TaxTMI 
TaxTMI 
2025 (6) TMI 1991
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....ian Rupee loan, without considering the documents and evidences filed by the Appellant. 3. On the facts and circumstances of the case and in law, the Ld. AO, Ld. TPO and Hon'ble DRP, have erred in calculating interest at 11% p.a. (base rate of 9.5% of the State Bank of India as on 30.06.2016 + 150 basis points), instead of the rate of 3.8% p.a. (LIBOR 1.3% plus 2.5%) adopted by the Appellant. 4. The Appellant craves leave to, add to or alter, by deletion, substitution, or otherwise, any or all of the foregoing grounds of appeal at or before the hearing, and to submit such statements, documents" Brief facts of the case are as under: 2. The assessee filed its return of income on 06/02/2018 declaring total income of Rs. 20,110/-. The case was selected for scrutiny and order u/s. 133(3) was passed on 10/02/2019 assessing the taxable income at Rs. 20,110/-. 2.1 Subsequently, since the assessing officer completed the assessment without making reference to Transfer Pricing Officer, in respect of the international transaction. The PCIT - 27 thus Mumbai passed order u/s. 263 of the Act on 15/03/2023 directing the assessing officer to refer the international tr....
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....posed addition. 4.2 After considering the submissions of the assessee the DRP observed as under : "6.4. Discussion and Directions of the DRP: Applicant argues the loan was in AED (UAE Dirham) and interest should be calculated at 3.8% as per LIBOR. TPO treated the loan as an INR loan, calculating interest at 11%. The applicant claims that Swift messages and RBI acknowledgment confirm the loan was in AED. However, form 3CEB submitted by the applicant itself mentions the transaction currency as INR. Form 3CEB is a statutory filing under the Income Tax Act and takes precedence over ancillary documentation like Swift messages unless an amendment or correction to the form was submitted. The applicant's mention of the transaction currency as INR in Form 3CEB contradicts their current claim of AED as the currency. The applicant failed to revise or correct the filing despite being aware of the discrepancy, weakening their argument. Interest rates are tied to the loan's currency. The applicant asserts LIBOR-based interest at 3.8% but does not provide evidence of this being agreed upon in a formal loan agreement. The absence of clear contractual ....
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....ut of any loans taken by the Appellant from third parties. 3. Under the said agreement, the loan was liable to interest at one year LIBOR + 2.5%. The Appellant accordingly accrued an interest of Rs. 18,87,931 in its books of accounts for the year ended 31.03.2017, computed at 3.8% (prevailing LIBOR of 1.3% plus 2.5%) on the outstanding loan amount. 4. The return filed by the Appellant was picked up for scrutiny, and the assessment was concluded u/s 143(3) of the Act, without making any addition to the returned income. The assessment was subsequently set aside by the CIT in exercise of his powers vested under Section 263 of the IT act, on the ground that the international transaction entered into by the Assessee has not been referred to the Transfer Pricing Officer. The order of the CIT was not challenged by the Assessee. 5. The TPO noted that, though the loan was advanced by the Appellant to the AE in AED, in clause 14 of Form 3CED, the assessee had disclosed the loan to be in INR (page 10-11 of the Paperbook]. As the loan has been advanced in INR, the TPO determined the ALP of the interest to be earned from the loan at 11%, being SBI base lending l....
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....2 of the Factual Paperbook] 7. The Appellant submits that in clause 14 of the Form 3CEB filed for the year under consideration, the Appellant inadvertently states that the currency of the loan is in INR. This was a clerical error. The amount of loan mentioned under the column "Amount paid/received or payable/receivable in the transaction" correctly reflects the INR equivalent amount of the loan amounting to AED 26 million based on the prevailing exchange rate at that time. (Page 10-11 of the Factual Paperbook] Further, in the annual report of the Appellant, for the purpose of reporting in India, the loans have been shown in the equivalent value of INR [Schedule 5 (Short-Term Loans and Advances) of the annual report (Page 5 of the Factual Paperbook). From a reading of these two documents, on cannot come to a conclusion that the loans were advanced in INR, 8. The Appellant submits that reporting the loan amount in the Form 3CEB in INR is a mere clerical error. Further, the INR amount disclosed is not a round or whole figure, but a non-standard amount, which would not typically reflect the actual disbursement value of a loan. No loans are ordinarily disbursed in arbi....
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....xmann.com 49 (Mumbai - Trib.)" 6.1 The Ld.DR on the contrary submitted that, the assessee in loan agreement dated 02/02/2017 does not mention clearly the currency in which loan is going to be repaid by the AE in Dubai. He further submitted that, as per all loan agreement, disputes arising out of it will be governed by the Indian laws and the jurisdiction of the courts will be in the state of Maharashtra. The Ld.DR thus supported the action of the Ld.AO by submitting that Ld.TPO/AO correctly computed the interest rate by considering the SBI PLR rate. 6.2 The Ld.DR also submitted that, assessee considered LIBOR based on US dollar, whereas the transaction of loan is with AE in Dubai where the currency is United Arab Emirates Dirham (UAED) of Dubai. The Ld.DR thus submitted that, in any event the rate of interest computed by the assessee is also not correct as they have used the US LIBOR rate. We have perused the submissions advance by both sides in the light of record placed before us. 7. The question that is raised before us is to consider whether the interest rate prevailing in India should apply because the lender is in India, or the lending rent prevailing in US$ is to....
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....s normally no use, because, for instance, a US $ loan advanced by a US lender is to him a debt-claim in national currency whereas to a German borrower it is a foreign currency debt (the situation being different, however, when an agreement in a third currency is involved). Moreover, a difference in interest levels frequently reflects no more 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 s....