AXIS BANK LIMITED,AHMEDABAD vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1), AHMEDABAD

Ground No.1 raised by the assessee reads as under:- “1. Disallowance in respect of annual technical fees (Tax effect - Rs. 16,84,276) 1.1 The learned DRP has erred in upholding addition made by AO in respect of treating Annual Technical Services (ATS) fees paid to Infosys Limited to the extent of Rs. 48.66 lacs as prior period expense. 1.2. It is submitted that the expenditure relates to amount payable to Infosys and no part of the amount was claimed as expenditure at any time in the 2 Axis Bank Limited Vs. ACIT AY : 2018-19 earlier years. The expenditure was debited pursuant to receipt of invoices from Infosys during the previous year. The amount was not debited in the earlier yean since the claim was raised for the first time during the year.

1.3 The learned DRP and AO erred in not considering favourable decision of Hon'ble Ahmedabad Bench of Tribunal upto AY 2015-16 Bank's own case.”

The issue relates to disallowance of claim of Annual Technical Service (ATS) fees by the assessee to the tune of Rs.48,66,726/-, disallowed for the reason that they were found to be prior period expenses. The assessment order reveals the nature of these expenses as the amount paid by the assessee towards annual fee for the maintenance of its core banking software named “Finacle” developed by Infosys Technologies Limited. Infosys charged an annual fee per user for the maintenance of this software, and in substance these charges were paid in the context of technical support provided to the assessee-bank by Infosys to resolve the operational difficulties faced by the bank in the use of the software in various locations. The Assessing Officer noted that invoices pertaining to Annual Technical Service fees amounting to Rs.48,66,726/- related to the preceding year, and noting that the assessee was following the mercantile system of accounting, and applying the matching principle, the impugned expenses were proposed to be disallowed in the draft assessment order framed in terms of section 144C of the Act. The assessee objected to the proposed disallowance to the Dispute Resolution Panel (DRP) and the DRP directed the disallowance to be made merely to keep the issue alive ,noting that identical expenses disallowed in the preceding years were allowed consistently by the ld. CIT(A) and which orders were confirmed by the ITAT also in AYs 2009-10 to 2015-16. This fact is evident from paragraph Nos. 5.2.4 to 5.3.3 of the order of the DRP as under:-

Accordingly, following the directions of the DRP, the impugned disallowance of Annual Technical Service fees amounting to Rs.48,66,726/- was made by the Assessing Officer in the assessment framed.

As is evident from the order of the DRP, identical disallowance was made in the case of the assessee in the preceding years, i.e. from AYs 2009-10 to 2015-16; but was consistently deleted in first appeal by the ld. CIT(A) whose order was confirmed by the ITAT also. Neither has the DRP noted any distinction in facts in the present case from the preceding years nor has the ld. DR being able to point out any distinguishing facts before us. Also, no adverse decision of any higher judicial authority in the case of the assessee has been brought to our notice by the ld. DR. Therefore, there is no case made out by the Revenue before us for not following the decision of the ITAT, deleting identical disallowance, in the preceding years.

In view of the same we direct the deletion of the disallowance of Annual Technical Service (ATS) fees to the tune of Rs.48,66,726/-.

The above grounds relate to the disallowance of expenses pertaining to the earning of exempt income, in terms of the provisions of Section 14A of the Act. The assessee had earned exempt income of Rs.375,64,72,801/- and made a suo-moto disallowance of expenses pertaining to the same u/s 14A of the Act amounting to Rs.1,03,08,336/-. During assessment proceedings, the assessee had furnished the method of computation of the disallowance so made by it. The Assessing Officer, however, rejected the same and went on to compute the disallowance in terms of Rule 8D of the IT Rules, 1962, computing the disallowance, therefore, at Rs.44,62,14,562/-. Reducing the suo-moto disallowance made by the assessee therefrom, the Assessing Officer made disallowance of the balance amounting to Rs.43,59,06,226/-. The assessee objected to the said proposed disallowance to the DRP who in turn rejected the contentions of the assessee and directed the Assessing Officer to make the disallowance as computed.

