2019 (3) TMI 1805 - AT - Income Tax

Tribunal Orders Removal of Adjustments on Interest for FCCDs Issued to AEs, Deeming Rates Reasonable and Permissible.

The ITAT Delhi allowed the assessee's appeals in ITA Nos. 7026 & 7027/DEL/2017, directing the deletion of adjustments on interest payable on FCCDs issued ... TP Adjustment - Adjustment on account of interest payable/paid by the assessee on Fully and Compulsorily Convertible Debentures [FCCDs] as issued by it to its Associated Enterprises [AEs] - HELD THAT:- The undisputed fact is that the FCCDs were issued during FY 2008-09, 2009-10 and 2011-12, which means that no fresh FCCDs were issued during the year under consideration. As decided in own case [2018 (5) TMI 1774 - ITAT DELHI] and [2018 (9) TMI 964 - ITAT DELHI] it is reasonable on facts and also permissible under law to include 300 points basis while calculating the interest rate. In view of the fact that the variance does not exceed 5% for the FCCDs issued during the FYs 2008-09 and 3% for the FCCDs issued subsequently interference by the Ld. TPO with the value of the international transaction. The addition, therefore, cannot be sustained and shall be directed to be deleted. In the present case since the difference is less than 5%, therefore, no addition on account of arm’s length price could have been made - Decided in favour of assessee. Issues:Adjustment on account of interest payable/paid by the assessee on Fully and Compulsorily Convertible Debentures (FCCDs) issued to Associated Enterprises (AEs) under section 153A r.w.s 144C of the Income-tax Act, 1961 for A.Ys. 2013-14 and 2014-15.Analysis:Issue 1: Adjustment on interest payable on FCCDs:The assessee's appeals contested the adjustment made by the Transfer Pricing Officer (TPO) on interest payable on FCCDs issued to AEs. The TPO believed that the 300 basis points above the base rate PLR charged by the assessee was excessive and disallowed a significant amount. The TPO's adjustments totaled to Rs. 10,70,37,882. The assessee's objections before the Dispute Resolution Panel (DRP) were unsuccessful.Issue 2: Tribunal's consideration of the matter:The Tribunal considered the identical issues in the assessee's previous case for A.Ys. 2009-10 to 2011-12 and ruled in favor of the assessee. The Tribunal noted that the FCCDs were issued in previous years, and no fresh issuances occurred during the years under consideration. The Tribunal analyzed the interest rates applied by the assessee and the adjustments made by the TPO, comparing them to the Arm's Length Price (ALP) based on SBI PLR rates.Issue 3: Tribunal's decision and reasoning:Citing previous judgments, the Tribunal emphasized that the interest rate applied by the assessee, including the 300 basis points, was reasonable and within the permissible range. The Tribunal highlighted that the variance in interest rates did not exceed the permissible limits set by law. As no distinguishing decision favoring the revenue was presented, the Tribunal directed the Assessing Officer/TPO to delete the adjustments made on interest payable on FCCDs.Conclusion:The Tribunal allowed the assessee's appeals in ITA Nos. 7026 & 7027/DEL/2017, directing the deletion of the impugned adjustments on interest payable on FCCDs. The decision was based on the reasoning that the interest rates applied by the assessee were reasonable and fell within the permissible range, as established by previous judgments and legal provisions.This detailed analysis covers the issues related to the adjustment on interest payable on FCCDs in the given legal judgment delivered by the Appellate Tribunal ITAT DELHI.