Russell Credit Limited, Kolkata V. DCIT, Circle-8, Kolkata, Kolkata

ITA 1090/KOL/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8756 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 04-11-2019
• Assessment Year: 2011-2012
• Appeal Filed On: 17-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY PAUL
• Assessee Lawyers: J P KHAITAN SENIOR; BIKASH CHANDRA
• Keywords: Transfer pricing; Earning of tax free income; Wholly owned subsidiary; Notional interest; Rule 8D
• Section: 143(3); 14A; 37(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. A.L. SAINI, ACCOUNTANT MEMBER ITA NO. 33 / KOL / 2018 & 1090/KOL/2017 ASSESSMENT YEARS : 2010-11 & 2011-12 RUSSELL CREDIT LTD., 37, J.L. NHRU ROAD, KOLKATA-700 071 [ PAN NO.AABCR 3494 H ] V/S . DCIT, CRICLE-8/ADDL.CIT RANGE-8,AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKAKTA-700 069 /APPELLANT .. / RESPONDENT /BY ASSESSEE SHRI J.P. KHAITAN, SENIOR ADVOCATE & SHRI BIKASH CHANDRA, AR /BY REVENUE SHRI SANJAY PAUL, ADDL. CIT-DR /DATE OF HEARING 04-11-2019 /DATE OF PRONOUNCEMENT 17-01-2020 / O R D E R PER S.S.GODARA, JUDICIAL MEMBER:- THESE TWO ASSESSEES APPEAL(S) FOR ASSESSMENT YEAR (S) 2010-11 AND 2011-12 ARISE AGAINST THE COMMISSIONER OF INCOME TA X (APPEALS)-22 KOLKATAS SEPARATE ORDERS DATED 30.10.2017 & 23.03. 2017 PASSED IN CASE NOS.45/CIT(A)-22/KOL/10-11/17-18 & 54/CIT(A)-22/KOL /11-12/16-17; RESPECTIVELY, INVOLVING PROCEEDINGS U/S 143(3) OF T HE INCOME TAX ACT, 1961; IN SHORT TO AS THE ACT. HEARD BOTH THE PARTIES. CASE FILE(S) PERUSED. WE NOTICE AT THE OUTSET THAT ALL THE ISSUES RAISED IN THESE TWO APPEAL(S) ARE IDENTICAL. WE ACCORDINGLY DEEM IT APPROPRIATE T O ADJUDICATE ASSESSEES INSTANT APPEAL(S) TOGETHER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO.33/KOL/2018 & 1090/KOL/17 A.YS. 10-11 & 11- 12 RUSELL CREDIT LTD. VS. ADDL.CIT-RG-8/DCIT-CIR-8, KOL. PAGE 2 2. THE ASSESSEES FIRST AND FOREMOST IDENTICAL SUBS TANTIVE GROUND IN ITS TWO APPEAL(S) CHALLENGES CORRECTNESS OF LEARNED LOWER A UTHORITIES ACTION MAKING TRANSFER PRICING ADJUSTMENT OF 8,19,134/- AND 6,27,062/-; ( ASSESSMENT YEAR-WISE ) RESPECTIVELY, REGARDING ITS INTEREST FREE LOANS O F AUD 5,00,000 PROVIDED TO THE OVERSEAS ASSOCIATE ENTERPRISE M/S T ECHNICO PTY LTD. AUSTRALIA SINCE FINANCIAL YEAR 2007-08. BOTH THE LEARNED REPR ESENTATIVES ARE FAIR ENOUGH AT THE OUTSET THAT THIS FIRST ISSUE INVOLVED IN BOT H THESE YEARS IS NO MORE RES INTEGRA SINCE THE TRIBUNALS ORDER IN ASSESSMENT YEAR 2009 -10 INVOLVING REVENUE AND ASSESSEES CROSS-APPEALS ITA NOS.629 AND 674/KOL/2013 DECIDED ON 11.04.2018 HAS DELETED IDENTICAL ADJUSTM ENT UNDER THE VERY HEAD AS FOLLOWS:- 3. FIRST OF ALL WE WILL DECIDE THE TRANSFER PRICING ISSUE OF ASSESSEES APPEAL. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE COMP ANY 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 ARMS LENGTH NATURE OF THE TRANSACTION, THE ASSESSE E ADOPTED CUP METHOD AND TOOK THE ARMS LENGTH RATE OF INTEREST @ 8.91% AS WAS PREVAILING IN AUSTRALIA DURING THE YEAR 2008. THE ASSESSEE THUS COMPUTED THE ARMS LENGTH INTEREST OF AUD 44,550 WHICH WAS CONVERTED INTO IND IAN CURRENCY I.E. RS.15,75,444/- USING THE EXCHANGE RATE AS ON 31.03. 2009. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE FILED BEFORE T HE AO COPY OF THE LOAN AGREEMENT AND WRITTEN SUBMISSION TOWARDS JUSTIFICAT ION OF ARMS LENGTH INTEREST COMPUTED BY THE ASSESSEE. BUT THE AO DID NOT AGREE WITH THE INTEREST RATE OF 8.91% ADOPTED BY THE ASSESSEE AND ACCORDING TO HIM, 10% INTEREST RATE WOULD BE REASONABLE AND HELD AS UNDER: 4.3. IN THE LIGHT OF THE ABOVE DISCUSSION, IT IS H ELD THAT THE INTEREST RATE OF 8.91% ADOPTED BY THE ASSESSEE CANNOT BE THE ARMS LENGTH INTEREST RATE IN AN UNCONTROLLED ENVIRONMENT AND THE SAME IS ACCORDINGLY REJECTED. TAKING INTO ACCOUNT THE T OTALITY OF FACTS OF THE CASE, IT IS DEEMED REASONABLE TO TAKE THE ARMS LENGTH INTEREST RATE AT 10% AND THUS THE AMOUNT OF INTEREST PAYABLE IS WORKED OUT AT 5,00,000 X 10% X RS.35.3635 = RS.17,68,175/-. S INCE THE ASSESSEE HAS ALREADY OFFERED ARMS LENGTH ADJUSTMEN T OF RS.15,75,444/-, THE BALANCE OF RS.1,92,731/- IS NOW ADDED BACK AS FURTHER TRANSFER PRICING ADJUSTMENT. ON APPEAL, THE LD. CIT(A) WHILE DISMISSING THE ASSE SSEES APPEAL HAS HELD AS UNDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSION AND ARG UMENT PUT FORTH ON BEHALF OF THE APPELLANT, PERUSED THE FACTS OF THE CASE INCLUDING THE OBSERVATION OF THE AO, THE VARIOUS CL AUSES IN THE ITA NO.33/KOL/2018 & 1090/KOL/17 A.YS. 10-11 & 11- 12 RUSELL CREDIT LTD. VS. ADDL.CIT-RG-8/DCIT-CIR-8, KOL. PAGE 3 LOAN AGREEMENT AND OTHER MATERIALS BROUGHT ON RECOR D. I DO NOT FIND ANY MERIT IN THE ARGUMENT ADVANCED ON BEHALF O F THE APPELLANT SIMPLY BECAUSE AS TO WHY THE APPELLANT IT SELF OFFERED THE NOTIONAL INTEREST @ 8.91 % ON THE AMOUNT OF BORROWE D FUND GIVEN TO THE SUBSIDIARY COMPANY EVEN THOUGH NO INTEREST I S RECEIVABLE AS PER THE NORMAL CLAUSE OF THE LOAN AGREEMENT IN N ORMAL SITUATION AND THE INTEREST IS CHARGEABLE ONLY IN EX CEPTIONAL CIRCUMSTANCES, AS CLAIMED BY THE APPELLANT. ON THE OTHER HAND, THE ACTION OF THE AO IS FOUND TO BE JUSTIFIED AS HE HAS CALCULATED THE NOTIONAL INTEREST ON THE BASIS OF THE RATE MENT IONED IN THE PENAL CLAUSE OF THE LOAN AGREEMENT. UNDER THIS CIRC UMSTANCES AND PERUSING THE FACTS OF THE CASE, I AM OF THE VI EW THAT THE ACTION OF THE AO IN COMPUTING THE CHARGEABLE INTERE ST @ 10% AND THEREBY MAKING THE ADDITION OF RS. 1,92,731/- IS JU STIFIED AND HENCE THE SAME IS HEREBY UPHELD. THUS, THIS 