The argument of the ld. Counsel for the assessee before us was that the law with regards to the invocation of Rule 8D for the purpose of computing disallowance u/s 14A of the Act is settled, that the same can be resorted to only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee having regard to the accounts of the assessee, in terms of Section 14A(2) of the Act. That only thereafter the Assessing Officer can apply Rule 8D for computing disallowance u/s 14A of the Act. He referred to the decision of the Hon’ble jurisdictional High Court in this regard in the case of PCIT Vs. CIMS Hospital (P.) Ltd., [2021] 125 taxmann.com 227 (Gujarat). The ld. Counsel for the assessee contended that, in the present case, the Assessing Officer had invoked Rule 8D without assigning any reason for rejecting the assessee’s working of suo-moto disallowance or without finding any defect in the same. He contended that there was no satisfaction on the part of the Assessing Officer as to why the claim of the assessee was incorrect.

In this regard, he pointed out that the assessee has adopted a scientific method of computing the disallowance. He drew our attention to the working of suo-moto disallowance placed at page nos. 327, 456-459 of the paper-book. He pointed out therefrom that the assessee had considered 0.20% of the total operating expenses for the purpose of working disallowance u/s 14A of the Act since the salary of the employees involved in the investment portfolio was 0.20% of the salary of the total employees of the assessee. That thereafter these expenses, i.e 0.20% of the total operating expenses, had been bifurcated between ‘tax-free income earned from securities’ and ‘taxable trading income from securities’ in the ratio in which they were earned, being 3.72% and 96.28% respectively. That, accordingly, operating expenses of Rs.1,03,08,336/- were worked out as allocable to the earning of exempt income and suo moto disallowance of the same made while computing the income of the assessee for the purpose of taxation. He pointed out that the assessee had sufficient 7 Axis Bank Limited Vs. ACIT AY : 2018-19 own interest-free funds by way of capitals and reserves amounting to Rs. 63,445.25 crores for the purpose of making tax-free investments of Rs.5,421.46 crores, warranting no disallowance of interest expenses. All the above, he stated, was demonstrated to the Assessing Officer during assessment proceedings, but the AO went on to reject the same without assigning any proper reasons. He drew our attention to paragraph no.21 of the assessment order wherein the Assessing Officer had rejected the assessee’s methodology of computing disallowance u/s 14A of the Act as under:-

Referring to the above, he pointed out that the reasons assigned by the Assessing Officer for rejecting the assessee’s methodology was two-fold; • that there was no basis for holding that 3.72% of the expenses were attributable to tax free income. • and that only a few expenses had been considered for allocation without any basis.

The ld. DR, however, relied on the order of the Assessing Officer.

We have heard both the parties. There is no dispute regarding the proposition of law that for invocation of Rule 8D of the Rules for computing the disallowance of expenditure under section 14A of the Act, the AO has to first record his satisfaction as to why the claim of the assessee to the disallowance is incorrect having regard to its books of accounts. The ld. Counsel for the assessee has relied on the decision of the Hon’ble jurisdictional High Court in the case of CIMS Hospital P. Ltd. (supra) wherein the Hon’ble Court has held in very clear terms that before invoking Rule 8D, 10 Axis Bank Limited Vs. ACIT AY : 2018-19 the AO is obliged to indicate that having regard to the accounts of the assessee, he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to the income which does not form part of the total income under the Act. The Hon’ble Court interpreted the provisions of section 14A(2) of the Act while holding so.

Having said so, we find that in the facts of the present case, the AO has failed to fulfil this necessary prerequisite for invoking Rule 8D of the Rules. We have noted from the documents filed before us that the assessee had demonstrated to the AO that the suo moto disallowance made by it had been calculated on a scientific basis. The entire basis of calculating the same had been explained to the AO, pointing out that out of the operating expenses only that portion was considered for the purpose of disallowance which was in proportion to the salary of employee, involved in the investment activity to the salary of the total employees of the assessee being 0.20%; that thereafter, these operating expenses incurred for earning exempt income was determined by bifurcating these expenses in the ratio of tax free income earned from securities and taxable earned income therefrom, which came to 3.72% of the expenses. And accordingly an amount of Rs.1,03,08,336/- was determined suo moto by the assessee as disallowable under section 14A of the Act, and disallowed while computing its taxable income. Thus, the assessee had demonstrated a reasonable basis for calculating the disallowance of expenses pertaining to earning of exempt income, considering the expenses relatable to the investment activity and allocating that portion of the said expenses to the earning of tax free income therefrom on a scientific basis. Vis- à-vis the interest expenditure incurred, and allocable to the earning of exempt income, the ld. Counsel for the assessee had pointed out to the AO that it had enough owned interest free funds for the purpose of making investment in 11 Axis Bank Limited Vs. ACIT AY : 2018-19 securities, warranting no disallowance of interest under section 14A of the Act, which proposition has been settled by the Hon’ble Apex Court in the case of CIT Vs. Reliance Industries, 410 ITR 466.

