TaxTMI 
TaxTMI 
2026 (5) TMI 289
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....("ECBs") and making an upward adjustment of INR. 62,88,86,271/- 1.1. The learned TPO/ AO has erred in determining a transfer pricing adjustment on account of the interest on ECB amounting to INR. 62,88,86,271. 1.2. The learned TPO/ AO has erred in disregarding the benchmarking conducted by the Appellant without providing any cogent reasons for rejecting the same 1.3. The learned TPO/AO erred in undertaking a fresh search on Bloomberg database by applying incorrect filters and not considering appropriate adjustments. 1.4. The learned TPO/ AO erred in determining the ALP without verifying the nature of search results and by not undertaking the requisite steps to complete the benchmarking process. 1.5. The learned TPO/AO has erred in disregarding the corroborative analysis conducted by the Appellant without providing any cogent reasons for rejecting the same. 1.6. The learned TPO/AO has erred in disregarding the rule of consistency in the Appellant's case. 1.7. Without prejudice to the above, the learned TPO/ AO has erred in disregarding that the interest rate adopted by the Appellant should be benchmarked taking into ....
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....er Pricing Addition in relation to IT Segment, ITeS Segment and interest on receivables were coved by the APA, no directions were issued by the DRP in this regard. Thus, the DRP, in effect, only issued directions in relation to TP Adjustments made in respect of interest on ECB. After considering the submissions advanced by the Assessee in this regard, the DRP granted partial relief while disposing the objections vide Order, dated 25/09/2025, passed under Section 144C(5) of the Act. The TPO revised the TP Addition in respect of ECB from INR. 75,39,13,371 to INR. 62,88,86,271/- vide order dated 22/01/2024. Thereafter, the Assessing Officer passed final Assessment Order, dated 24/10/2024, making Transfer Pricing Addition of INR. 62,88,86,271/- in respect of interest on ECB. 6. Being /aggrieved, the Assessee has preferred the present appeal before the /Tribunal on the grounds reproduced in Paragraph 2 above which are taken up hereinafter in seriatim. Ground No.1.1 to 1.7 7. Ground No.1.1 to 1.7 relates to re-computing the arm's length price ("ALP") for the international transaction relating to payment of interest on External Commercial Borrowings ("ECBs") and making an upw....
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.... 01 and October 01 and the interest is paid semi-annually. The economic analysis for the interest paid during the period 01/04/2020 to 16/03/2021 is discussed below: 7.2.1.1 Choice of tested party For the international transaction under consideration, GSSPL has been chosen as the tested party due to the fact that it does not own any significant intangible and its profitability can also be reliably ascertained. 7.2.1.2 Applicability of the prescribed methods Please refer para 4.2.2 above. The international transaction under examination involves interest paid for ECB. 7.2.1.3 Relevant Data In addition to other factors such as nature of transaction, degree of comparability, etc. one of the key criteria for determination of the most appropriate method is the availability, coverage and reliability of data necessary for application of the method. Accordingly, to determine whether any one of the transfer pricing methods can be applied, the availability, coverage and reliability of data necessary for application of the method is important. Accordingly, comparable data was identified. The details of the same have been provided b....
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....transaction, the use of CUP method (over other methods) would provide a more accurate result of ALP. Based on the above discussion, the CUP method was considered as most appropriate method to benchmark the above transaction. 7.2.1.4 Selection of comparable period xx xx Accordingly, all the loan transactions entered during the financial year 1 April 2015 to 31 March 2016 were considered for the purpose of analysis. 7.2.1.5 Search process xx xx 7.2.1.6 Selection of comparables xx xx The above stated transactions were analyzed for data such as amount of loan, period of loan, rate of interest etc. Thereafter, out of 6,133 borrowings analyzed 6,126 borrowings were rejected on one of the following reasons: * Insufficient information specially pertaining to rate of interest; * Only approximate rate of interest provided; * Fixed interest rate; * Interest rate not denominated in USD LIBOR; * Duplicates; * Controlled ....
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....a. amounting to INR. 79,81,576. The economic analysis for the interest paid during the period 17 March 2021 to 31 March 2021 is discussed below: 7.2.2.1 Choice of tested party xx xx 7.2.2.6 Selection of comparables The CUP analysis involved searching for comparable loans. A search was conducted using data available in Loan Connector and Eikon (Loan and Bond data) to find comparable debt issues. The search conducted resulted in identification of a total of 27,572 issuances as explained above. The following screening criteria in Loan Connector and Eikon database was used to arrive at appropriate comparables: * Time Period: Issuances between 1st April 2020 and 31 March 2021 were selected. * Currency - Since the loan under consideration was a USD denominated loan, we have considered issuances that were issued in USD currency After applying the above-mentioned quantitative screening criteria, the database produced 13.065 Issuances. Further analysis involved application of the following search criteria: * Dissimilar borrower country: Considering that the borrow....
