BABA GLOBAL LTD.,DELHI vs. ACIT, CENTRAL CIRCLE-29, NEW DELHI

The common issue raised in all the assessment years is that ld. CIT(A) has erred in directing the AO to increase the LIBOR rate by certain basis points which is against the direction of ITAT to apply the LIBOR rate.

Brief facts of the case are that this is second round of appeal before the ITAT for AY 2009-10 & 2010-11. The issue in dispute is application of interest rate on the advances made to Associated Enterprises. In the earlier round, in a consolidated order for AYs 2006-07 to 2010-11, ITAT had referred to case laws from Hon’ble jurisdictional High Court in the case of CIT vs. Cotton Naturals (P) Ltd. (2015) 276 CTR 0445 (Del) wherein Hon’ble Delhi High Court has disapproved the application of SBI rate. The Tribunal had given following directions while concluding:-

The above direction was considered by Revenue authorities as direction to only substitute SBI rate to LIBOR and continued with further adjustment. Hence authorities have proceeded to adjust the applicable LIBOR rate with 300 basis points if the amount of loan transaction is more than Rs.50 crores and 150 basis points if the amount of loan is less than Rs.50 crores.

Having gone through the earlier order of ITAT, we do not find ourselves in agreement with the submission of the ld. DR of the Revenue.

Aggrieved by the order of the TPO, the assessee filed objection before the Dispute Resolution Panel. It was contended by the assessee that since the money given as loan to its subsidiary companies was own money and hence no adjustment is required to be made. It was further submitted that the rate of interest charged cannot be the Prime Lending Rate of State Bank of India. This money has been advanced in foreign currency and as such interest is to be charged as per the interest rate in foreign currency i.e. LIBOR.

The learned DRP did not agree with the contention of the assessee. However, it gave a part relief by holding that the interest rate be charged be only base rate and further adjusted by 150 basis point in terms of Safe Harbour Rules. On the issue of addition under Section 14A, the learned DRP confirmed the action of the AO.”

The above dispute was answered by the ITAT has already been noted above in which the ITAT has directed that LIBOR rate should be adopted. The ITAT nowhere mentions for further adjustment on any account though it was aware that DRP had directed for further adjustment. If Revenue was aggrieved by the above order of ITAT, the matter should have been carried to the higher forums. Since the Revenue has not carried the matter before the higher forums, the order of ITAT stands undisturbed and according to the order of ITAT, instead of the rate applied by the TPO, the rate should be applied as per the direction of the aforesaid paras of ITAT.

In this view of the matter, in our considered opinion, it is not appropriate on the part of the authorities below to give effect to the order 5 5363 & 5365/Del./2018 of ITAT in a manner other than what has been specifically directed by the ITAT particularly when the matter has not been challenged before higher forums. Hence we direct that AO should follow the order of ITAT as aforesaid and apply the rates as directed by the ITAT. The above order applies mutatis mutandis to AY 2012-13 which is 11. not the matter remanded by the ITAT but the same issue and there is already ITAT order in assessee’s own case as noted above, hence the same is also directed to be followed in this case.

In the result, all the appeals of the assessee stand allowed for statistical purposes. Order pronounced in the open court on this 8th day of July, 2022.