TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 1048
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....assessment Centre, Delhi (hereinafter referred as 'AU' for brevity), the learned Deputy Commissioner of Income Tax (Transfer Pricing Officer) - 2, Hyderabad (hereinafter referred as 'TPO' for brevity) and the Dispute Resolution Panel - 1, Bangalore (hereinafter referred as 'DRP' for brevity) ['AU', 'TPO' and 'DRP' collectively referred as 'lower authorities' for brevity) are bad in law and liable to be quashed. 2. Ground relating to assessment order being barred by limitation under section 153 2.1. The learned AU erred in passing the assessment order under section 143(3) read with section 144C(13) read with section 144B, beyond the limitation period under section 153. The assessment order so passed is bad in law, void ab initio and liable to be quashed. 3. Ground relating to violation of standard operating procedure 3.1. The learned AU erred in issuing the notice under section 142(1) dated 31.08.2023 in violation of the Standard Operating Procedure dated 03.08.2022 issued by the Central Board of Direct Taxes ('CBDT') in not granting seven days to furnish a response to the same. The c....
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....gth. 6.4. The lower authorities have erred in not appreciating that the terms and conditions in the year of crystallising the conduct are to be evaluated for the arm's length pricing analysis. 6.5. The Honourable DRP has erred in confirming rejection of the following companies selected by the Appellant based on search in NSDL website which have issued instruments comparable to the NCD issued by the Appellant : (i) Gromor Finance Private Limited (ii) Ashiana landcraft realty private limited (iii) Parinee Realty Private Limited (iv) Speedage Trade Limited (v) Tridhaatu Renovators Private Limited (vi) Shivshakti Realhome Private Limited - series 1 (vii) Edward Food Research & Analysis Centre Limited (viii) Shivshakti Realhome Private Limited - series 1 6.6. The Honourable DRP has erred in confirming adoption of State Bank of India (SBI) MCLR of 7.90% and credit risk premium of 1.75% for FY 2019-20 by the TPO for benchmarking the interest on NCDs on an adhoc basis. The SBI MCLR rate is not a comparable and hence the addition made is bad in law. 6.7. The Honourable DRP has err....
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....9, 2013 issued by the Central Government stipulates that the credit spread shall not exceed 500 basis points .; and (c) Annexure to ECB Framework RBI/2018-19/109 A.P. (DIR Series) Circular No. 17 dated 16.01.2019 stipulates that the credit spread shall be 450 basis points. 6.14. If for any reason SBI MCLR is not considered appropriate, the arm's length rate of interest on NCDs should be benchmarked based on SBI base rate and applicable credit risk premium as applicable in the year off issuance of NCDs. Grounds relating to transfer pricing adjustments towards premium on redemption of NCDs of INR 10,95,99,615: 6.15. The Honourable DRP has erred in confirming the learned TPO's action of determining the arm's length price of premium on redemption of NCDs as NIL. 6.16. The Honourable DRP and learned TPO have erred in (i) not giving any reasons for treating ALP of premium on redemption of NCDs as NIL; (ii) treating premium on redemption of NCDs as interest on NCDs; (iii) not appreciating that premium on redemption is to be separately benchmarked; (iv) not appreciating that the premium on redempti....
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....djusted average coupon rates of comparable companies. (ii) the comparable companies were selected after applying appropriate filters to the data of debt instruments downloaded from the NSDL website. 6.22. The Honourable DRP has erred in confirming the rejection of the following comparables by the learned TPO for the reason that the search was made in NSDL's website: (i) Aadarshini Real Estate Developers Private Limited (ii) Whispering Heights real Estate Private Limited. 6.23. The Honourable DRP and learned TPO have erred in (i) rejecting the Appellant's contention that the benchmarking of interest on CCDs is in conformity with the applicable guidelines issued by the RBI; (ii) stating that RBI guidelines are not relevant for ALP computation. (iii) not appreciating that CCDs issued by the Appellant were denominated in INR and hence should be benchmarked based on INR based lending rates. (iv) stating that currency in which loan (CCDs) are taken or re-paid is irrelevant for determining the ALP of interest on CCDs as the issuer does not have any occasion to repay the loan owing to its conversion. ....