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 ASSESS EE HAS GRANTED AN INTEREST FREE LOAN OF AUD 5,00,000 TO ITS AE TECHNI CO PTY. LTD. DURING THE FY ENDED ON 31.03.2008. FOR THE PURPOSE OF DETERMININ G THE ARMS LENGTH NATURE OF THE TRANSACTION, THE ASSESSEE CONSIDERED THE SAM E 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 AUSTR ALIAN BANK AT THE SAME POINT OF TIME. THE ARMS LENGTH RATE OF INTEREST WA S DETERMINED USING THE AVERAGE RATE OF INTEREST WHICH WAS THE BORROWING RA TE APPLICABLE TO CORPORATES WHICH PREVAILED IN AUSTRALIA DURING THE CURRENT YEAR 2008. THE ASSESSEE EXTRACTED THE INFORMATION FROM THE INTERNA TIONAL MONETARY FUND (IMF) DATA BASE AND THE ARMS LENGTH RATE OF INTERE ST FOR THE CURRENT YEAR 2008 MENTIONED WAS 8.91% AND THE ASSESSEE COMPUTED THE A MOUNT OF ARMS LENGTH INTEREST DENOMINATED IN AUD BY APPLYING THE ARMS LENGTH INTEREST RATE TO THE AMOUNT OF LOAN. THEREAFTER, THE ASSESSEE AD DED THE ARMS LENGTH VALUE OF INTEREST TO ITS INCOME AND OFFERED IT TO TAX THE REON. THE ASSESSEE CALCULATED AMOUNT OF INTEREST AS PER AUD CAME TO AU D 44,550 WHICH WAS CONVERTED INTO INDIAN CURRENCY USING THE EXCHANGE R ATE APPLICABLE AS ON 31.03.2009 I.E. AUD IS EQUAL TO RS.35.3635 WHICH WA S NOT ACCEPTABLE TO THE AO THOUGH THE AO AGREED TO THE CUP METHOD. ACCORDI NG TO AO, THE LOAN AGREEMENT VIDE CLAUSES 3 AND 5 REVEALS THAT AS SOON AS THE AE CEASES TO BE A WHOLLY OWNED SUBSIDIARY OF THE ASSESSEE INTEREST SHALL BE CHARGED @ 1% OVER THE PREVAILING BANK RATE AND THE BORROWER SHAL L PAY THE LENDER INTEREST AT 10% PER ANNUM OR 1% OVER THE PREVAILING BANK RATE W HICHEVER IS HIGHER FOR THE PERIOD OF DELAY BEYOND THE DUE DATE I.E. 24.08. 2010. ACCORDING TO AO, THE EXPRESSION BANK RATE NOTED IN THE AGREEMENT DOES NO T EXPRESSLY SPECIFIES WHETHER IT REFERS TO THE BANK RATE PREVAILING IN I NDIA OR AUSTRALIA. THEREFORE, HE HAS ADOPTED THE BANK RATES IN INDIA AND WAS OF T HE OPINION THAT 10% ITA NO.33/KOL/2018 & 1090/KOL/17 A.YS. 10-11 & 11- 12 RUSELL CREDIT LTD. VS. ADDL.CIT-RG-8/DCIT-CIR-8, KOL. PAGE 4 INTEREST NEED TO BE COMPUTED FOR THE AMOUNT GIVEN T O THE AE AND THEREAFTER, MADE AN ADDITION OF RS.1,92,731/-. WE NOTE THAT TH E CLAUSES REFERRED TO I.E. 3 AND 5 IN THE AGREEMENT IS ONLY IN CASES OF DEFAULT OF NON-PAYMENT WHICH WILL ARISE ONLY NOT BEFORE THE DUE DATE I.E. ON 24.08.20 10 AND HAS GOT NO RELEVANCE IN THE ASSESSMENT YEAR UNDER CONSIDERATIO N. ON PERUSAL OF THE PROMISSORY NOTE GIVEN BY THE BORROWER AE WHICH IS P LACED AT PAGE 34 OF THE PAPER BOOK REVEALS AS UNDER: PROMSSORY NOTE AUD 500,000 IN CONSIDERATION OF THE LOAN OF AUD 500,000 (AUSTRA LIAN DOLLARS FIVE HUNDRED THOUSAND ONLY) ADVANCED TO US BY RUSSE LL CREDIT LIMITED, A COMPANY INCORPORATED UNDER THE COMPANIES ACT 1956 AND HAVING