TaxTMI 
TaxTMI 
2026 (1) TMI 1104
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....s. 2013-14 to 2015-16 and order passed u/s 143(3) r.w.s. 144C(3) of the Act for A.Y. 2016-17, all the assessment orders were passed on 23/01/2019. 2. Considering the appeal record we find that the Ld.CIT(A) passed a combined order related to A.Ys 2012-13 to 2016-17. The appeals filed by the revenue and cross objection filed by the assessee only related to A.Ys 2013-14 to 2016-17. No appeal is filed related to AY 2012-13. All the appeals and the cross objections have same nature of facts and have common issues. So all the appeals and cross objections are taken together, heard together and disposed of by a common order. ITA No.1486/Mum/2023 & C.O. 57/Mum/2023 for A.Y. 2013-14 are taken as lead case. ITA No.1486/Mum/2023 3. The revenue has raised the following grounds:- "1. On facts and circumstances of the case and in law the Id. CIT(A) Tax has erred in deleting the Transfer Pricing adjustment on account of difference between the interest paid by the assessee to its AE and its Arm's Length Price. 2 On facts and circumstances of the case and in law the CIT(A) Tax has erred in holding that the interest paid by the assessee during the year was at arm's....
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.... Pecuniary jurisdiction of assessing officer (application U/R 27 of Income Tax(Appellate Tribunal) Rule, 1963 on dated 02/11/2023) 5. The Learned Authorised Representative ("Ld. AR") advanced his arguments and filed a written submission, which has been taken on record. The assessee has raised additional grounds challenging the jurisdiction of the Deputy Commissioner of Income-tax, Central Circle-6(2), Mumbai, in completing the assessment. The Ld. AR submitted that the assessee had declared a loss of Rs. 8,65,13,046/- in the return of income, and therefore the assessee's case squarely falls within the purview of CBDT Instruction No. 1/2011 dated 31/01/2011. According to the said Instruction, the pecuniary jurisdiction in such cases lies with the Income-tax Officer. Consequently, the assessment order passed by the Deputy Commissioner of Income-tax is without jurisdiction and liable to be quashed. In support of this contention, he placed reliance on the judgment of the Hon'ble Calcutta High Court in PCIT-1, Kolkata v. Shree Shoppers Ltd., reported in 2023 (3) TMI 1432 (Cal) & order of Hon'ble High Court of Bombay in Ashok Devichand Jainv. Union of Indiareported in [2023] 151 taxma....
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....rom contending that the notices were void at the same time, the Court is not unmindful of the fact that two stages are separate. The substantiality of prejudice for lack of reasons or otherwise has to be independently considered given the fact of each cases. In the present case it is not as if the notice did not contain the reasons at all. The assessee's contentions that the notice did not contain reasons is fallacious, the reference to search and seizure operations and the proposal to centralize the cases in Ghaziabad cannot be considered no reasons. If these had been omitted, the assessee's would have been within their rights that the notices did not contain reasons. The assessee's were fully aware of the search and seizure operations and the fact that its premises in Ghaziabad too were subject to such proceedings. Having regard to all these facts, the Court hereby rejects the first contention that the ingredients of the notice did not exist when the proposal to transfer was first notified to these assessee's. 9 As far as the rationale to transfer, ie, conduct of coordinated post search investigation and meaningful assessment goes, we are of the opinion that like in the ....
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.... centralization. The Court emphasized that Section 127(1) mandates the Commissioner to exercise this authority only after affording the assessee a reasonable opportunity of being heard and recording reasons for such transfer. This emphasizes the procedural fairness and legitimacy integral to the transfer process. Importantly, the High Court observed: "We may only observe that the transfer order passed under Section 127 of the Act is more in the nature of an administrative order rather than a quasi-judicial order and the assessee cannot have any right to choose his Assessing Authority, as no prejudice can be said to have been caused to the assessee depending upon which authority of the department passes the Assessment Order. The assessee can only be concerned with getting an opportunity of hearing before the concerned Assessing Authority and adduce his evidence and make his submissions before the concerned Assessing Authority." 2.2.1 This observation underscores that the essence of the transfer order is administrative in nature. The assessee's primary entitlement is to a fair hearing and the opportunity to present evidence and submissions. Irrespective of the A....
