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TMI Blog2017 (9) TMI 1737X X X X Extracts X X X X X X X X Extracts X X X X ..... mesh Babu, AR ORDER D.S. Sunder Singh, These appeals filed by the revenue are directed against Order of the Commissioner of Income Tax (Appeals)-1 {CIT(A)} Guntur vide ITA No.17/15-16/CIT(A-1)/GNT dated 30.11.2016 for the assessment years 2011-12 2012-13. Since the common issues are involved in both the appeals, the appeals are clubbed and heard together and disposed off in a common order for the sake of convenience. 2. All the grounds of appeal are related to the addition made by the A.O. relating to the interest charged on loans advanced to its foreign subsidiary companies u/s 92CA(3) of the Income Tax Act, (hereinafter called as the Act ). During the assessment proceedings, the A.O. found that the assessee had international transactions with its foreign subsidiary companies and hence the international transaction was referred to the Transfer Pricing Officer (TPO) to determine the arms length price (ALP). The TPO during the transfer pricing proceedings found that the assessee had given a loan to its foreign subsidiary M/s. Jayant PTE Limited (JPL) and the opening balance of the loan was ₹ 6,32,18,772/- and the closing balance was ₹ 5,32,15,257/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds or real estate and the corresponding return would be the effective Indian interest rate. Accordingly, the TPO adopted PLR of 12.25% as the arms length interest and interest was charged on the amounts outstanding at the end of each month on monthly basis. The A.O. charged the interest of ₹ 73,53,775/- against the interest collected by the assessee amounting to ₹ 11,08,305/- and the difference amount of ₹ 62,45,470/- was brought to tax for the assessment year 2011-12. Similarly, for the assessment year 2012-13, the A.O. adopted the PLR of 14.75% as arms length interest and charged the interest of ₹ 1,42,26,375/- against the interest charged by the assessee amounting to ₹ 37,00,493/- and the difference amount of ₹ 1,05,25,882/- was brought to tax. The A.O. adopted the arms length interest worked out by the TPO and passed the assessment order u/s 143(3) r.w.s. 92CA(3) of the Act. 3. Aggrieved by the order of the A.O./TPO, the assessee went on appeal before the CIT(A) and the Ld. CIT(A) allowed the appeal of the assessee vide order No.17/15-16/CIT(A-1)/GNT dated 30.11.2016 for the assessment year 2011-12 and order No.07/16-17/CIT(A-1)/GNT dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan has to be repaid i.e. LIBOR and not based on PLR of Indian banks. This view is supported by the Hon ble Delhi High Court decision in the case of CIT Vs. Cotton Naturals India (P) Ltd. 55 Taxmann.com 523. The Ld. A.R. also relied on the decision of this Tribunal in the case of 3F Industries in ITA No.120/Vizag/2016 dated 14.6.2017, wherein the ITAT remitted the matter back to the file of the AO for the assessment year 2008-09 and 2009-10, with a direction to adopt the LIBOR and re-do the assessment. Further, Ld. A.R. brought to our notice that the assessee has charged the interest @ 2% to its subsidiaries against the LIBOR of 0.92% for the assessment year 2011-12 and 0.83% for the assessment year 2012-13. Accordingly, the Ld. A.R. vehemently opposed the contention of the revenue to charge interest as per Indian PLR and pleaded that no interference is called for in the order of the Ld. CIT(A). 7. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The assessee has given advances to its Associated Enterprises (AEs) i.e. M/s. Jayant PTE Limited (JPL) and charged the interest @ 2% and the assessee is payi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,45,470/-. The Assessee is a Public Limited Company listed in th BSE NSE Stock Exchanges and is an 100% EOU with about 98% export sales. It is having a 100% subsidiary in Singapore Viz. M/s. Jayant PTE Ltd which in turn has established instant coffee manufacturing units in Switzerland and Vietnam through its 100% subsidiary in the respective countries. Hence, in effect all these step down subsidiaries are 100% subsidiaries of the Company and their profits and benefits will exclusively accrue and belong to the assessee company only. They were established with the principle aim of enhancing the brand image of Company's Products globally and also to save on transportation costs. As on 31.03.2009, the Company is having huge internal accruals of about ₹ 162.30 crores and out of the same, the Company has lent a small amount of ₹ 9.58 crores on 16.07.2009 to its wholly owned subsidiary Viz. ]ayant PTE Ltd. with the above mentioned objects i.e. only for business purposes Viz, enhancing its brand value in global markets and to save on huge transportation costs. As on 01.04.2010, the opening balance in the above loan account is ₹ 6,32,18,772/- and at the end of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decisions of the Bombay Bench of the Tribunal in cases of VVF Ltd. v. Dy. CIT [IT Appeal No. 673 (Mum.) of 2006] and Dy. CIT v. Tech Mahindra Ltd. [2011] 12 taxmann.com 132/46 SOT 141 (Mum.) (URO) to reach the conclusion that ALP in the case of loans advanced to associate enterprises would be determined on the basis of rate of interest being charged in the country where the loan is received/consumed. The revenue has not preferred any appeal against the decision of the Tribunal in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra) on the above issue. No reason has been shown as to why the revenue seeks to take a different view in respect of the impugned order from that taken in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra). The revenue not having filed any appeal, has in fact accepted the decision of the Tribunal in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra). [Para 7]. In view of the above, there is no reason to entertain the instant appeal as in similar matters the revenue has accepted the view of the Tribunal which has been relied upon by the impugned order. [Para 8] The Hon'ble Bangalore ITAT 'C' Bench in the case of Indegee Life systems (P) Ltd., Vs. ACIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case. There is no gainsaying that the orders of the Tribunal are binding on the lower authorities, including the DRP. In view of the above, the grievance of the assessee is found to be justified and it is accepted as such. [Para 11] In the case of CIT-I Vs Cotton naturals India Private Ltd., the facts of which are same as of assessee, the Delhi High court categorically held that where the Parent company advanced loan to its foreign subsidiary, the Arm's Length interest rate should be computed based on market determined interest rate applicable to currency in which loan has to be repaid i.e. LIBOR an should not be based on PLR of Indian banks. In the case of CIT-2 Vs Tata Auto Comp Systems Ltd., the Bombay High Court clearly held that where assesse advanced loans to its AE situated in Germany, rate of interest is to be determined on the basis of rate prevailing in Germany where loan had been consumed and not to be determined on the basis of rate prevailing in India. In the case of Indigene Life Systems (P) Ltd Vs. ACIT, the Bangalore ITAT held that in respect of loan granted by assesse to its AE located abroad, LIBOR rate of interest should be applied for deter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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