ITS REGISTERED OFFICE AT VIRGINIA HOUSE, 37 CHOWRINGHEE, KOLKATA-700 071 IN TERMS OF THE LOAN A GREEMENT DATED 24 TH AUGUST, 2007, WE TECHNICO PTY LIMITED ACN 063 602 782, A COMPANY INCORPORATED UNDER THE LAWS OF AUSTR ALIA AND HAVING ITS REGISTERED OFFICE AT C/- PKF, LEVEL 10, MARGARET STREET, SYDNEY NSW 2000, AUSTRALIA, PROMISE TO REPAY TO RUS SELL CREDIT LIMITED ON OR BEFORE 22 ND AUGUST, 2010 THE SAID LOAN AMOUNT OF AUD 500,000 TOGETHER WITH INTEREST, IF ANY PAYABLE, UNDER THE AFORESAID LOAN AGREEMENT DATED 24 TH AUGUST, 2007. SD/- DAVID CHARLES MCDONALD MANAGING DIRECTOR & COMPANY SECRETARY TECHNICO 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 ASSESSE E 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 22 ND AUGUST, 2010 THE SAID LOAN AMOUNT OF AUD 500,000 TOGETHER WITH INTEREST WHICH CLEARLY REVEAL S 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 T HE PURPOSE OF DETERMINING THE ARMS LENGTH NATURE OF THE TRANSACTION HAS TAKE N THE RATE OF INTEREST OF THE SAME AMOUNT IF IT HAD BEEN BORROWED BY THE AUSTRALI AN COMPANY FROM AN AUSTRALIAN BANK AT THE SAID POINT OF TIME AND HAS A DOPTED 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 HONBLE DELH I HIGH COURT IN CIT VS. COTTON NATURALS (I) (P) LTD. (2015) 55 TAXMANN.COM 523 (DEL) AT PARA 39 AND 40 HAS ANSWERED THIS QUESTION AS UNDER: 39. THE QUESTION WHETHER THE INTEREST RATE PREVAIL ING IN INDIA SHOULD BE APPLIED, FOR THE LENDER WAS AN INDIAN COMPANY/ASSESSEE, OR THE LENDING RATE PREVALENT IN THE UNITED ITA NO.33/KOL/2018 & 1090/KOL/17 A.YS. 10-11 & 11- 12 RUSELL CREDIT LTD. VS. ADDL.CIT-RG-8/DCIT-CIR-8, KOL. PAGE 5 STATES SHOULD BE APPLIED, FOR THE BORROWER WAS A RE SIDENT AND AN ASSESSEE OF THE SAID COUNTRY, IN OUR CONSIDERED OPI NION, MUST BE ANSWERED BY ADOPTING AND APPLYING A COMMONSENSICAL AND PRAGMATIC REASONING. WE HAVE NO HESITATION IN HOLDI NG THAT THE INTEREST RATE SHOULD BE THE MARKET DETERMINED INTER EST RATE APPLICABLE TO THE CURRENCY CONCERNED IN WHICH THE L OAN HAS TO BE REPAID. INTEREST RATES SHOULD NOT BE COMPUTED ON TH E BASIS OF INTEREST PAYABLE ON THE CURRENCY OR LEGAL TENDER OF THE PLACE OR THE COUNTRY OF RESIDENCE OF EITHER PARTY. INTEREST RATE S APPLICABLE TO LOANS AND DEPOSITS IN THE NATIONAL CURRENCY OF THE BORROWER OR THE LENDER WOULD VARY AND ARE DEPENDENT UPON THE FISCAL POLICY OF THE CENTRAL BANK, MANDATE OF THE GOVERNMENT AND SEVERAL OTHER PARAMETERS. INTEREST RATES PAYABLE ON CURRENCY SPEC IFIC LOANS/ DEPOSITS ARE SIGNIFICANTLY UNIVERSAL AND GLOBALLY A PPLICABLE. THE CURRENCY IN WHICH THE LOAN IS TO BE RE-PAID NORMALL Y DETERMINES THE RATE OF RETURN ON THE MONEY LENT, I.E. THE RATE OF INTEREST. KLAUS VOGEL ON DOUBLE TAXATION CONVENTIONS (THIRD EDITION ) UNDER ARTICLE 11 IN PARAGRAPH 115 