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....incriminating material. This legal issue was duly raised before the Ld. CIT(A), who has examined and adjudicated the matter at page 18 of the appellate order. The relevant paragraph from page 18 of the impugned appellate order is reproduced below: "The appellant has relied upon the decisions in the cases of CIT vs. Continental Warehouse Corporation (2015) 374 ITR 645, CIT Vs Gurinder Singh Bava 79 taxmann.com 398 (Bom), CIT Vs Continental Warehousing Corporation (Nhava Sheva) Ltd 5 TMI 656 (Bom) and Jasmin K. Ajmera (ITA no. 983/Mum/2020. The decision relied upon by the appellant talks about incriminating evidence or incriminating material found during search action and not merely 'seized material' or 'seized documents'. During the search proceedings, it was revealed that the Ekta group was involved in taking "On-money' on sale of flats/shops in the projects constructed by the group. In the case of the appellant, page no. 18 of Annexure-A4 seized from residence of Shri Parteek Arora, contained specific details of taking On-money in cash in respect of sale of flat no. B-1203 and B- 1205, Tripolis Project, Goregoan. Mumbai. In view of the facts and circumstances....
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.... was challenged before the Ld. CIT(A). The Ld. CIT(A) observed the only the profit percentage will be applicable for addition. The observation of the Ld. CIT(A) is reproduced as below:- "17.3.5 The another argument made by the appellant is that only income embedded in the gross receipt should be added instead of gross amount mentioned in the incriminating documents. It is a fact that the appellant is engaged for the business of builder and developer. The incriminating documents contained the details of receipt of On-money in cash in respect of sale of flats in project Tripolis at Goregaon. The AO has made addition on the basis of receipt mentioned in page no.18 of annexure A4 seized during the search proceedings. The search was conducted by the department in the case of entire Ekta Group' including employees During the search in the group cases various incriminating documents have been seized. Other cases of group were subjected to search assessment in other group cases, on the basis of the analysis of entire documents seized dunng the search proceedings, the ITAT Mumbai has held that the net income element embedded in the on money receipts could safely be taken in the....
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....mission and was in no way binding on the other case which were not before it. At the same time, it was observed by the CIT(A) that the percentage of profit offered by the group concerns before the ITSC and accepted by the latter could be taken as a guiding factor. in the backdrop of the aforesaid observation of the CIT(A), we are of the considered view that she in all fairness for the purpose of estimating the income element embedded in the on-money receipts could have safely taken it at the same figure @ 15% of the amount of onmoney receipts as was accepted by the ITSC. Our aforesaid conviction is all the more supported by the fact that no reason or logic had been given by the CIT(A) for taking the income element embedded in the on-money receipts 20%. We, thus, are of the considered view that the net income element embedded in the on money receipts can safely be taken in the case of the captioned assessee @15% of the amount of the on-money receipts. The Ground of appeal No. 2 raised by the assessee is partly allowed in terms of our aforesaid observations..." Thus, looking to the facts of the case of the appellant vis-à-vis group cases of Ekta Group, entire gross On....
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....f that be the legal position, what should be estimated as a reasonable profit out of such receipts, must bear an element of estimation. 15. In view of the legal position that not the entire receipts, but the profit element embedded in such receipts can be brought to tax, in our view, no interference is called for in the decision of the Tribunal accepting such element of profit at Rs. 26 lakhs out of total undisclosed receipt of Rs. 62 lakhs. In other words, we accept the legal proposition, the Tribunal accepting Rs. 26 lakhs disclosed by the assessee as profit out of total undisclosed receipt of Rs. 62 lakhs, would not give rise to any question of law. In the result, the tax appeals are dismissed." 15. The Ld. DR argued that the Ld. CIT(A) erred in adjudicating the issue and in restricting the addition to 15% of the gross cash received by the assessee from the sale of flats. She placed reliance on the order of the Coordinate Bench of the ITAT, Mumbai, in Alik Akbar Samai Choudhuri, ITA No. 455/Mum/2024, pronounced on 17/05/2024, wherein the Bench confirmed the addition of 100% of the on-money amount under section 69 of the Act. 16. We have heard the rival submissions....