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....tions on External Commercial Borrowings stipulates that the all-in-cost interest rate ceiling per annum for rupee denominated loans shall be benchmark rate plus 450 basis points. Grounds relating to reduction in disallowance computed under section 40(a)(i) pursuant to transfer pricing adjustment towards interest on CCDs The following ground is without prejudice to the grounds on transfer pricing adjustment towards interest on CCDs: 6.29. The disallowance made by the Appellant under section 40(a)(i) of the Act be restricted pursuant to any transfer pricing adjustment towards interest on CCDs. 7. Ground relating to disallowance under section 14A 7.1. The Honourable DRP has erred in concurring with the disallowance of INR 37,75,420 made by the AU under section 14A of the Act read with rule 8D of the Income-tax Rules, 1962. 7.2. The Honourable DRP and learned AU have erred in not appreciating that disallowance under section 14A is not attracted in the absence of exempt income. 7.3. The Honourable DRP has erred in not following the Honourable Income-tax Appellate Tribunal's (ITAT) decision in the Appellant's case for....
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....t investments made in subsidiary companies are not to be included in computing the disallowance under section 14A. 7.11. On facts and circumstance of the case and in law, the disallowance under section 14A is bad in law and liable to be deleted in its entirety. 8. Grounds relating to allowance of brought forward unabsorbed depreciation 8.1. The Honourable DRP and learned AU have erred in law and on facts in not allowing a set-off of unabsorbed depreciation amounting to INR 11,66,42,462. 8.2. The learned AU and the Honourable DRP failed to appreciate that the Appellant has unabsorbed depreciation post giving effect to the Honourable ITAT's decision in the Appellant's own case for AY 2017-18. 8.3. The learned AU failed to appreciate that: a. the Appellant had made an inadvertent error in not reporting the brought forward unabsorbed depreciation relating to the demerged business of M/s Genome Valley Tech Park & Incubators Private Limited (GVPL) for AY 2010- 11 to AY 2017-18 amounting to INR 6,20,32,977 in its revised return of income for AY 2017-18. b. the utility for filing return of income did not permit the Appe....
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....ent of Rs. 13,28,00,656/- on account of interest paid on Non-Convertible Debentures ("NCDs") and Rs. 86,88,495/- on account of interest paid on Compulsory Convertible Debentures ("CCDs"). Accordingly, the Ld. AO making certain non-TP addition, in addition to the adjustment suggested by Ld. TPO, passed the draft assessment order under section 143(3) r.w.s. 92CA(3) of the Act on 22.09.2023. 4. Aggrieved with the draft assessment order of Ld. AO, the assessee preferred objections before the Ld. DRP, which issued directions under section 144C(5) of the Act on 26.06.2024. In accordance with the directions of Ld. DRP, the Ld. AO passed the final assessment order on 19.07.2024 under section 143(3) r.w.s. 144C(13) r.w.s. 144B of the Act, making TP additions of Rs. 13,28,00,656/- on account of interest paid on NCDs and Rs. 86,88,495/- on account of interest paid on CCDs and non‑TP addition of Rs. 37,75,420/- on account of disallowances under section 14A of the Act and Rs. 11,66,42,462/- on account of disallowance of set off of unabsorbed depreciation. Accordingly, the Ld. AO computed the total income of the assessee at Rs. 12,04,17,883/-. 5. Aggrieved with the final assessment o....