STATES AS UNDER:- THE EXISTING DIFFERENCES IN THE LEVELS OF INTEREST RATES DO NOT DEPEND ON ANY PLACE BUT RATHER ON THE CURRENCY CONC ERNED. THE RATE OF INTEREST ON A US $ LOAN IS THE SAME IN NEW YORK AS IN FRANKFURT-AT LEAST WITHIN THE FRAMEWORK OF FREE CAP ITAL MARKETS (SUBJECT TO THE ARBITRAGE). IN REGARD TO THE QUESTI ON AS TO WHETHER HTTP://WWW.ITATONLINE.ORG ITA NO. 233/2014 PAGE 29 OF 34 THE LEVEL OF INTEREST RATES IN THE LENDERS STATE OR TH AT IN THE BORROWERS IS DECISIVE, THEREFORE, PRIMARILY DEPENDS ON THE CU RRENCY AGREED UPON (BFH BST.B1. II 725 (1994), RE. 1 ASTG). A D IFFERENTIATION BETWEEN DEBT-CLAIMS OR DEBTS IN NATIONAL CURRENCY A ND THOSE IN FOREIGN CURRENCY IS NORMALLY NO USE, BECAUSE, FOR I NSTANCE, 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 FOREI GN CURRENCY DEBT (THE SITUATION BEING DIFFERENT, HOWEVER, WHEN AN AGREEMENT IN A THIRD CURRENCY IS INVOLVED). MOREOVER, A DIFFE RENCE IN INTEREST LEVELS FREQUENTLY REFLECTS NO MORE THAN DIFFERENT E XPECTATIONS 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 LE VELS OF INTEREST RATES. AN ECONOMIC CRITERION FOR ONE PARTY MAY BE T HAT IT WANTS, IF POSSIBLE, TO AVOID EXCHANGE RISKS (FOR EXAMPLE, BY MATCHING THE CURRENCY OF THE LOAN WITH THAT OF THE FUNDS ANTICIP ATED TO BE AVAILABLE FOR DEBT SERVICE), SUCH AS TAKING OUT A U S $ LOAN IF THE PROCEEDS IN US $ ARE EXPECTED TO BECOME AVAILABLE ( SAY FROM EXPORTS). IF AN EXCHANGE RISK WERE TO PROVE INCAPAB LE OF BEING AVOIDED (SAY, BY FORWARD RATE FIXING), THE APPROPRI ATE COURSE WOULD BE TO ATTRIBUTE IT TO THE ECONOMICALLY MORE P OWERFUL PARTY. BUT, EXACTLY WHERE THERE IS NO SPECIAL RELATIONSHIP , THIS WILL FREQUENTLY NOT BE POSSIBLE IN DEALINGS WITH SUCH PA RTY. CONSEQUENTLY, IT WILL NORMALLY NOT BE POSSIBLE TO R EVIEW AND ADJUST THE INTEREST RATE TO THE EXTENT THAT SUCH RATE DEPE NDS ON THE ITA NO.33/KOL/2018 & 1090/KOL/17 A.YS. 10-11 & 11- 12 RUSELL CREDIT LTD. VS. ADDL.CIT-RG-8/DCIT-CIR-8, KOL. PAGE 6 CURRENCY INVOLVED. MOREOVER, IT IS QUESTIONABLE WHE THER SUCH AN ADJUSTMENT COULD BE BASED ON ART. 11 (6). FOR ART. 11(6), AT LEAST ITS WORDING, ALLOWS THE AUTHORITIES TO ELIMINATE HYPOTHETICALLY THE SPECIAL RELATIONSHIPS ONLY IN REGARD TO THE LEVEL O F INTEREST RATES AND NOT IN REGARD TO OTHER CIRCUMSTANCES, SUCH AS T HE CHOICE OF CURRENCY. IF SUCH OTHER CIRCUMSTANCES WERE TO BE IN CLUDED IN THE REVIEW, THERE WOULD BE DOUBTS AS TO WHERE THE LINE SHOULD BE DRAWN, I.E., WHETHER AN EXAMINATION SHOULD BE ALLOW ED OF THE QUESTION OF WHETHER IN THE ABSENCE OF A SPECIAL REL ATIONSHIP (I.E., FINANCIAL POWER, STRONG POSITION IN THE MARKET, ETC ., OF THE FOREIGN CORPORATE GROUP MEMBER) THE BORROWING COMPANY MIGHT NOT HAVE COMPLETELY REFRAINED FROM MAKING INVESTMENT FOR WHI CH IT BORROWED THE MONEY. 