TaxTMI 
TaxTMI 
2022 (9) TMI 1593
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....rium period are adjudicated, then the rest of the grounds can be left open. Accordingly, we will adjudicate the issue of TPO not applying the effective rate of interest without considering the moratorium period and the relevant grounds raised in this regard are extracted below - (8) The ld AO/TPO pursuant to the directions of the Hon'ble DRP erred in law and in facts by not considering the moratorium period benefit availed by the appellant and by rejecting the effective rate of interest testing the arm's length nature of the international transaction of interest accrued on NCDs (9) The ld DRP erred in law and in facts in arbitrarily holding that there is no requirement for adopting a different rate of interest on account of moratorium period since appellant could have paid interest during such period as well without appreciating that the appellant has been benefitted from the moratorium period granted by the associated enterprise which needs to be factored in while determining the arm's length interest rate 3. The assessee is a company engaged in the business of real estate development. The assessee has issued NCDs in three tranches to its AE. During the year under considerati....
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....he part of the DRP to confirm the adjustment by stating that there is a pre-payment clause in the agreement ignoring the fact that the assessee has not paid any interest till date. In this regard, the ld. AR drew our attention to the decision of Pune Bench of the Tribunal in the case of Goodyear South Asia Tyres P. Ltd. V. ACIT (ITA No.1431/PUN/2010 dated 28.11.2014) where the Tribunal has held that for the purpose of comparison while arriving at the ALP, effective rate of interest need to be calculated considering the moratorium period as agreed between the parties. 6. The ld. DR relied on the order of the lower authorities. 7. We have heard the rival submissions and perused the material on record. We notice that the Pune Bench of the Tribunal in Goodyear South Asia Tyres P. Ltd. (supra) has considered a similar issue and held that :- "16. We have carefully considered the rival submissions. Before proceeding to adjudicate the rival stands, it would be appropriate to briefly touch-upon the manner in which the impugned liability towards interest on loans raised from associated enterprises has been incurred by the assessee. Pertinently, the loans in question, namely, Technical kn....
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....oreign exchange risk coverage was not applicable after the close of seven year's moratorium period. Subsequently, RBI also extended the period of moratorium for payment of interest by two years, but in this extended period of moratorium no further increase on account of exchange rate fluctuation was allowed. All these features of the technical knowhow loan are emerging from the material on record and in-fact the same are not in dispute. 17. Now, with regard to the foreign currency cash loan, the details are as follows. On 16.08.1995 assessee entered into a foreign currency cash loan agreement with its associated enterprise, namely, Goodyear Tyre and Rubber Co., USA for USD 56,00,000 for the purpose of financing import of capital goods. The said agreement was also approved by the Reserve Bank of India vide communication dated 27.09.1995, a copy of which has been placed in the Paper Book at page 393. In terms of the said approval by the Reserve Bank of India, it is prescribed that the loan shall remain interest-free for a period of seven years from the date of grant of loan and at the end of the seven years it shall be repaid in five equal installments together with interest @ 12%....
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....ash loan taken by the assessee. According to the TPO, such a transaction cannot be compared with the prevailing lending rates in the domestic market at the time of raising of loan. Instead, according to him, the arm's length price would have to be determined by benchmarking the interest rates prevailing on borrowings from abroad at the time of payment of interest. Therefore, the plea of the assessee for comparing the interest paid @ 12% with the Prime Lending Rate of SBI was not accepted. Another reason advanced by the TPO is that assessee was also required to account for exchange fluctuation burden during the currency of the loan. Under these circumstances, as per the TPO, such a loan cannot be treated to be at par with a domestic loan raised from an Indian bank. In our view, the TPO is justified in saying that the impugned transactions involve loan liabilities in foreign currency and therefore it is not a domestic borrowing so as to compare the transaction of payment of interest with the domestic Prime Lending Rate of the Indian banks. 20. So however, one pertinent point has been raised by the assessee before us to the effect that in order to benchmark the interest cost in....
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....ve rate of interest for the purpose of benchmarking the transaction with comparable cases. The terms and conditions of the agreement approved by the RBI in relation to technical knowhow and foreign currency cash loans, which have been succinctly noted by us in the earlier part of this order, clearly establish that in the initial period of nine years there was a moratorium on interest payment and that assessee was not required to incur any interest costs. It is only subsequent to the moratorium period, assessee was to incur interest cost and that too, during the period of repayment of loans. Of course, during the moratorium period the liability towards principal amount of loan was liable to be increased by 5% on account of exchange rate fluctuation. Considering the entirety of terms and conditions, therefore, the cost of borrowings to the assessee (i.e. on technical knowhow and foreign currency cash loans) are to be computed after factoring the initial period of moratorium. Therefore, it would be inappropriate to merely compare the stated rate of interest of 12% with the prevailing rates without taking into consideration the specific terms and conditions of the assessee's borrowings....
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....by the assessee at 3.75% to the associated enterprise was sought to be benchmarked. The Revenue determined the arm's length rate of payment of royalty @ 3%, while assessee was charged 3.75% by the associated enterprise. The assessee had put up a defence on the ground that the effective rate of royalty payable was @ 2.30% on sales. It was contended that the royalty of 3.75% was payable after reducing various expenses from the sale value of the products but the effective rate worked out to 2.30%, which was comparable to arm's length rate being considered by the Revenue. On the basis of the assertion of the assessee to the effect that the effective rate of royalty was lower than the comparable transaction, the addition made by the TPO was deleted by the Tribunal. The Ld. Representative for the assessee submitted that the concept of the effective rate of royalty as against the stated rate of royalty was approved by the Tribunal for the purpose of benchmarking the international transaction of the assessee. In the present case also, in our view the ratio of the decision of the Ahmedabad Bench of Tribunal in the case of Hitachi Home & Life Solutions (India) Ltd. (supra) applies. T....