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....nal High Court against the Tribunal's consolidated order for AYs 2017-18 and 2018-19. The Hon'ble High Court admitted the appeal only on the issue of disallowance under section 14A of the Act i.e. present ground no.8 of the assessee. Although the Revenue had also raised a ground relating to the benchmarking of interest paid on NCDs, the same was not admitted by the Hon'ble High Court. There was no appeal filed by the assessee on this issue before the Hon'ble High Court. Consequently, the issue of benchmarking of interest paid on NCDs as decided by this Tribunal in assessee's own case for AYs 2017-18 and 2018-19 (supra) has attained finality. 10. The Ld. AR further submitted that, under ground no.6, the assessee has raised two issues i.e. (a) addition made on account of interest paid on NCDs and (b) addition made on account of interest paid on CCDs. As far as the issue of addition made on account of interest paid on NCDs is concerned, the Ld. AR submitted that the assessee had issued NCDs in 2016 to DB International (Asia) Ltd., Singapore ("lender"), and paid an aggregate sum of Rs. 24,55,75,315/- comprising interest of Rs. 13,59,75,700/- at 11% and redemption premium of Rs. ....
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....e provisions of section 92A (2) (c) of the Act, and no benchmarking is permissible. In this regard, we find that identical issue has been decided by this Tribunal in assessee's own case for AYs 2017-18 and 2018-19 (supra), wherein at para nos. 15 to 16.1, this Tribunal has dealt with the issue as under : 15. We have heard the rival contentions of the parties and perused the material available on record. The assessee in the present appeal has raised the grounds and objections that M/s. DB International (Asia) Limited cannot be considered as AE for the reason mentioned herein above. As per section 92A(2)(c) of the Act, when one enterprise advances loan to another and such loan constitutes more than 51% of the total book value of the assets of the other enterprises, then, the enterprises (M/s. DB International (Asia) Limited) shall be deemed to be the associated entity of the assessee. Undoubtedly, M/s. DB International (Asia) Limited had invested the amount as an advance/loan in the form of equity which is more than 51% of the total book value of the assets, hence, we do not find any error in the application of the transfer pricing regulations to the subject transaction. How....
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.... by M/s. DB International (Asia) Limited in the NCDs of the assessee. Though a cursory look of the transaction and the submission of the assessee appears to be correct that the point of determination would be prior to entering into agreement and not thereafter, however, this view is not correct for the following reasons. In this regard, we may reproduce the provisions of section 92A of the Act which read as under: 92.A. (1) For the purposes of this section and sections 92, 92B, 92C, 92D, 92E and 92F, "associated enterprise", in relation to another enterprise, means an enterprise- (a) which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise; or (b) in respect of which one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise. (2) ^90[For the purposes of sub-section (1), two enterprises shall be deemed to be associated ent....
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....y such individual and relative of such individual; or (k) where one enterprise is controlled by a Hindu undivided family, the other enterprise is controlled by a member of such Hindu undivided family or by a relative of a member of such Hindu undivided family or jointly by such member and his relative; or (I) where one enterprise is a firm, association of persons or body of individuals, the other enterprise holds not less than ten per cent interest in such firm, association of persons or body of individuals; or (m) there exists between the two enterprises, any relationship of mutual interest, as may be prescribed. 16.1. Section 92A(2) provides that two enterprises shall be deemed to be associated enterprises if at any time during the previous year any condition mentioned in sub-clause (2) is fulfilled. The legislature had deliberately used 'at any time' during the previous year for the purpose of determining the status of an enterprise as AE, if at any time either prior to or thereafter of entering into transactions, the condition is fulfilled. Thus, the contention of the assessee that the status of the enterprise should be examined before enterin....