40. THE AFORESAID METHODOLOGY RECOMMENDED BY KLAUS VOGEL APPEALS TO US AND APPEARS TO BE THE REASONABLE AND PROPER P ARAMETER TO DECIDE UPON THE QUESTION OF APPLICABILITY OF INTEREST RATE . THE LOAN IN QUESTION WAS GIVEN IN FOREIGN CURRENCY I.E. US $ AND WAS ALS O TO BE REPAID IN THE SAME CURRENCY I.E. US $. INTEREST RATE APPLICABLE T O LOANS GRANTED AND TO BE RETURNED IN INDIAN RUPEES WOULD NOT BE THE RELEV ANT COMPARABLE. EVEN IN INDIA, INTEREST RATES ON FCNR ACCOUNTS MAIN TAINED IN FOREIGN CURRENCY ARE DIFFERENT AND DEPENDENT UPON THE CURRE NCY IN QUESTION. THEY ARE NOT DEPENDENT UPON THE PLR RATE, WHICH IS APPLICABLE TO LOANS IN INDIAN RUPEE. THE PLR RATE, THEREFORE, WOULD NOT BE APPLICABLE AND SHOULD NOT BE APPLIED FOR DETERMINING THE INTEREST RATE IN THE EXTANT CASE. PLR RATES ARE NOT APPLICABLE TO LOANS TO BE RE-PAID IN FOREIGN CURRENCY. THE INTEREST RATES VARY AND ARE THUS DEPENDENT ON T HE FOREIGN CURRENCY IN WHICH THE REPAYMENT IS TO BE MADE. THE SAME PRIN CIPLE SHOULD APPLY. LIKEWISE, THE HONBLE HIGH COURT OF BOMBAY IN CIT V S. THE GREAT EASTERN SHIPPING CO. LTD. IN ITA NO. 1455 OF 2014 DATED 28. 06.2017 HAS UPHELD THE ACTION OF THE TRIBUNAL WHEREIN IT WAS HELD THAT ARM S LENGTH PRICE IN THE CASE OF LOANS ADVANCED TO AE WOULD BE DETERMINED ON THE BAS IS OF RATE OF INTEREST BEING CHARGED IN THE COUNTRY WHERE THE LOAN IS RECE IVED/CONSUMED. IN THE LIGHT OF THE AFORESAID DECISIONS OF THE HONBLE DEL HI HIGH COURT AS WELL AS HONBLE BOMBAY HIGH COURT, THE ACTION OF THE ASSESS EE IN ADOPTING THE BANK RATE PREVAILING IN AUSTRALIA IS CORRECT AND THE AO ERRED IN ADOPTING THE INDIAN BANK RATE. THE LOAN AMOUNT WAS GIVEN IN AUSTRALIAN CURRENCY AND AS PER THE PROMISSORY NOTE THE AE HAS TO RETURN THE AMOUNT IN AUSTRALIAN DOLLAR. THEREFORE, APPLYING THE RATIO LAID BY THE HONBLE H IGH COURTS DISCUSSED ABOVE, WE HOLD THAT THERE WAS NO NECESSITY OF ANY ARMS LE NGTH 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 MUTAN DIS TO HOLD THAT LEARNED LOWER AUTHORITIES HAVE ERRED IN GOING BY THE PENAL INTEREST STIPULATION IN THE LOAN AGREEMENT THAN THE CORRESPONDING INTEREST BENC HMARK IN THE OVERSEAS ITA NO.33/KOL/2018 & 1090/KOL/17 A.YS. 10-11 & 11- 12 RUSELL CREDIT LTD. VS. ADDL.CIT-RG-8/DCIT-CIR-8, KOL. PAGE 7 MARKET. WE GO BY JUDICIAL CONSISTENCY AND DELETE TH E IMPUGNED IDENTICAL TRANSFER PRICING ADJUSTMENT(S) OF 8,19,134/- & 6,27,062/- UNDER CHALLENGE. 