Document Fragment View
Fragment Information
Showing contexts for: LIBOR in Dcit, New Delhi vs M/S. Ongc Videsh Ltd., New Delhi on 5 September, 2022Matching Fragments
61. Since, interest earned by the appellant was from ONGC Caspian of 2.5% (LIBOR plus 1.91 %) was higher than the average 6-month Libor rate, the appellant concluded its international transaction of interest income earned from loan given to ONGC Caspian to be at arm's length, as prescribed under the Indian Transfer Pricing Regulations ('TP Regulations).
44
ITA No.3209/Del./2014 & Ors.
62. Further, during the course of assessment proceedings, the appellant, vide its submission dated January 16, 2015 submitted to the TPO an additional benchmarking analysis conducted using Loan Connector database. In the said submission the appellant submitted that the effective interest rate paid by the comparable companies was 1.40% (average 6-month LIBOR plus a spread of 0.81 %) as against the interest rate of 2.5% earned by the appellant. Accordingly, it was claimed that the appellant's international transaction of receipt of interest from ONGC Caspian was at arm's length from an Indian TP perspective.
64. However, during the course of the TP assessment proceedings, the TPO considered the credit rating of ONGC Caspian as "CCC" and determined the interest rate of LIBOR plus 500 basis points as the Arm's Length Price ('ALP') and proposed an addition amounting to INR ITA No.3209/Del./2014 & Ors.
8,648,551 with respect to the loan granted by the appellant to ONGC Caspian.
65. Against the above order, assessee objected before the ld. CIT(A). Ld. CIT (A) noted that assessee has advanced foreign currency loan from its own funds to its indirect subsidiary ONGC Caspian for investment in South East Asia Gas Pipeline Company Ltd.. The loan was for a period of 146 days i.e. less than 6 months and was repaid during the year itself. That the assessee had compared the interest charged to the average 6 month LIBOR rate prevailing during the year i.e. 0.59% and used a spread of Libor plus 1.91% to arrive at the figure of 2.5%. That the assessee claimed that the said interest was at arm's length as it has been benchmarked using 6 month Libor as the base rate. The assessee submitted an additional benchmarking analysis conducted using Loan Connector database where the effective interest rate paid by the comparable companies was 1.40%. It was further stated that it was the first year of operation of ONGC Caspian, hence it has not earned any income though it had incurred expenditure. Ld. CIT (A) accepted assessee's contention that TPO has erred in determining the credit rate of ONGC Caspian as 'CCC' instead of considering its credit rating to be the same as that of the parent company. Further assessee also objected before the ld. CIT (A) to the TPO using loan transactions undertaken by ITA No.3209/Del./2014 & Ors.
7.5. The material facts of the case are the same in the instant year also. In accordance with the principle of consistency and respectfully following the orders of the CIT(A) in AYs 2010-11, 2012-13 and 2013- 14, the AO/TPO is directed to calculate the arm's length interest at LIBOR plus 3%. The AO/TPO is also directed to verify the value of LIBOR after taking the contention of the appellant into consideration. In view of the order of the CIT(A) in AY 2012-13, the AO/TPO is also directed to apply 6 months LIBOR rate for benchmarking receipt of interest from Jarpeno. The ground of appeal is disposed off accordingly.
LoanConnector Data Base was LIBOR plus 1.048% per annum.
7.14 I have considered the facts and the circumstances of the case. As the CsIT(A) have accepted the credit rating of the AE of the taxpayer prepared on the basis of Moody's RiskCalc Plus Software in the case of Jarpeno for AYs 2012- 13 and 2013-14 and no specific objection has been made by the TPO, the credit rating of ONGC Nile Ganga is taken as A2. The TPO has benchmarked the transaction at LIBOR plus 4.5% by taking the lowest credit rating for the AE. However, on the basis of facts available on record, the AO/TPO is directed to benchmark the loan transaction of the appellant with ONGC Nile Ganga at 6 months LIBOR + 4%. The AO/TPO is also directed to verify the value of LIBOR after taking the contention of the appellant into consideration. In view of the order of the CsIT(A) in AYs 2012-13 and 2013-14, the AO/TPO is also directed to apply 6 months LIBOR rate for benchmarking receipt of interest from ONGC Nile Ganga."