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....arables selected by the Assessing Officer were excluded by the DRP on the pretext that the NCDs were subscribed by the related parties. As held hereinabove, Gujarat Road Infrastructure Company Limited cannot be compared with the assessee for the reasons mentioned hereinabove and therefore, there is no comparable available with which the rate of the assessee can be compared as DRP has also not relied upon TP Study of TPO as well as assessee for the reasons "in conclusive". In this scenario, we deem it appropriate to take a guidance from the Safe Harbour Rule and Section 194 LD and hold that 12.275% interest rate (SBI base rate +300 basis points) would be the appropriate ALP for the purposes of benchmarking the interest paid by the assessee on NCD to M/s. DB International as against 13.13%. Thus, the ground nos. 2 to 8 of the assessee are partly allowed. 12.4 On perusal of above, we find that this Tribunal has adopted a consolidated rate of 12.275% for interest and redemption premium of NCDs including grossing up of TDS, considering safe harbour rules and section 194LD of the Act. Therefore, respectfully following the same and applying the principle of consistency, we direct the L....
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....ch is significantly lower than the SBI PLR, it was contended that the transaction is at arm's length and therefore, no adjustment is warranted. 13.1 In their alternate contention, the Ld. AR further submitted that the assessee had not deducted tax at source on the payment of interest on CCDs. Consequently, while computing its taxable income, the assessee itself disallowed the said expenditure under section 40(a)(i) of the Act. Reference was drawn to the computation of income placed at page no.38 of the paper book. It was further pointed out that in subsequent years, no deduction was claimed since the lender had waived the interest. Hence, as the assessee has not been allowed any deduction, no transfer pricing adjustment can be made on such disallowed expenditure. In support, reliance was placed on the decision of the Coordinate Bench of Tribunal in Eaton Technologies Pvt. Ltd. v. DCIT (ITA No.1621/PN/2011, AY 2007-08, order dated 11.01.2013), wherein the Tribunal held that where the assessee had suo motu added back certain expenditure while computing its taxable income and had not derived any benefit either by capitalising it or by claiming depreciation, no adjustment could ....
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....wer the question referred to for the Special Bench as under : Whether as regards TP adjustment made in respect of interest paid / payable on FCCDs / NCDs / other debentures, which are denominated in Indian currency the benchmarking is to be made by applying PLR as against LIBOR?" (i) Yes, in favour of the assessees. (ii) Interest paid / payable on FCCDs / NCDs / other debentures, which are denominated in Indian currency to be bench marked by applying PLR rates. 15.1 On perusal of above, we find that the Special Bench of Tribunal has categorically held that if the CCDS are denominated in Indian Currency, the arm's length rate of interest has to be determined with reference to the SBI PLR rates and not international LIBOR rates. This view has been consistently followed by this Tribunal in subsequent decisions, including Sanchore Renewable Pvt. Ltd. Vs. DCIT (supra), wherein it was held that interest on CCDs should be benchmarked with SBI PLR. In the present case, there is no dispute about the facts that the CCDs issued by the assessee are not denominated in Indian Currency. Therefore, respectfully following the decision of Special Bench of Tribunal in the case of Hyderabad I....
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....e assessee. 17. Per contra, the Ld. DR relied on the order of the Ld. AO/TPO. 18. We have heard the rival submissions and perused the material available on record. It is not in dispute that the assessee has not earned any exempt income during the year under consideration. Further, we have gone through the para nos.44 to 45 of the order of this Tribunal in assessee's own case for A.Ys. 2017-18 & 2018-19 (supra), which are to the following effect : 44. We have heard the rival submissions and perused the material on record. It is the settled principle of law that the disallowances u/s. 14A of the Act read with Rule 8D of the Rules cannot exceed the amount of exempt income. In the case of Pr. CIT Vs State Bank of Patiala, (2018) 99 taxmann.com 285, the Hon'ble Supreme Court, while dismissing SLP filed by the Revenue against order of the Hon'ble Punjab & Haryana High Court in the case of Pr.CIT Vs State Bank of Patiala, held that disallowance u/s. 14A has to be restricted to amount of exempt income only. The Hon'ble High Court of Madras in the case of Marg Ltd Vs. CIT (2020) 120 Taxmann.com 84, has taken a similar view and held that disallowances under section....