3. NEXT COMES THE ASSESSEES SECOND SUBSTANTIVE GRI EVANCE CHALLENGING U/S. 14A R.W.S. RULE 8D DISALLOWANCE(S) OF 98,47,788/- AND 34,79,136/-; ASSESSMENT YEAR-WISE; RESPECTIVELY. THE ASSESSEE HA D DERIVED EXEMPT INCOME FROM DIVIDENDS AND MUTUAL FUNDS AMOUNTING TO 186,100,400/- AND 167,439,252/-; ASSESSMENT YEAR-WISE RESPECTIVELY. I T HAD MADE SUO MOTU CORRESPONDING DISALLOWANCES OF 31,392/- AND 1,65,198/-. THE ASSESSING OFFICER INVOKED RULE 8D(2)(III) ADMINISTRATIVE EXPE NDITURE DISALLOWANCE OF 120,31,315/- AND 120,99,174/-; RESPECTIVELY EXCLUDING THE ABOVE SUO MOTU FIGURE(S). THE CIT(A)S IDENTICAL DETAILED DISCUSSI ON DIRECTS THE ASSESSING OFFICER TO EXCLUDE THE ASSESSEES STRATEGIC INVESTM ENTS FOR THE PROPOSED OF COMPUTING THE IMPUGNED DISALLOWANCES. HE FURTHER OB SERVES THAT THE ASSESSEES INVESTMENTS NOT YIELDING ANY EXEMPT INCO ME HAVE ALSO TO BE EXCLUDED IN CONSEQUENTIAL COMPUTATIONS. 4. IT EMERGES DURING THE COURSE THAT VERY ISSUE HAD ARISEN BETWEEN THE PARTIES IN ASSESSMENT YEAR 2009-10 AS WELL (SUPRA) WHICH STOOD RESTORED BACK TO THE ASSESSING OFFICER FOR AFRESH COMPUTATION AFT ER TAKING NOTE OF HON'BLE APEX COURTS JUDGMENT. 5. LEARNED SENIOR COUNSELS ONLY CONTENTION DURING THE COURSE OF HEARING IS THAT ALTHOUGH THE CIT(A) HAS RIGHTLY GRANTED RELIEF TO THE ASSESSEE ON THE FOREGOING TWIN COUNTS (SUPRA) WHICH HAVE ATTAINED F INALITY SINCE THE DEPARTMENT HAS NOT COME IN APPEAL, IT NEEDS TO BE E MPHASIZED THAT WE ARE DEALING WITH AN INDIRECT HEAD OF EXPENDITURE WHICH HAS TO BE APPORTIONED BETWEEN THAT INCURRED FOR BUSINESS PURPOSES AND IN DERIVING EXEMPT INCOME AS PER HON'BLE APEX COURTS ABOVE STATED DECISION. HIS FURTHER CASE IS THAT GOING BY THE VERY APPORTIONMENT FORMULA, THIS TRIBU NALS YET ANOTHER CO- ORDINATE BENCHS DECISION IN MARUTI TRADERS & INVESTORS VS. ACIT, CIRCLE-31, ITA NO.33/KOL/2018 & 1090/KOL/17 A.YS. 10-11 & 11- 12 RUSELL CREDIT LTD. VS. ADDL.CIT-RG-8/DCIT-CIR-8, KOL. PAGE 8 KOLKATA IN ITA NO.846/KOL/2017 & ITA NO.637/KOL/2018 FOR ASSESSMENT YEAR 2013-14 ( AFTER INSERTION OF RULE 8D FROM ASSESSMENT YEAR 200 8-09 ONWARDS ) HAS HELD THAT PROPORTIONATE ALLOCATION OF EXEMPT INCOMES / TOTAL TURNOVER DESERVES TO BE ADOPTED FOR THE PURPOSE OF COMPUTING ADMINISTRATIVE EXPENDITURE UNDER THE RULE 8D(2)(III). THE REVENUE S CASE ON THE OTHER HAND IS THAT THE ASSESSING OFFICER HAD RIGHTLY INVOKED T HE IMPUGNED DISALLOWANCE GOING BY THE STATUTORY FORMULA AND ALSO THAT THE VE RY ISSUE IN ASSESSMENT YEAR 2009-10 IS PENDING YET TAXPAYER. 6. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION AND F OREGOING RIVAL PLEADINGS. SUFFICE TO SAY, IT HAS ALREADY COME ON R ECORD THAT THE IMPUGNED SEC. 14A R.W.S. 8D DISALLOWANCE HAS TO BE COMPUTED GOING BY APPORTIONMENT FORMULA BY DETERMINING THE EXPENDITURE INCURRED FOR DERIVING BUSINESS AS WELL AS EXEMPT INCOME. WE THEREFORE DEEM IT APPROPRIATE TO RESTORE THE INSTANT ADMINISTRATIVE EXPENDITURE DISALLOWANCE ISSUE BACK TO THE ASSESSING OFFICER FOR COMPUTATION OF ADMINISTRATIVE EXPENDITURE DISAL LOWANCE GOING BY THE PROPORTIONATE FORMULA AS PER THIS TRIBUNALS CO-ORD INATE BENCHS DECISION (SUPRA). WE REITERATE THAT WE ARE DEALING WITH AN I NDIRECT HEAD OF EXPENDITURE WHICH CANNOT BE STRICTLY APPORTIONED BETWEEN REGULA R BUSINESS ACTIVITIES AND FOR DERIVING EXEMPT INCOME. WE ACCORDINGLY ACCEPT A SSESSEES INSTANT IDENTICAL GRIEVANCE RAISED IN BOTH ASSESSMENT YEAR( S) FOR STATISTICAL PURPOSES IN ABOVE TERMS. 