2021 (3) TMI 70 - AT - Income Tax

Tribunal allows appeals, cancels Transfer Pricing adjustments.

Hacienda Projects Pvt. Ltd. Versus The Asstt. C.I.T., Central Circle – 6 New Delhi

Hacienda Projects Pvt. Ltd. Versus The Asstt. C.I.T., Central Circle – 6 New Delhi - TMI Issues Involved:1. Transfer Pricing adjustment related to interest paid on Fully and Compulsorily Convertible Debentures (FCCDs) issued to Associated Enterprise (AE).2. Application of interest rate benchmark for the FCCDs.3. Justification of the interest rate applied by the assessee versus the rate determined by the Transfer Pricing Officer (TPO).Detailed Analysis:Transfer Pricing Adjustment:The primary issue in these appeals is the Transfer Pricing adjustment made by the Assessing Officer (AO) concerning the interest paid by the assessee to its AE, M/s. Twilzon Limited, on FCCDs issued by the assessee. The FCCDs were issued on 26.07.2011, relevant to the Assessment Year (A.Y.) 2012-13. The AO disallowed 300 basis points over the base rate PLR, resulting in the addition of differential interest amounts in A.Ys 2012-13, 2013-14, and 2014-15.Application of Interest Rate Benchmark:The assessee argued that the FCCDs were rupee-denominated and interest payments were made in Indian Rupees, making the LIBOR rate inapplicable. Instead, the assessee applied the SBI PLR rate plus 300 basis points, justifying it as arm's length. The TPO disagreed, citing the lack of documentary evidence supporting the assessee's credit rating and other factors minimizing risk and cost of funds.Justification of Interest Rate:The TPO's observations included:- No documentary evidence for credit rating.- The assessee's ongoing projects indicating good credibility.- Minimized risk due to rupee-denominated transactions.- Lack of justification for administrative costs.- AE's significant investment indicating the assessee's good credibility.The TPO restricted the interest rate to 14.25%, disallowing the additional 300 basis points claimed by the assessee. This resulted in the following differential interest amounts being added:- A.Y. 2012-13: Rs. 5,522,541.04- A.Y. 2013-14: Rs. 8,085,000.00- A.Y. 2014-15: Rs. 8,085,000.00Tribunal's Findings:The Tribunal referred to a similar case of Granite Gate Properties Ltd., where the FCCDs were issued to the same AE under similar terms. The Tribunal had previously accepted the SBI PLR rate plus 300 basis points as reasonable and at arm's length, particularly since the variance in the rate of interest was within the permissible range of 5% as per the second proviso to Section 92C(2) of the Act.The Tribunal noted that the issue was no longer res integra, and no change in circumstances was presented. Therefore, the Tribunal followed the previous decision, concluding that including 300 basis points while calculating the interest rate was reasonable and permissible under law. The Tribunal directed the AO/TPO to delete the impugned adjustments.Conclusion:The Tribunal allowed the appeals, directing the deletion of the Transfer Pricing adjustments made by the AO/TPO. The order was pronounced in the open court on 22.02.2021, emphasizing the consistency with previous decisions in similar cases.