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TMI Blog2021 (10) TMI 1327X X X X Extracts X X X X X X X X Extracts X X X X ..... sly erred in not appreciating that no enhancement in the interest rate of 8% duly charged by the Appellant to the associate enterprise was warranted having regard to the prevailing Libor rate, Reserve Bank of India guidance and judicial precedents. 3. The Ld. CIT(A) has grossly erred in accepting an ad-hoc mark-up of 700 basis points over the Libor rate without any justification as to how the same was computed. 4. Without prejudice to the aforesaid grounds of appeal, the Ld. CIT(A) has erred in overlooking that, even if the interest rate is computed as per the parameters taken by the TPO in the Assessment Order for the AY 2007-08, the interest rate cannot exceed 11.7% and applying a 13% rate by the Ld. Assessing Officer on the pretext of rounding-up was unwarranted. The Appellant craves leave to add, alter, amend and / or modify any of the grounds of appeal. 2.1 Similarly, the grounds raised by the assessee for assessment year 2009-10 are reproduced as under: 1. The Ld. CIT(A) has grossly erred in confirming the interest rate of 7.52% as arm's length interest rate, computed by the Ld. Assessing Officer on the sum lent to the associated enterprise, being its US subsidiary. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 400 basis points on account of credit rating of AE and further 300 basis point on account of transaction cost. 3.5 In assessment year 2008-09, the Assessing Officer himself benchmarked the transaction of interest and determined the arm's-length price following the approach of the learned TPO in assessment year 2007-08. The Assessing Officer worked out arm's-length interest rate at six-month LIBOR i.e. 4.7% + 700 basis points i.e. 11.7% per annum, however finally rounded to 13% per annum and made an adjustment of Rs. 42,00,000/-. 3.6 In assessment year 2009-10, the Learned Assessing Officer worked out the arm's-length interest rate at six-month LIBOR i.e. 2.52 % + 500 basis points i.e. 7.52 % and made an adjustment of Rs. 80,56,000/-. 3.7 The Ld. CIT(A) upheld the benchmarking of interest at LIBOR + 700 points in assessment year 2008-09 holding that assessee is not a banker and in view of credit rating and transaction cost, the LIBOR needs to be marked up by 700 basis points. Similarly assessment year 2009-10, benchmarking of interest rate at LIBOR+ 500 basis point was upheld. The relevant finding of the Ld. CIT(A) is reproduced as under: "7.4. This matter can be viewed from an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cylinder Limited ( ITA No. 435/2015). 5. On the other hand, the Learned Departmental Representative relied on the orders of the lower authorities. 6. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The only dispute between the parties, is regarding the markup of 700 basis point in assessment year 2008-09 and markup of 500 points in assessment year 2009-10 over the LIBOR rate applied by the Assessing Officer for determination of arm's-length price of international transaction of interest. The Assessing Officer has followed finding of his predecessor in AY 2007-08, but in AY 2007-08, the assessee has opted for scheme under Vivad -Se- Vishvas Act, 2020 and withdrawn his appeal. In the year under consideration, the assessee is not disputing the LIBOR rate application for determining the arm's-length price of the transaction and only disputing markup of 400 points on the basis of credit rating of the AE and 300 points on the basis of transaction cost. The finding of the Hon'ble Delhi High Court in the case of Cotton Natural (I) Pvt. Ltd (supra), which is relied upon by the assessee, on the issue of markup for transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 The finding of Hon'ble Bombay High Court in the case of Everst Kanto cylinder Limited (supra) is reproduced as under: ".....In light of the above decisions, the rate to be used for undertaking an adjustment should be LIBOR and not the average yield rates considered by the learned TPO. The LIBOR rate for March 2008 was 2.6798%. However the assessee has charged 7% from its AE as per the internal CUP available. Thus, the assessee has charged interest to EKC Dubai and EKC china at the rate higher than existing LIBOR rates. Accordingly, the said transaction of providing loan to EKC Dubai and EKC China is at arm's length. Additions made by the AO are accordingly set aside. " 6.2 The Hon'ble Delhi High Court in the case of Cotton Naturals I Pvt. Ltd. (supra) has thus held that transaction cost or hedging cost is to be born and paid by the borrower and not by the lender and thus no adjustment for markup of transaction cost, is required to be charged. In the case of Everest Kanto cylinder Limited (Supra) LIBOR rate has been held at arm's length in the facts of that case, and said ratio cannot be applied over facts of the case before us. 6.3 In the instant case, the AE was a relat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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