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..... Era Infrastructure (India) Ltd. [2022] 141 taxmann.com 289/288 Taxman 384 (Delhi) has dealt with the issue of amendment made by the Finance Act, 2022 to Section 14A of the Act. The relevant portion of the said judgment is reproduced hereinbelow: "8. Consequently, this Court is of the view that the amendment of Section 14A, which is "for removal of doubts" cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood." 44.3 Similarly, the Special Bench of the Tribunal in the case of ACIT Vs. Vireet Investment P. Ltd., (2017) [165 ITD 27] (Delhi) (SB) has held as under : "11.16 Therefore, in our considered opinion, no contrary view can be taken under these circumstances. We, accordingly, hold that only those investments are to be considered for computing average value of investment which yielded exempt income during the year." 44.4 In the present case, no exempt income has been earned by the assessee from the investment made by it and therefore, no disallowance can be made by the Assessing Officer. Therefore, respectfully following the judgments of the Hon'ble Delhi High Court, Pu....
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....O to allow the set-off and carry forward of such depreciation in accordance with section 72A. 20. Per contra, the Ld. DR relied on the order of the Ld. AO/TPO. 21. We have considered the rival submissions and perused the material available on record. As far as the first contention of the assessee is concerned, it is an admitted position that the Ld. AO has not granted set-off of unabsorbed depreciation on the reasoning that the assessee had claimed such set-off in subsequent assessment years. In our considered view, this approach of the Ld. AO is not in accordance with law. As per the settled principle, the set-off of unabsorbed depreciation is to be allowed in chronological order, i.e., from the earliest year of availability, and not postponed at the discretion of the assessee or the Revenue. Further, while determining the quantum of unabsorbed depreciation available for set-off in the impugned year, the Ld. AO is duty-bound to give due effect to the orders of this Tribunal in the remand proceedings, as they directly impact the computation of available depreciation. We, therefore, direct the Ld. AO to recompute the balance of unabsorbed depreciation after giving effect to th....
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....ompliance by 15.09.2023) and the show cause notice dated 21.09.2023 (requiring compliance by 26.09.2023) in violation of the Standard Operating Procedure dated 03.08.2022 issued by the Central Board of Direct Taxes ('CBDT') in not granting seven days to furnish a response to the same. The consequent passing of the assessment order is therefore bad in law and is to be therefore quashed. 4. Ground relating to charge of Income-tax 4.1. The lower authorities have erred in not appreciating that, the addition made to the income returned is bad in law as the charging or computation provision relating to income under the head "Profits & Gains of Business or Profession" do not refer to or include the amounts computed under Chapter X. 5. Ground relating to tax evasion 5.1. The lower authorities have erred in passing the order without demonstrating that the Appellant had any motive of tax evasion. 6. General grounds relating to transfer pricing adjustments 6.1. The DRP has erred in incorrectly confirming the following adjustments made to the total income by the TPO under section 92CA of the Act: (a) Interest on Rupee denom....
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....of State Bank of India (SBI) MCLR of 7.90% and credit risk premium of 1.75% for FY 2019-20 by the TPO for benchmarking the interest on NCDs on an adhoc basis. The SBI MCLR rate is not a comparable and hence the addition mad eis bad in law. 6.7. The Honourable DRP has erred in not considering the objection raised by the Appellant regarding action of the learned TPO in computing the arm's length rate of interest of NCDs without appreciating that: (a) the information regarding MCLR rate obtained under section 133(6) from the SBI was not provided to the Appellant; and (b) no opportunity was given to cross examine or rebut the information provided by SBI under section 133(6). 6.8. On facts and circumstances of the case, the Appellant's benchmarking of interest on NCDs should be accepted. Without prejudice to the above: 6.9. The lower authorities have erred in not considering the year of issuance of NCDs, tenure of the NCDs, frequency of interest payment and credit rating of NCD issue, in determining the arm's length rate of interest on NCDs. 6.10. The lower authorities have erred in not following the decision of ....
