Tribunal directs Transfer Pricing Officer to determine interest rate for Convertible Debentures, allows set off of business loss

The Tribunal allowed the assessee's appeal, directing the Transfer Pricing Officer to determine the Arm's Length Price for interest on Compulsorily Convertible Debentures using the appropriate SBI PLR rate. Additionally, the Tribunal instructed the Assessing Officer to consider and allow the set off of brought forward business loss and unabsorbed depreciation in accordance with the law. The appeal was granted on 17th March 2023.

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Issues Involved:
1. Transfer Pricing Adjustment regarding payment of interest on Compulsorily Convertible Debentures (CCDs).
2. Set off of brought forward business loss and unabsorbed depreciation.
3. Levy of interest under Section 234B.

Summary:

1. Transfer Pricing Adjustment regarding payment of interest on CCDs (Ground 2):
The TPO proposed an adjustment of Rs.7,41,69,020 by recharacterizing the CCDs as equity and treating the Arm's Length Price (ALP) of the interest payment as NIL. The DRP upheld this adjustment. The Tribunal referred to its earlier decisions in the assessee's own case for AYs 2009-10 to 2013-14, stating that until the date of conversion, the interest paid on CCDs cannot be treated as interest on equity and is allowable as expenditure under Section 36(1)(iii). Regarding the determination of ALP, the Tribunal remitted the issue back to the TPO with directions to apply the appropriate SBI PLR rate to determine the ALP of the interest on CCDs, ensuring the assessee is given an opportunity of being heard.

2. Set off of brought forward business loss and unabsorbed depreciation (Ground 3):
The Tribunal directed the AO to consider the brought forward losses and unabsorbed depreciation and allow the set off in accordance with the law.

3. Levy of interest under Section 234B (Ground 4):
This ground was deemed consequential and did not warrant separate adjudication.

Conclusion:
The appeal of the assessee was allowed, with specific directions provided for the determination of ALP for interest on CCDs and the set off of brought forward business loss and unabsorbed depreciation. The judgment was pronounced on 17th March 2023.

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