Foreign Currency

PLR Rates Are Not Applicable To Loans To Be Re-Paid In Foreign Currency Vis-À-Vis Interest On Delayed Realization: Mumbai ITAT


The Mumbai ITAT clarified that interest rates on FCNR accounts maintained in foreign currency are different and dependent upon the currency in question. They are not dependent upon the PLR rate, which is applicable to loans in Indian rupee.

The ITAT therefore deleted the ALP adjustments qua Letter of Comfort and interest on delayed realization of sale proceeds from the AEs.

Referring to decision of Delhi High Court in the case of CIT-I vs. Cotton Naturals (I) (P) Ltd. [2015] 231 Taxmann 401 (Del), the Bench comprising Amit Shukla (Judicial Member) and Gagan Goyal (Accountant Member) observed that “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 the foreign currency in which the repayment is to be made. The same principle should apply”. (Para 18)

The Bench noted that the TPO treated issuance of Letter of Comfort by assessee as international transaction u/s.92B and therefore deleted the TP-adjustment made on this account.

The Bench found that issuance of Letter of Comfort had no bearing on assessee’s profit, income or loss as assessee did not incur any cost or expenditure for issuing the same and it does not constitute international transaction u/s 92B.

With respect to delayed realization of sales proceeds, the Bench noted TPO’s view that interest chargeable should be at par with PLR in India, whereas assessee argued that interest should be computed based on rate applicable to the currency in which loan has to be repaid.

The ITAT therefore directed the AO to delete the addition by relying on Delhi High Court ruling in CIT v/s. Cotton Naturals India Pvt. Ltd. (2015) 231 Taxman 401 (Delhi), wherein it was held that PLR rates are not applicable to loans to be re-paid in foreign currency.

Counsel for Appellant/ Taxpayer: Nitesh Joshi, Ninad Patade & Aastha Shah

Counsel for Respondent/ Department:Anoop Hiwase

Case Title: Tata International Ltd vs ACIT

Case Number: ITA No 537/Mum/2013

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