7. LASTLY COMES THE ASSESSEES IDENTICAL ADDITIONAL GROUND SEEKING TO ALLOW EDUCATION CESS AND SECONDARY HIGHER EDUCATION CESS U/S 40(A)(II) R.W.S. 37(1) OF THE ACT. IT IS VEHEMENTLY CONTENDED AT THE REVENUES BEHEST THAT THE ADDITIONAL GROUND DOES NOT DESERVE TO BE ADMITTED A T THIS BELATED STAGE. AND MORE SO WHEN THE RELEVANT FACTS DO NOT FORM PART OF THE RECORDS. WE FIND NO MERIT IN REVENUES INSTANT TECHNICAL ARGUMENT. THE FACT REMAIN HON'BLE APEX COURTS LANDMARK DECISION IN NATIONAL THERMAL POWER CORPORATION. LTD. VS. COMMISSIONER OF INCOME-TAX (1998) 229 ITR 383 (SC) CONSIDERED IN TRIBUNALS SPECIAL BENCH ORDER IN ALL CARGO GLOBAL LOGISTICS L TD. VS. DCIT (2012) 137 ITD 26 (MUM) HOLDS THAT WE CAN VERY WELL ENTERTAIN SUCH AN ADDITIONAL GROUND IN ITA NO.33/KOL/2018 & 1090/KOL/17 A.YS. 10-11 & 11- 12 RUSELL CREDIT LTD. VS. ADDL.CIT-RG-8/DCIT-CIR-8, KOL. PAGE 9 ORDER TO DETERMINE CORRECT TAX LIABILITY OF A TAXPA YER PROVIDED ALL THE RELEVANT FACTS ARE ALREADY ON RECORD. GOING BY THE VERY ANAL OGY, WE ADMIT THE ASSESSEES INSTANT ADDITIONAL GROUND. WE FURTHER NO TE THAT THE ASSESSEES CORRESPONDING SUMS OF EDUCATION AND HIGHER EDUCATIO N CESS INVOLVED ASSESSMENT YEAR-WISE FIGURES OF 18,85,062 AND 6,67,018/-; RESPECTIVELY. HON'BLE RAJASTHAN HIGH COURTS JUDGMENT IN D.B. TAX APPEAL NO. 52 OF 2018 CHEMBAL FERTILIZERS & CHEMICALS LTD. HOLDS THAT THE RELEVANT STATUTORY PROVISION TO THIS EFFECT AS WELL AS THE CBDTS CIRC ULAR ISSUED WAY BACK ON 18.05.1967 DO NOT INCLUDE CESS . LEARNED CO-ORDINATE BENCHS DECISION IN ITC LTD. CASE ITA NO.685/KOL/2014 DATED 27.11.2018 ALSO DECIDED THE VERY ISSUE IN ASSESSEES FAVOUR. WE THEREFORE DECLINE TH E REVENUES ARGUMENTS SUPPORTING THE IMPUGNED DISALLOWANCE AND DIRECT THE ASSESSING OFFICER TO GRANT NECESSARY RELIEF TO THE ASSESSEE. THIS IDENTI CAL THIRD SUBSTANTIVE GRIEVANCE RAISED IN BOTH APPEAL(S) IS ACCEPTED. 8. THESE TWO ASSESSEES APPEAL(S) ARE PARTLY IN ABO VE TERMS. ORDER PRONOUNCED IN THE OPEN COURT 17 /01/2020 SD/- SD/- ( ) () ) ( A.L.SAINI) (S.S.GODARA) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) KOLKATA, *DKP *- 17 / 01 /20 20 / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-RUSSELL CREDIT LTD., 37,J.L. NEHRU ROAD, KOLKATA-71 2. /REVENUE-ADDL-CIT, RANGE-8/DCIT CIR-8, P-7, CHOWRIN GHEE SQ. KOLKATA-69 3. 5 6 / CONCERNED CIT KOLKATA 4. 6- / CIT (A) KOLKATA 5. 9 ))5, 5, / DR, ITAT, KOLKATA 6. > / GUARD FILE. BY ORDER/ , /TRUE COPY/ 5,