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....ade provision for payment of interest on delayed payment of service tax. The provision was made as per the requirement of the service tax Act. The provision was in fact subsequently paid on 08 11 2013 and a balance provision was returned back and other for laxation in AY 2014-15 Thus the provision of ere was not contingent but it was an ascertained liability Therefore the disallowance of Rs 11.34,400- made by the AD in respect to provision for interest on delay payment of service taxis deleted Accordingly, ground no 2 of the appeal is Allowed" 17. The Ld.AR argued and respectfully relied on the order of Hon'ble Supreme Court of India in Lachmandas Mathuradasv. CIT reported in [2002] 122 Taxman 828 (SC). The relevant para 3 is extracted below:- "3. While granting special leave to appeal, the appeal has been confined to question Nos. 1 and 2 only. The High Court has proceeded on the basis that the interest on arrears of sales tax is penal in nature and has rejected the contention of the assessee that it is compensatory in nature. In taking the said view the High Court has placed reliance on its Full Bench's decision in Saraya Sugar Mills (P.) Ltd. v. CIT [197....
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....ee. The Ld. CIT(A) has taken the observations at para 38 on pages 46, which is extracted below:- "38. Ground No.2 is regarding addition of Rs 44,72.989/- in respect of bogus purchases and reducing the same from WIP. 38.1 During the assessment proceedings, the AO observed that during the search proceedings the statement of Sh. VivekMohnani Joint MD of the Ekta Group was recorded on 12.10.2015, in which he had admitted that the purchases of Rs 44.72.989 made from Singular Mercantile Pvt Ltd was bogus. Therefore the AO issued show cause notice as to why addition of bogus purchases should not be made in response to the show cause notice, the assessee submitted that these expenses were not claimed as expenses in the P&L account and was carried forward to WIP Therefore, it was submitted that this could not be taxed as income. However the AD was of the view that the reduction of bogus purchase from WIP in A,Y.2017-18 is not correct accounting treatment Further these purchases were admitted as bogus during the search proceeding Therefore, the AD has reduced the bogus purchases amounting to Rs 44,72.989 from the closing WIP and closing WIF amounting to Rs 612.93.00.948 was....
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....of this in A.Y 2017-18." 21. The Ld.AR argued and stated that the entire bogus purchases will not be added back to the total income and only the proportionate gross profit will be added back. Considering this, he respectfully relied on the orders of ITO 41(1)(3), Mumbai vs Mulchand Ramajor Gupta 2025 (6) TMI 139 (ITAT, MUMBAI); ACIT vs Vijay Security Systems P Ltd 2025 (6) TMI 473 (ITAT, MUMBAI) and further relied on ITO vs M/s Mangalam Drugs & Organics Ltd, Mumbai reported in 2025 (5) TMI 1703 (ITAT, MUMBAI) where the co-ordinate bench has taken view that the entire purchases was not added back with the total income. Only the proportionate gross profit will be added back. 22. The Ld.DR argued and stated that the director of the assessee company has duly accepted the bogus purchases. No substantial evidence was submitted before the Ld.AO in support of his claim. She further respectfully relied on the order of the Hon'ble HIGH Court of Bombay in PCIT v. Kanak Impex (India) Ltd., reported in [2025] 172 taxmann.com 283 (Bombay) where the Hon'ble High Court has added back the entire purchases with the total income of the assessee. The relevant paragraph is reproduced as below:- ....