The AO, we find, has not touched upon and made no adverse comment on the specific explanation offered by the assessee regarding the methodology adopted for allocating the expenses for the purpose of earning exempt income, as pointed out to us above. The AO, we find has made only certain general comments for rejecting the assessee’s explanation, that too factually incorrect. We have noted, that the AO stated that the assessee has given no basis for holding 3.72% of the expenses attributable to earning of tax free income. This is clearly incorrect, since, as noted above by us, the assessee had given a basis for the same. Further, the AO has mentioned that only few expenses had been considered for allocation without any basis, which too is an incorrect finding, since the assessee had given a scientific basis for considering 0.20% of the total operating expenditure for allocation to the earning of tax free income. The assessee had also explained, why the interest expenditure were not being considered for the purpose of disallowance. Therefore, it is abundantly clear that the AO had proceeded to apply Rule 8D for computing the expenses disallowable under section 14A of the Act without fulfilling the mandatory pre-requisite of first recording dissatisfaction with the assessee’s computation of the same, having regard to its books of accounts.

Moreover para 21 of the AO’s order reveals the AO to be stating that when a clear formula for calculating disallowance of expenses u/s 14A of the Act is provided in the Rules, there is no scope for the assessee to adopt any method of proportional allocation of expenses. That if the assessee has any issues with regard to the formula so prescribed in law he can take up the matter at the appropriate judicial forum. These findings of the AO, no doubt 12 Axis Bank Limited Vs. ACIT AY : 2018-19 are contrary to the provision of law as interpreted by the jurisdictional High court itself in CIMS(supra) that the formula provided in Rule 8D of the Rules is to be applied only in the circumstance that the assesses calculation of disallowance appears to the AO to be incorrect having regard to its books of accounts.

In view of the same, we are in agreement with the ld. Counsel for the assessee that invocation of Rule 8D by the AO was against the provisions of law, and the disallowance therefore made of expenses by the AO amounting to Rs.43.59 crores u/s 14A of the Act in accordance with Rule 8D of the Rules is not sustainable in law, and is directed to be deleted.

Ground No.3 raised by the assessee reads as under :-

The above ground relates to the addition made to the income of the assessee on account of commission income amounting to Rs.188,32,58,331/-. The orders of the authorities below reveal that the impugned addition was made noting that in the preceding years the bank guarantee commission earned by the assessee was offered upfront but the assessee had changed the method of accounting and recognized commission income on pro rata basis over the period to which the guarantee was spread since assessment year 2010-11.All arguments made by the assessee in this regard were rejected by the AO and following identical addition made in the case of the assessee in proceeding years, the AO made the impugned addition of commission income amounting to Rs.188,32,58,331/- which was earned on guarantee issued by the bank during the year, but offered to tax by the assessee in succeeding years over the period of guarantee.

Objection to the proposed addition was made to the DRP, who though noted the fact that identical addition of commission income made in preceding years stood deleted by the ITAT, yet directions were given to the AO to make the addition for the reason noted in the order that the DRP had been informed that the decision of the ITAT for A.Y 2010-11 to A.Y 2014-15 had not been accepted by the department and appeal had been preferred to the High Court against the same. To keep the issue alive therefore to protect the interest of the Revenue, the DRP directed the AO to make the addition of commission income to the tune of Rs.188.32 Crs. Relevant para 7.3.1 of the DRP order.

The contention of the learned Counsel for the assessee before us was that identical disallowance made in the case of the assessee in preceding years, right from Assessment Year 2010-11 to Assessment Year 2014-15, had 14 Axis Bank Limited Vs. ACIT AY : 2018-19 been deleted by the ITAT consistently in its orders passed, as noted by the DRP and that even in AY 2015-16 ITAT had deleted identical addition made in its Order passed in dated 30-03-2022 . Copy of all the orders of the ITAT were placed before us. That the issue therefore stood covered in favour of the assessee. The learned DR, though was unable to controvert the contention of the learned Counsel for the assessee that the issue was covered in its favour by orders of the ITAT in the preceding years, however, he relied on the order of the AO.

