Appeal admitted post-condonation for re-characterization of debentures, exclusion of comparable company, and deduction allowance.

The departmental appeal, despite being time-barred, was admitted for hearing after the condonation of the delay. The Tribunal upheld the CIT(A)'s reversal of re-characterizing debentures/CCDs as equity, directing re-determination of the ALP. Marg Limited was excluded as a comparable company due to lack of segmental details. The Tribunal deleted the addition under Section 43CA due to the retrospective application of the first proviso and increased safe harbor limit. The excess interest on debentures/CCDs for the assessment year 2013-14 was disallowed proportionately. The AO was directed to ascertain and allow the deduction for Education Cess and Secondary and Higher Secondary Cess.

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Issues Involved:
1. Condonation of delay in filing the departmental appeal.
2. Re-characterization of debentures/CCDs as equity.
3. Inclusion of Marg Limited as a comparable company.
4. Disallowance under Section 43CA of the Income-tax Act, 1961.
5. Addition of interest on debentures/CCDs for the assessment year 2013-14.
6. Deduction of Education Cess and Secondary and Higher Secondary Cess.

Detailed Analysis:

1. Condonation of Delay in Filing the Departmental Appeal:
The departmental appeal was time-barred by 63 days. The assessee did not object to the condonation of the delay. Consequently, the delay was condoned, and the appeal was admitted for hearing.

2. Re-characterization of Debentures/CCDs as Equity:
The assessee reported international transactions and Specified Domestic Transactions (SDTs) involving payment of interest on CCDs and debentures. The TPO recharacterized these transactions as equity, determining a Nil ALP and proposing a transfer pricing adjustment of Rs. 18,12,37,000/-. The CIT(A) reversed this re-characterization and directed the TPO to verify the ALP determination of the interest on debentures/CCDs at 17.5%, restricting the addition to 1.13% if necessary. Both parties appealed. The Tribunal followed its decision for the assessment year 2014-15, upholding the CIT(A)'s reversal of the AO's re-characterization and remitting the matter for re-determination of the ALP, rendering the assessee's grievance infructuous.

3. Inclusion of Marg Limited as a Comparable Company:
The assessee reported four additional SDTs and applied the TNM method for ALP determination. The TPO recomputed the ALP, resulting in a transfer pricing adjustment of Rs. 10,51,97,830/-. The CIT(A) included Marg Limited as a comparable company. The Tribunal found that Marg Limited's income from operations included both project and leasing income without separate segmental details. Therefore, it directed the exclusion of Marg Limited from the list of comparables.

4. Disallowance under Section 43CA of the Income-tax Act, 1961:
The AO added Rs. 9,18,700/- to the total income based on the difference between the sale consideration and stamp value of a flat sale. The CIT(A) upheld the addition. The Tribunal noted that the first proviso to Section 43CA, inserted by the Finance Act, 2018, provided relief for differences not exceeding 5% of the sale consideration. The Tribunal held that this proviso should be applied retrospectively, following the Supreme Court's decision in CIT Vs. Vatika Township Pvt. Ltd. (2014). Additionally, the Finance Act, 2020, increased the safe harbour limit to 10%. Since the difference in this case was 7.24%, the Tribunal directed the deletion of the addition.

5. Addition of Interest on Debentures/CCDs for the Assessment Year 2013-14:
The AO added Rs. 3,03,72,733/- representing interest expenditure on debentures/CCDs booked for the assessment year 2013-14. The CIT(A) upheld the addition. The Tribunal noted that for the assessment year 2013-14, it had directed the AO/TPO to re-determine the ALP of the interest payment. Consequently, the Tribunal held that the excess interest over the ALP should be disallowed proportionately in the years when the work-in-progress containing such interest is reversed on the sale of flats/plots.

6. Deduction of Education Cess and Secondary and Higher Secondary Cess:
The assessee raised an additional ground seeking deduction of Rs. 26,66,359/- for Education Cess and Secondary and Higher Secondary Cess. The Tribunal directed the AO to ascertain the correct amount and allow the deduction after providing an opportunity of hearing to the assessee, following its decision for the assessment year 2014-15.

Conclusion:
Both appeals were partly allowed, with specific directions issued for each issue. The order was pronounced in the Open Court on 17th August, 2021.

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