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....CA(3) toward interest amount to Rs. 3,32,55,122/-. The said adjustment was duly made in the WIP of the assessee. The assessee received the amount from sister concern out of India and interest paid by the assessee to AE is at arm's length price (ALP). The Ld.AO, after the TP study has taken SBI PLR as comparable rate which was increased by 75 basis point considering credit rating of the assessee and the risk involved. The Ld.AO has benchmarked the interest rate at 15.5% as against interest rate of 17.19% taken by the assessee. The aggrieved assessee filed appeal before the Ld.CIT(A). The Ld.CIT(A) considered that SBI PLR rate could be taken as comparable to determine the ALP of the interest paid on CCD to AE. The assessee had issued CCD amounting to Rs. 134,95,10,000/- to SA Chitra Ventures Ltd, who was based in Cyprus, The debentures were issued in 4 tranches in A.Ys. 2011-12 and 2012-13 and the rate of interest was 19.17% per annum. The assessee benchmarked the transaction using Bloomberg and FCMDA data base. The assessee benchmarked the transaction considering US Industrial Yield which was adjusted with respect to Indian Industrial Yield. The assessee also took the fluctuation ri....
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.... 01.04.2013 in the case of the appellant, the variation between the ALP determined by the TPO and that taken by the appellant is 1.42% A.Yr. 2012-13 and it is within acceptable range of 5% of the price of international transaction actually undertaken by the appellant. Thus, the rate of 19.17% of interest paid on CCD should be the ALP, therefore, no adjustment in the transaction paid the interest paid to AE on CCD is warranted. Therefore, the adjustment of Rs 1.31.10.958/- made by the TRO as well as the AO is deleted. As a consequence the reduction in the closing WIP amounting to Rs 1,31,10,358/- is also deleted." 26. The Ld.DR submitted the written submission dated 24/04/2024. Para 4 of the same is duly extracted below:- "4. Transfer Pricing Issue: The decision of Ld. CIT(A) not acceptable on following grounds: 4.1. The assessee used CUP method for benchmarking and considered USD industrial yields pertaining to the US economy and not of India. The assessee did not make any efforts to find out the interest rate of CCDs issued in India and also assessee issued CCDs in Indian rupees and hence the appropriate comparable has to be taken which is applicable ....
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....r proviso 2 of section 92C: "Provided further that the variation between the arm's length price so determined and price at which the international transaction or specified domestic transaction has actually been undertaken does not exceed such percentage not exceeding three percent of the latter, as may be notified by the Central Government in the Official Gazette is this behalf, the price of which the international transaction or specified domestic transaction has actually been undertaken shall be deemed to be the arm's length price" 4.7. A stand can be taken that the variance of 5% should be calculated based on the actual transfer price determined on a variable basis and not on absolute basis. eg. If the ALP is determined 17.75% then 5% variance should be considered as 17.75%-5% ie. 17.75* 1.05=18.6375% and 17.75*0.95=16.8625% Therefore, interest rate within the above range should be considered rather than 22.75% and 12.75%. The intent of law should have been considered while interpreting the above provision." 27. The Ld.AR argued and respectfully relied on the order of the Ld.CIT(A). The Ld.AR filed the written submission. T....
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.... points over it was reasonable and on the arm's length, particularly when the same was permissible under Foreign Exchange Control Regulations. The AO/TPO, however, restricted the interest rate to 12.25% The variance in the rate of interest as per TPO/AO to be adjusted and added was 3.75% which was within the permissible range of 5% as permitted by second proviso to Section 92C(2) of the Act. It is also relevant to point out that the percentage of 3% in the aforesaid proviso has been inserted by the Finance Act, 2012 wef 01.04.2013 and prior to that amendment, this percentage was at 5%. 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 by the AO/TPO. As such on merit also, no addition could have been made." The appellant's interest rate of 19.17% is within the tolerance band of (+/-)5% from SBI PLR of 14.75% as stipulated in section 92C(2) of the Act. 4. Further, as regards the tolerance band of (+/-)5% the learned CIT(DR) in her written submission has argued that the same is not a blanket entitlement and the same should be considered only for the purposes of minor var....