As is evident from the order of the DRP, identical addition of commission income was made in the case of the assessee in the preceding years, i.e. from AYs 2010-11 to 2015-16; but was consistently deleted by the ITAT. Neither has the DRP noted any distinction in facts in the present case from the preceding years nor has the ld. DR being able to point out any distinguishing facts before us. Also, no adverse decision of any higher judicial authority in the case of the assessee has been brought to our notice by the ld. DR. Therefore, there is no case made out by the Revenue before us for not applying the decision of the ITAT in the preceding years in favour of the assessee.

In view of the same we direct the deletion of the addition of commission income to the tune of Rs.188.32 Crs.

Ground of appeal No. 4 raised by the assessee reads as under:-

The contention of the learned Counsel for the assessee before us was that identical disallowance made in the case of the assesse in preceding years, right from Assessment Year 2010-11 to Assessment Year 2014-15, had been deleted by the ITAT consistently in its orders passed, as noted by the DRP and that even in AY 2015-16 ITAT had deleted identical addition made in its Order passed in dated 30-03-2022. Copy of all the orders of the ITAT were placed before us. That the issue therefore stood covered in favour of the assessee. The learned DR, though was unable to controvert the contention of the learned Counsel for the assessee that the issue was covered in its favour by orders of the ITAT in the preceding years, however, he relied on the order of the AO.

As is evident from the order of the DRP, identical addition of commission income was made in the case of the assessee in the preceding years, i.e. from AYs 2010-11 to 2015-16; but was consistently deleted by the ITAT. Neither has the DRP noted any distinction in facts in the present case from the preceding years nor has the ld. DR being able to point out any distinguishing facts before us. Also, no adverse decision of any higher judicial authority in the case of the assessee has been brought to our notice by the ld. DR. Therefore there is no case made out by the Revenue before us for not applying the decision of the ITAT in the preceding years in favour of the assessee.

In view of the same we direct the deletion of the addition of interest on NPA’s to the tune of Rs.237.98 Crs.

Ground of appeal No. 5 raised by the assessee reads as under:-

Facts relating to the case are that during the year, the assessee had claimed deduction amounting to Rs.155,60,31,183/- under section 37(1) of the Act in respect of Employees Stock Option Plan (ESOP), being the difference between the market price as on the date of exercise of option and the exercise price under the head “profits & gains from business and profession”. In short 18 Axis Bank Limited Vs. ACIT AY : 2018-19 the assessee had claimed the discounted premium on the issue of shares to employees in terms of the ESOP scheme as an expense. The assessee had claimed the same on the basis of the decision of the Special Bench of the ITAT in the case of Biocon Ltd. Vs. DCIT, (2013) 25 ITR (T) 602 (Bang-Trib.)(SB) confirmed by the Hon’ble Karnataka High Court in the CIT Vs. Biocon Ltd., (2020) taxmann.com 351 (Kar). The AO, however, held that since the amount received on issue of shares was on capital account, the impugned expenses did not qualify as revenue expenditure under section 37(1) of the Act. He also held that the expenditure, even otherwise, was only notional loss, and therefore, also not allowable to the assessee. The AO noted that similar disallowance had been made in the earlier years also in the case of the assessee i.e. Asst. Year 2013-14 to 2015-16 and considering the fact that the Department had not accepted the decision of Hon’ble Karnataka High Court in Biocon Ltd. (supra) and SLP of the Department on an identical issue in the case of Pr.CIT Vs. Lemon Tree Hotels P. Ltd. had been admitted by the Hon’ble Apex Court, the AO disallowed the claim of ESOP expenditure of the assessee amounting to Rs.15.16 crores. The same was confirmed by the DRP noting that the issue is being contested by the Department before the Hon’ble Supreme Court in the case of Lemon Tree Hotel P.Ltd. (supra).

The contention of the ld. Counsel for the assessee before us was a reiteration of the arguments made to the authorities below, that the issue is now no longer res integra and has been decided in favour of the assessee in series of decisions including that of Hon’ble Karnataka High Court in Biocon Ld. (supra) followed by the ITAT in various decisions.

