : Shri P. Soma Sekhar Reddy ORDER Per B. Ramakotaiah, A. M. This is an appeal by Assessee directed against the orders of the AO u/s 143(3) read with section 92CA(3)/144C(13) of the Act, dated 03-03-2012. Assessee has raised 7 grounds in its appeal. 2. Briefly stated, Assessee is engaged in manufacture and sale of bulk drugs/ API s under the pharmaceutical products. For the AY 2008-09, Assessee declared income of 175.20 crores on 26-09-2008 and a revised return was filed declaring the income of Rs. 128.42 crores. The return was processed and was referred to TPO u/s 92CA(3). AO also proposed certain disallowances with respect to weighted deduction on R D expenses, amortization of FCCB expenses etc. Assessee objected to the draft order before the DRP and the DRP, Hyderabad in its directions dated 03-08-2012 considered some of the issues and directed the AO to complete orders accordingly. Accordingly, orders have been passed by the AO on which Assessee is in appeal before us. 3. We have heard the learned counsel and learned DR in detail. We have also perused the paper books placed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... China 2007-08 6.8 USA 2007-08 4.0 Brazil 2007-08 12.0 Netherlands 2007-08 3.85 However, the TPO adopted corporate bond rate of 17.26% to make adjustment and the DRP approved partly. Assessee filed an application u/s 154 to direct the AO to pass order as per the observations in their order wherein DRP has agreed with the opinion of LIBOR + % is correct methodology for benchmarking valuation of current year loans. DRP further observed that charging of corporate bonds rate is inappropriate in the fact pattern of Assessee company. Application u/s 154 filed by Assessee was not acted upon. The AO, determined the adjustment at Rs. 33,14,39,480/-. 4.2 The learned counsel reiterated the facts as stated before the authorities and also relied on various case law on the issue to support that LIBOR + specific percentage points can be considered as ALP, when Assessee is paying no interest and charging interest on the loans provided. 4.3 We have considered the issue and examined the facts. With reference to principle that labor + specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e LIB OR (London Inter Bank Offered Rate). The co-ordinate Bench held that once the transaction between the assessee and the Associated Enterprises is in foreign currency and the transaction is an international transaction, then the transaction would have to be looked upon by applying the commercial principles in regard to international transactions , and accordingly proceeded to take into account interest rate in terms of LlBOR basis. We have adopted the same approach by taking into account the commercial principles and practices with regard to a US Dollar denominated extended credit for arriving at the benchmark rate, and take LIB OR as the base. Accordingly, the LIBOR (US Dollar) has to be as benchmark for US Dollar transactions - rather than the rate of interest on domestic borrowings, even which is lower than the interest rate of 10 per cent taken as ALP by the TPO, or, for that purpose, rate of interest on any other currency loans. 4.6 In the case of M/s Four Soft Ltd Vs DCIT Circle-l(3), Hyderabad, ITA No. 1495/Hyd/2010 tribunal held that We have considered the rival submissions and perused the materials available on record. We do not find any merit in the arguments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the objections of Assessee and legal principles on the issue DRP directed the AO to allow the claim u/s 35D, which is a consequential claim. AO cannot pass the order against the directions of DRP as per the provisions of law. Therefore, on this point alone ground is to be allowed as DRP clearly directed AO to allow the claim. Be that as it may, on merits also, Assessee s claim is allowable as this issue is in fact covered by various decisions of coordinate benches. The coordinate bench in the case of M M Ltd. Vs. JCIT 36 SOT 348(Mum) held that In the case under consideration, the case of the revenue is that expenditure incurred by the assessee on account of foreign currency convertible bonds are in the nature of share issue expenses, which is capital in nature. In this regard, the learned AR has relied on the judgment of Hon'ble High Court of Rajasthan in the case of Secure Meters Ltd. (supra) wherein it was held that debentures when issued is a loan, whether it is convertible or non- convertible, does not militate against the nature of the debenture being loan. Therefore, the expenditure incurred would be admissible as revenue expenditure in the light of the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 360 days but beyond 180 days to the above extent was excluded while computation of profits u/s 10B. This issue is also covered in favour of Assessee by the various decisions of the coordinate benches. RBI as a part of foreign trade policy in September, 2004 announced by Government of India had issued a general Circular on 01-11-2004 as Circular No. 25 wherein it has been decided that 100% export oriented units (EOUs) and units set up in Hardware Technology Parks (HTPs) and Software Technology Parks (STPs) and Bio Technology Parks (BTPs) should be allowed to realize and repatriate the full value of export proceeds within a period of 12 months from the date of export. There is no dispute with reference to RBI being the authority as far as the foreign trade is concerned and income-tax Act also permits such extended period, if duly authorized. This issue has already been discussed elaborately by various coordinate benches of Tribunal and, therefore, the AO is directed not to exclude the export proceeds received from the export turnover as well as from the total turnover, as they were received with in time permitted by RBI. 7. The last issue is pertaining to the denial of benefit u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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