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....nsidered by the Coordinate Bench of ITAT, Mumbai in the case of The Development Bank of Singapore (supra) wherein it was held that the second proviso has to be read distinctly from the 1st proviso and the words "so determined in the 2nd proviso should apply to ALP determined under the main sub-section (2) by which the tolerance band also becomes available where only one price is determined us ALP. The relevant extract from the decision of the Coordinate Bench of ITAT, Mumbai (supra) is reproduced for ease of reference: "11. At this juncture, we consider it expedient to note that the alive quoted proviso to section 92C(2) has been substituted by the Finance (No.2) Act 2009 wef 1.10.2009 with two provisos. The first proves states that Provided that where more than one price is determined by the most appropriate method the arm's length price shall be taken to be the arithmetical mean such prices: As per the second proto if the variation between the arm's length price in determined and price at which the international transaction has actually been undertaken does not exceed the specified percentage of the latter, the prior at which the international transaction her act....
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...., on applying the tolerance band of (+/-)5% to the SBI PLR rate of 14.75%, the same is at ALP and there cannot be any addition on this ground whatsoever. 9. ITAT in various judgement has held that SBI PLR 300 basis points is ALP. We place our reliance on the judgement of Granite Gate Properties Pot. Ltd.. C/O SanjivSapra& Associates LLP Versus Asstt. Commissioner Of Income Tax, Central Circle-6, New Delhi, 2018 (5) TMI 1774- ITAT DELHI, relevant para is herein reproduced below. "27. On merit also, the AO/TPO made the addition on account of differential rute of interest on FCCDs. The assessee applied the interest rate on the basis of SBI PLR rate plus 300 basis points for the reasons that the FCCDs being unsecured and hybrid/quasi equity instrument as compared to plain vanilla loan instrument Therefore, the SBI PLR plus 300 basis points over it was reasonable and on the arm's length, particularly when the same was permissible under Foreign Exchange Control Regulations. The AO/TPO, however, restricted the interest rate to 12.25% The variance in the rate of interest as per TPO/AO to be adjusted and added wa 3.75% which was within the permissible range of 5% as pe....
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....tated that instruments under consideration are Fully Compulsorily Convertible Debentures (FCCDs), which by their very nature are hybrid instruments and not plain vanilla debt. Unlike standard borrowings, FCCDs compulsorily convert into equity after a specified period, thereby exposing the investor to a higher level of equity risk in addition to credit risk. A lender in the case of a simple loan transaction is assured of repayment of principal with interest, and therefore benchmarks such as the SBI (PLR) are appropriate. However, in the case of FCCDs, there is no redemption in cash, the investor ultimately becomes an equity shareholder. This means the investor's return depends on the performance and valuation of the company at the time of conversion and that too risk involved in the appellant's case is even higher being a real estate company. The element of uncertainty, illiquidity, and equity market risk makes FCCDs economically distinct from loans. Consequently, SBI PLR, which represents the base lending rate for secured, standard loans to prime customers, cannot be applied as an arm's length benchmark. Applying PLR would ignore the additional risks borne by t....
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....acter of the payments made during the pre-conversion period. A recent and pertinent decision comes from the Bangalore Bench of the ITAT in CAE Flight Training (India) Pvt. Lal vs. DCIT" Attached herewith and marked as annexure 14). In that case, the issue was whether interest paid on CCDs could be disallowed by recharacterizing the CCDs as equity. The TPO there had argued that CCDs were equity in nature (being compulsorily convertible) and hence no interest should be allowable at all (treating it akin to dividend). The ITAT emphatically rejected that approach and held that until conversion, CCDs are to be treated as debt and interest on them is allowable as interest." 29. We have carefully considered the rival submissions, the written arguments placed on record, and the orders of the revenue authorities. The limited issue before us is whether the Ld. CIT(A) was justified in deleting the transfer pricing adjustment of Rs. 1,31,10,958/- towards interest on CCDs issued to the AE. The material facts remain undisputed. The assessee issued fully compulsorily convertible debentures (CCDs) to its AE in earlier years and paid interest at 19.17%. The Ld. TPO adopted SBI PLR plus 75 basis ....