At this juncture, the ld. Counsel for the assessee was asked about the status of these expenses disallowed in the case of the assessee in the preceding years, as noted by the AO i.e. Asst. Year 2013-14 to 2015-16. To this, the ld. 19 Axis Bank Limited Vs. ACIT AY : 2018-19 Counsel pointed out that the matter had been restored back to the AO for adjudication afresh by the ITAT.

In view of the above admission of the ld. Counsel for the assessee, and to bring consistency on the issue, the impugned issue is also being restored back to the AO to be decided afresh in accordance with prevailing position of law.

Ground No.5 is allowed for statistical purpose.

Ground No. 6 raised by the assessee reads as under:-

The above ground relates to the transfer pricing adjustment made to the International Transactions of interest charged on loan provided to Associate Enterprise of the assessee in terms of the provisions of Section 92CA of the Act.

The facts of the case are that the assessee had provided Tier-II loan of USD 25 million (Rs.148,47,50,000/-) to its Associate Enterprise “Axis UK”

Accordingly, the difference of interest so determined, of Rs.2,47,65,912/-, was adjusted upward to the interest charged by the assessee resulting in an addition to the said extent to the income of the assessee. The DRP confirmed the order of the TPO and directed the AO to make the impugned adjustment as proposed by the TPO.

The contention of the ld. Counsel for the assesse before us primarily was against treating LOC as equivalent to bank guarantee for making adjustment to the ALP of the impugned international transaction and briefly put it was to the effect: • That there was a basic fallacy in the DRP as well as TPO equating Letter of Comfort with corporate guarantee. That the two could not be equated and were completely different in character. To this effect he pointed out the Explanationto Rule 10TA(c) of the Income Tax Rules, 1962, concerning Safe Harbour for International Transaction specifically excluded Letter of Comfort from the definition of corporate guarantee. Our attention was invited to the same as under:-

Further, it was pointed out that in several decisions the ITAT consistently held that the Letter of Comfort cannot be termed as international transaction in terms of Section 92B, requiring no transfer pricing adjustment. Reference was made to the following decisions:- • Tata International Ltd Vs. ACIT, in order dated 29.01.2020 22 Axis Bank Limited Vs. ACIT AY : 2018-19 “24. Before ld. CIT(A), the assessee made elaborate submission and explained the difference between Letter of Comfort within Intra Group as well as the corporate guarantee. The ld. CIT()A) after considering the submission of assessee concluded that by issuing Letter of Comfort to the Bankers of AE, the assessee did not incurred any cost. The issuance of Letter of Comfort by assessee have no bearing on the profit, income or loss as the assessee did not incur any cost or expenditure for issuing such Letter of Comfort and it does not constitute international transaction under section 92B of the Act. The ld. CIT(A) concluded that there is a fundamental between guarantee and Letter of Comfort. Guarantee is a legal enforceable; however, Letter of Comfort is not. We have noted that Hon'ble Karnataka High Court in United Braveries (Holding) Ltd. vs. Karnataka State Industrial Investment and Development Corporation (supra) held that Letter of Comfort merely indicates the appellant's assurance that respondent would comply the term of financial transaction without guaranteeing performance in the event of default. The co-ordinate bench of Tribunal in India Hotels Co. Ltd. (supra) on similar ground of appeal

Our attention was specifically invited to the decision of the Tata International Ltd. (supra), pointing out that the Letter of Comfort was explained in detail therein and differentiated with corporate guarantee. • That without prejudice to the above corporate guarantees have been held to not qualify as international transactions by the Ahmedabad Bench of the Tribunal in the case of Micro Ink Ltd Vs. ACIT, (2015) 63 taxmann.com 353 (Ahd Trib.). • That since the assessee had charged upfront fee @ 2.5% over and above the interest of 3 months USD LIBOR plus 225 bps, it would be sufficient to take care of the TP adjustment in question. • That even as per the prevailing “Safe Harbour Rules” (Rule 10TD(2A)(5)(v) , interest rates prescribed for granting loan to AE in the foreign currency, in cases where credit rating of the AE is not available, is 6 months LIBOR plus 400 bps only. The TP adjustment could not in any case have exceeded the said rate by any means.

The ld. DR relied on the order of the Assessing Officer.