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....The Honourable DRP and learned TPO have erred in (i) not giving any reasons for treating ALP of premium on redemption of NCDs as NIL; (ii) treating premium on redemption of NCDs as interest on NCDs; (iii) not appreciating that premium on redemption is to be separately benchmarked; (iv) not appreciating that the premium on redemption was paid by the Appellant based on the terms in the debenture trust deed determined at the time of issuance of NCDs between the Appellant and the subscriber (DB international), which terms have not been disregarded since inception; (v) not appreciating that the terms of issuance of NCDs were decided when DB International had not become an associated enterprise of the Appellant. (vi) considering the entire redemption premium for the benchmarking exercise in one year. 6.17. Without prejudice to the above, the Honourable DRP and learned TPO have failed to appreciate that premium on redemption of NCD if treated akin to interest should have been benchmarked at SBI MCLR applicable for NCD having credit rating of - BB (SO) and appropriate credit risk premium after taking guidance from safe harbour ....
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....ellant's contention that the benchmarking of interest on CCDs is in conformity with the applicable guidelines issued by the RBI; (ii) stating that RBI guidelines are not relevant for ALP computation. (iii) not appreciating that CCDs issued by the Appellant were denominated in INR and hence should be benchmarked based on INR based lending rates. (iv) stating that currency in which loan (CCDs) are taken or re-paid is irrelevant for determining the ALP of interest on CCDs as the issuer does not have any occasion to repay the loan owing to its conversion. (v) stating that benchmarking exercise carried out by the Appellant is not in conformity with Rule 10B(2) of the IT Rules, 1962. 6.25. The Honourable DRP has erred in confirming the learned TPO's action of determining arm's length rate of interest on CCDs using London Interbank Offered Rate (LIBOR). 6.26. The learned TPO has erred in adopting LIBOR for benchmarking interest on CCDs: (i) on the ground that the subscriber of CCDs is a foreign company; (ii) on an adhoc basis and without identifying any comparables; (iii) after incorrectly disting....
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....an amounting to INR 8,46,00,000 advanced by it to its subsidiary. The addition being bad in law deserves to be deleted. 7.2. The learned AU has erred in not appreciating that (a) the loans were advanced by the Appellant to its subsidiary on account of commercial expediency. (b) the Appellant did not charge any interest on the loans extended to its subsidiary. 7.3. The learned AU has made the impugned addition of INR 1,01,52,000 without identifying any comparables. 7.4. The learned AU has failed to appreciate the fact that the Act provides for taxing only real income under the normal provisions of the Act. Prayer (a) The Appellant prays that directions be given to grant all reliefs arising from the grounds of appeal mentioned supra and all consequential relief thereto. (b) Each of the grounds of appeal and the sub-grounds raised by the Appellant herein are independent without prejudice to each other. The Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal. (c) The Appellant prays ac....
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....ere is a real accrual of income in the hands of the assessee and obligation to pay the same on the part of MN Science. Further reliance was placed on CIT Vs. Dalmia Cement Pvt. Ltd. (254 ITR 377), wherein it was held that commercial expediency lies within the domain of the assessee, and business decisions are not to be substituted by the Revenue. Accordingly, the Ld. AR prayed before the bench to delete the addition made by the Ld. AO. 27. Per contra, the Ld. DR relied on the orders of revenue authorities. 28. We have considered the rival contentions and gone through the material available on record. It is an undisputed fact that the assessee had advanced funds to its subsidiary for strategic business purposes. There is no agreement or stipulation under which the assessee is entitled to receive interest. As held by the Hon'ble Supreme Court in Excel Industries Ltd. (supra), only real income can be brought to tax and not hypothetical or notional income. In the present case, neither any income has been accrued in the hands of the assessee, nor any obligation has been created on the part of MN Scinece. Therefore, there is absence of real income in the present case. Further, ....