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TMI Blog2017 (3) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... est on transactions of loans and share application money given by the appellant company to its associates enterprises. Whereas, it is merely based on the own calculations and assumptions and applied the Fixed Deposit rate of interest @ 8.90%. The interest rate applied by the TPO is prejudicial to appellant and against the natural justice. 2. The LD CIT(A)-15 has erred in ignoring the facts and circumstances of the case in law that during the A.Y. 2008-09, his 'predecessor CIT (A)-15 has given the verdict based on the benchmarking of the transaction of loan with RBI guidelines on external commercial borrowings by applying 6 months LIBOR+ 150 basis points for a period of 3 years and 6 months LIBOR + 250 basis points for a period of more than 5 years." 3. Brief facts of the case are that the assessee is engaged in the business of software development consultancy and online trading. A reference u/s 92CA(1) of the Act was made by the A.O. to the TPO for determination of arm's length price (ALP) with respect to the interest on loan and share capital advanced by the assessee to Associated Enterprises (AEs) , wherein the TPO noted that the company had advanced loans and share applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on the Zero Coupon Bonds, as these bonds were convertible after 5 years into share capital and assessee has not paid any interest, therefore the assessee did not charge any interest from the AE. b) The assessee submitted that Hon'ble ITATs have held that London Interbank Offer Rate (LIBOR) Plus Rate should be used for determining arm length price for foreign currency loans. He cited judgment of ITAT in the case of Foursoft Ltd 20l2 16 ITR (Trib) 73 Hyderabad (volume TP/35/2011 dated 06.10.2011), wherein ITAT has held that the ALP as regards foreign currency loan is to be determined on international loan and not for the domestic loan and hence corporate bonds cannot be taken for comparability. ITAT further held that LIBOR is an internationally well recognized rate for benchmarking loans denominated in foreign currency. The Tribunal relied on the case of Shiva Industries and Holding Ltd (ITA No. 2148/Madras/2010). The assessee also relied upon ITAT, Mumbai decision in the case of Tech Mahindra Vs. DCIT (ITA No.1176/Mum/2010) wherein the ITAT held that "Once the transaction between the assessee and the AE is in foreign currency and the transaction is international transaction, then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer was not correct. Assessing Officer has not given any reasons of how he has given the rating as 'B'. f) The assessee also submitted that the credit rating should change every year as the financials of the company as well as that of the AE are changing. The credit rating of the company comes to 'A', as this is amongst the top 15 computer software companies and company has its own funds of more than Rs. 600 crores. The assessee company has unsecured loans of Rs. 640 crores and that too of Zero Coupon Bonds which are convertible to share capital. The assessee pleaded that applying rate of 20.72% will not be judicious. He submitted that the assessee has made inroads in Hong Kong, where Chinese companies are getting financial support from China and getting funds at very cheap rate. By applying interest rate of 20.72% it would be prohibitive for Indian companies to compete in global market. He requested that the LIBOR rate may be applied on the above transaction." After considering the above submissions of the assessee, the TPO observed that the assessee has raised Rs. 640 crores by Zero Coupon Convertible Bonds which are convertible into shares after 5 years. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactions with AEs , whereby loans and share applications were granted by the assessee to its AEs wherein no interest was charged by the assessee, hence, the authorities have rightly applied interest rate of 8.9% keeping in view spread of net interest margin of 2.3% on borrowing cost of the assessee of 6.6.% on zero coupen bonds raised by the assessee, to work out ALP of international transactions of the assessee with its AEs wherein upward TP adjustment to the tune of Rs. 15,50,59,824/- was upheld by learned CIT(A).The learned CITDR relied upon the appellate order of learned CIT(A). 8. We have heard ld. CIT-D.R. and also perused the orders of the authorities below. We have observed that the assessee has borrowed funds of Rs. 640 crores by issuing Zero Coupon convertible bonds which are convertible into shares after five years. The lender had an option to get interest @6.6% in case the bonds are not converted into equity shares . The assessee has made provision of interest @6.6% on these Bonds in its Balance Sheet. The assessee has advanced interest-free loans and share application money to its AE's out of proceeds of the afore-stated zero coupen convertible bonds on which no int ..... X X X X Extracts X X X X X X X X Extracts X X X X
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