TaxTMI 
TaxTMI 
2020 (1) TMI 781
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....emost identical substantive ground in its two appeal(s) challenges correctness of learned lower authorities' action making transfer pricing adjustment of Rs.8,19,134/- and Rs.6,27,062/-; (assessment year-wise) respectively, regarding its interest free loans of AUD 5,00,000 provided to the overseas associate enterprise M/s Technico Pty Ltd. Australia since financial year 2007-08. Both the learned representatives are fair enough at the outset that this first issue involved in both these years is no more res integra since the tribunal's order in assessment year 2009-10 involving Revenue and assessee's cross-appeals ITA Nos.629 and 674/Kol/2013 decided on 11.04.2018 has deleted identical adjustment under the very head as follows:- "3. First of all we will decide the transfer pricing issue of assessee's appeal. Brief facts of the issue are that the assessee company during the AY 2008-09 had given an interest free loan of AUD 5,00,000 to its associated enterprise (AE) Technico Pty. Ltd., Australia (TPL). For the purpose of determining the arm's length nature of the transaction, the assessee adopted CUP method and took the arm's length rate of interest @ 8.91% as was prevailing i....
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.... ground of appeal is dismissed." Aggrieved, the assessee is in appeal before us. 4. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee has granted an interest free loan of AUD 5,00,000 to its AE Technico Pty. Ltd. during the FY ended on 31.03.2008. For the purpose of determining the arm's length nature of the transaction, the assessee considered the same from the perspective of the TPL. According to the assessee, the objective to do so was to determine the rate of interest at which the same amount could have been borrowed by the AE which is an Australian company from an Australian Bank at the same point of time. The arms length rate of interest was determined using the average rate of interest which was the borrowing rate applicable to corporate's which prevailed in Australia during the current year 2008. The assessee extracted the information from the International Monetary Fund (IMF) data base and the arm's length rate of interest for the current year 2008 mentioned was 8.91% and the assessee computed the amount of arm's length interest denominated in AUD by applying the arm's length interest rate ....
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....co Pty Limited CAN 063 602 782" 5. From a perusal of the aforesaid Promissory Note reveals that the loan amount has been given in AUD 500,000 by the assessee and in terms of the loan agreement dated 24.08.2007 and the AE Technico Pty. Ltd. a company incorporated under the law of Australia promised to repay the assessee company on or before 22nd August, 2010 the said loan amount of AUD 500,000 together with interest which clearly reveals that the assessee has given loan of AUD 500,000 to Technico Pty. Ltd. and the said loan amount of AUD 500,000 together with interest, if any need to be paid back to the assessee in AUD 500,000. So, the loan amount given and have to be repaid is in AUD 500,000. We note that the assessee for the purpose of determining the arm's length nature of the transaction has taken the rate of interest of the same amount if it had been borrowed by the Australian company from an Australian bank at the said point of time and has adopted interest rate of 8.91%. The issue which is before us as to the rate of interest in such a scenario is no longer res integra. The Hon'ble Delhi High Court in CIT Vs. Cotton Naturals (I) (P) Ltd. (2015) 55 taxmann.com 523 (De....
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....ore than different expectations in regard to rates of exchange, rates of inflation and other aspects. Hence, the choice of one particular currency can be just as reasonable as that of another, despite different levels of interest rates. An economic criterion for one party may be that it wants, if possible, to avoid exchange risks (for example, by matching the currency of the loan with that of the funds anticipated to be available for debt service), such as taking out a US $ loan if the proceeds in US $ are expected to become available (say from exports). If an exchange risk were to prove incapable of being avoided (say, by forward rate fixing), the appropriate course would be to attribute it to the economically more powerful party. But, exactly where there is no special relationship', this will frequently not be possible in dealings with such party. Consequently, it will normally not be possible to review and adjust the interest rate to the extent that such rate depends on the currency involved. Moreover, it is questionable whether such an adjustment could be based on Art. 11 (6). For Art. 11(6), at least its wording, allows the authorities to 'eliminate hypothetically' th....
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.... ratio laid by the Hon'ble High Courts discussed above, we hold that there was no necessity of any arm's length adjustment in this case and, therefore, we direct the deletion of the addition made on this count. Ground of appeal of assessee in respect to Transfer Pricing raised by it is allowed." We adopt the above detailed reasoning mutatis mutandis to hold that learned lower authorities have erred in going by the penal interest stipulation in the loan agreement than the corresponding interest benchmark in the overseas market. We go by judicial consistency and delete the impugned identical transfer pricing adjustment(s) of Rs.8,19,134/- & Rs.6,27,062/- under challenge. 3. Next comes the assessee's second substantive grievance challenging u/s. 14A r.w.s. Rule 8D disallowance(s) of Rs.98,47,788/- and Rs.34,79,136/-; assessment year-wise; respectively. The assessee had derived exempt income from dividends and mutual funds amounting to Rs.186,100,400/- and Rs.167,439,252/-; assessment year-wise respectively. It had made suo motu corresponding disallowances of Rs.31,392/- and Rs.1,65,198/-. The Assessing Officer invoked Rule 8D(2)(iii) administrative expenditure disallowa....