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I TA No s.1 9 0 3 & 1 9 7 4 / K o l/2 0 1 7 A s se s smen t Yea r s: 2 0 1 3 - 1 4 hands of ZAO Classic was External Commercial Borrowing (ECBs) and the range of rates of interest vary between LIBOR plus 100 bps to 200 bps. The European Central Bank has recommended rates ranging from 2.00% to 5.25% on ECBs. Foreign Currency Loans are given by Banks globally bearing LIBOR based Rate. The average of the LIBOR based Rate for the period from 01.4.2007 to 3l.03.2008 was 4.68 %. It has been compared by taking average monthly opening and closing rate for the period from 01.04.2007 to 31.03.2008. The Assessee enclosed a copy of data sourced from Global-rates .com in support of its plea. The assessee pointed out that it had charged 8% on the Loan given to Zao Classic for 01.04.2007 to 31.03.2008 which was higher than the USD Libor Rate. The assessee placed reliance on the decision of Hon'ble ITAT Chennai (2011) 46 SOT 2 (Chennai) (URO)/] 1 taxman. Com 404 (Siva Industries & Holdings Limited vs. The Assistant Commissioner of Income Tax, Company Circle - VI (4), Chennai) wherein it was held that where loan is given to the associated enterprises in US dollars then the transaction would have to be looked upon the applying the commercial principles in regard to international transaction. If that was so, then the domestic prime lending rate would have no applicability and the international rate fixed being LIBOR rate had to be considered while determining the arm's length interest rate in respect of the transaction between the assessee and the associated enterprises. The assessee claimed that the facts of its case fairly and squarely match with that of the case decided by ITAT, Chennai and considering the interest rate of 8% charged on loan given to subsidiary Zao Classic, the provisions relating to arm's length transaction have no applicability.
"4.2. I have considered the facts of the case. The assessee had advanced a loan in foreign currency to its subsidiary ZAO Classic, Russia on which it was charged interest at the rate of 8% p.a. The TPO was of the view that price of the loan i.e. the interest charged has to be worked out on the basis of taking two parties as separate and bench-marking the price of the loan on the basis of what an independent third party would charge from ZAO Classic, Russia based on its analysis of risk associated with the loan. The assessee stated in reply to show cause notice issued by the TPO, that foreign currency loans are given by banks bearing UBOR based rate as a global practice. The average of LIBOR based rate for the year under consideration was 4.68%. Thus the rate of 8% charged by the assessee was higher than the LIBOR rate. The assessee also relied upon a number of decisions, in particular the decision of ITAT, Chennai in the case of Siva Industries and Holdings Ltd vs ACIT, Central Circle-6(1) Chennai 46 SOT 112. In the appellate proceedings the assessee has cited some more decisions such as Four Soft Ltd vs DCIT in ITA No. 1495/Hyd 12010, Cotton Natural (I) Pvt Ltd. vs DCIT in ITA No. 5855/De1/2012. In the case of Siva Industries and Holdings Ltd. (supra), it has been held by the Hon'ble tribunal that once the transaction is between the assessee and the AEs is in foreign currency, the transaction would have to be looked upon by applying commercial principle in regard to international transaction. If this is so, then the domestic prime lending rate would have no applicability and the international rate fixed being LIBOR would come into play. Same view was taken by tribunal in the case of Four Soft Ltd (supra) and some other cases cited by the assessee. Further, it has been held in the decision in the case of Cotton Natural (I) Pvt Ltd. (supra), that financial position and credit rating of the subsidiary would be broadly same as the holding company and LIBOR should be taken as bench- mark without going into aspects like financial health of subsidiary. In one of the cited cases, viz. Aurionpro Solution Ltd. vs Addl. CIT in ITA NO.7872/Mum/2011, Hon'ble tribunal has observed that appropriate rate would be LIBOR plus 2%. In the assessee's case, the TPO has not countered the decision in the case of Siva Industries and Holdings Ltd (supra) cited by the assessee before him, nor cited any authority in support of his view. The ratio given by the Hon'ble tribunal in the cases cited by the assessee is, that in the foreign currency lending, rate of interest to be adopted is to be based on LIBOR and at the most LIBOR plus 2%. As per documents given by the assessee, the average LlBOR rate for the previous year was 4.68%. Even if a mark up of 2% is given, the rate would be 6.68% whereas the assessee has charged 8% on the loan given to its AEs. It is also not in dispute that the cost of funds in the hands of the assessee is lower than 8% charged from the AE. Considering the facts and circumstances of the case and respectfully following the ratio given by the various benches of Hon'ble tribunal, the adjustment price of Rs.40,32,011/- is deleted."

10. After hearing the submissions of the ld. Counsel for the assessee we are of the view that there is no merit in ground no.1 raised by the revenue. It has been consistently held in several decisions by the tribunal that wherever the transaction of loan between the associated enterprises is in foreign currency then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. Therefore the domestic prime lending rate would have no applicability and the international rate LIBOR would come into play. It has therefore been held that LIBOR rate has to be considered while determining the arms length rate of interest in respect of transactions of loan in foreign currency between the associated enterprises. This view has also been accepted by the Hon'ble Delhi High Court in the case of CIT vs Cotton Naturals (I) Ltd. 276 CTR 445 (Delhi) and by the Hon'ble Bombay High Court in the case of Tata Auto Comp System Ltd approving the decision of ITAT in the case of Tata Auto Comp Vol.52 SOT 48 (Mum). In view of the above settled legal position we find no merits in ground no.1 and dismiss the same.