We have heard contentions of both the parties. The issue before us relates to the determination of ALP of the international transaction of interest charged on loan given to the associate entity of the assessee. Tier-II Loan having been provided by the assessee to Axis Bank, UK- amounting to 25 24 Axis Bank Limited Vs. ACIT AY : 2018-19 Million USD i.e. 148.47 crores. The facts relating to the interest charged by the assessee and that determined by the TPO to be ALP of the interest charged is as under: • interest charged by the assessee --- 3 months USD LIBOR plus 425 bps along with upfront fee charged @ 2.5% of the loan amount • ALP of the interest determined by TPO -- interest charged by BOI as per its quotation given to AXIS Bank , UK for the same Tier II Loan of 25 million USD -6 months USD LIBOR plus 425bps + 200bps added by the TPO on account of adjustment made for the letter of comfort (LOC) required by BOI from the assessee before us ,as per its terms and conditions for granting the loan as per the quotation. In effect ALP determined by TPO 6 months USD LIBOR plus 625 bps (425bps + 200bps). The DRP in turn restricted the adjustment made on account of LOC to 0.5%

The assessee, before us, has contested this adjustment made to the ALP of interest on account of LOC contending that both the TPO and the DRP have erred in equating LOC to bank guarantee while making the adjustment. In this regard, he has referred to various decisions of the ITAT, and also to Rule 10A of the Income Tax Rules, 1962, pointing out that the said rule excluded the letter of comfort from corporate guarantee.

The short point for adjudication before us therefore is whether LOC can be equated to Bank guarantees or for that matter whether LOC ‘s call for any sort of adjustment to be made to interest rates when compared to interest rates charged on non LOC loans.

For adjudicating the same it is necessary to understand what bank guarantees and LOC’s are and therefore in effect what consequences they have on the risks associated with loans with respect to which they are sought. Bank guarantees as is common knowledge is a kind of guarantee from a lending organization. It signifies that the lending organization ensures that 25 Axis Bank Limited Vs. ACIT AY : 2018-19 the liabilities of a debtor are going to be met. It is a promise from a bank that it will step in and pay a debt if a borrower defaults.

Letter of comfort on the other hand is an assurance in writing to a lender about the position of a borrower. It provides an assurance that the obligation will ultimately be met. To be more specific it supports the request for a loan made by one. Obtaining the letter helps businesses gain trust and prove creditworthiness in the eyes of parties with whom they are dealing and obligated.

As is evident from the above there is no scope for equating bank guarantees with letter of comfort. Bank guarantees entail risk, with the provider of guarantee having to pay the amount guaranteed on the default in payment of loan by the person guaranteed. Letters of comfort entail no such financial risk on the provider of the LOC. Therefore we completely agree with the Ld. Counsel for the assessee that both the TPO and the DRP had erred in equating LOC’s to bank guarantees.

However, having said so it is also evident that LOC’s facilitate obtaining loans by entities on the assurance of their creditworthiness provided by the LOC provider. The person giving loan is assured about the creditworthiness of the party to whom loan is contemplated to be given. LOC’s are sought generally from parent companies who are in a position to provide an assurance of creditworthiness of their subsidiaries. In effect it establishes a parent company’s commitment to providing its subsidiary with the resources it needs to meet its financial obligations or get credit. Ultimately all boils down to how the letter of comfort is worded to understand the underlying import of the LOC vis-a-vis the liability shouldered by the provider of LOC.

In the facts of the present case the LOC is asked for by BOI in its quote to Axis Bank, UK but the format in which it is asked is not available. Nothing 26 Axis Bank Limited Vs. ACIT AY : 2018-19 therefore can be said about the impact of the same on the interest to be charged on the loan transaction.

In view of the same, though the adjustment made to the interest rate by the AO/DRP treating the LOC as bank guarantee cannot be upheld, at the same time, the assessee’s alternative argument of treating the interest rates prescribed under the head “safe harbour rules” i.e. Rule 10TD(2A)(5) of the Income Tax Rules can be accepted, which is six months LIBOR plus 400 bps. The AO is directed to treat the said rate as ALP of the impugned international transaction and make adjustment accordingly.

The ld. Counsel for the assessee also contended that the assessee has charged upfront fees also at 1.25% of the loans, and therefore, no adjustment on account of LOC is called. We are unable to agree with the same, since we have noted, even as per the quote of BOI, identical upfront fee of 1.25% of the bank loan was charged. Therefore, the LOC was, over and above, charging of upfront fees, calling for a separate adjustment to the interest on account of the same.

In effect, the appeal of the assessee is partly allowed for statistical purposes.