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....six, the arm's length range shall be beginning from the 35th percentile of the dataset and ending on the 65th percentile of the dataset as computed below: S. No. Company name Amount (in millions) Interest rate 1 Reliance Industries Ltd. 1100 1.70% 2 Hindustan Petroleum Corp Ltd. 300 2.08% 3 Oil India Ltd. 225 2.16% 4 State Bank of India 600 3.20% 5 Export-Import Bank of India (Eximbank India) 500 3.27% 6 ONGC Videsh Ltd. 700 3.78% 7 REC Ltd. 425 4.31% 8 UPL LIMITED 500 4.63% 35th Percentile 2.16% Median 3.23% 65th Percentile 3.78% Results Based on the above analysis, the results of the comparable borrowings are as under: * the arm's length range of interest rate in comparable borrowings is 2.16% to 3.78%; and * the median of the interest rates is 3.23%. During the FY 2020-21, GSSPL has made payment for interest on ECB at the rate of 3.3 percent p.a. which is within the arm's length price range as computed above." 10. ECB 2 was raised vide Agreement, dated 30/05/2019 between....
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....ing the following observations: (a) The TPO noted that while benchmarking interest on ECB1 for the period 01/04/2021 to 16/03/2021, the Assessee had not used country of lender in its search criteria. According to the TPO, the lenders country in case of ECB1 was Mauritius and the same should have been taking into consideration while benchmarking interest payable for the period 01/04/2020 to 16/12/2021 on ECB1. In relation to benchmarking interest on ECB1 for the period 17/03/2021 to 31/03/2021, the TPO rejected the benchmarking analysis carried out by the third party consultant observing that the same was based upon 'synthetic rating'. TPO noted that while benchmarking the aforesaid interest payment, the Assessee had used tenor adjustments on the ground that the lender term extended over 8 years. However, according to TPO the same was not required since the LIBOR - 6 month rate did not get impacted by the loan tenor. Thus, the TPO rejected the benchmarking analysis of the Assessee. 12. The TPO finally rejected Assessee's benchmarking and proceeded to benchmark the transactions using Bloomberg Database the following manner. (a) With respect to the ECB1 t....
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.... paid 31,93,19,997 94,49,90,054 Excess Interest amount paid with respect to Arm's Length rate 11,70,70,91 63,68,42,454 13. Thus, the TPO proposed TP additions of INR. 11,70,70,917/- in respect of ECB1 and INR. 63,68,45,454/- in respect of ECB2. 14. Against the above aggregated TP additions of INR. 75,39,13,371/- the Assessee filed objections before DRP. The Assessee contended that: (a) TPO erred in disregarding the analysis conducted by the Assessee without providing any cogent reasons. (b) The TPO erred in undertaking a fresh search on Bloomberg database by applying incorrect filters and not considering appropriate adjustments. Due to the non-application and incorrect application of key filters like loan tenor, loan tranche size, issue date etc, the analysis undertaken TPO gave incorrect results. (c) The TPO adopted incorrect interest base where rate of interest was fixed (and not floating). TPO incorrectly considered floating rates (i.e., the portion of interest spread over applicable base rate as the comparable interest rates) and did not convert the floating rates into fixed rates by referring the relevant base rate of 6 Month LIB....
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....vour with the Learned DRP as the Learned DRP disposed the objections in the following manner: "2.8.2 Having considered the submission, we noted that the TPO has duly examined The TP study and approach of the assessee to benchmark the said transaction using CUP method. The TPOs mainly concerned about whether the information or date weed in the computation of the arm's length price is reliable and correct. It is clear broth the proviso of Sec 92C(3)(c) read with Sec. 92CA of the Act that on The back of material of information or documents in the possession of TPO, if he in of the opinion that the information or data used in computation of the arm's length price is not reliable or correct the TPO may proceed to determine the arm's length price in relation to the international transactions in accordance with Sec 92C(1) and 92C(2) on the basis of such material or information or document available with him. Due to the existence of defects in the TP Study of the assessee, the TPO had rejected the TP Study of the Assessee and proceeded to conduct his own independent search. The TPO has correctly held that the data used in computation of the arm's length price is no....
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....is essential to assess the conditions prevailing at the time the loan was availed, although a change in jurisdiction during the loan tenure may affect the interest rate. As this change occurred on 17th March 2021, a substantial portion of the loan period remains governed by the original terms. Therefore, we do not find merit in this plea. Additionally, if the 'Country/Region of incorporation' filter is applied to the above results, based on tested party's location, in the case of ECBs, only one comparable is identified whose interest rate in LIBOR plus 495 Bps. Accordingly, the transaction meets the arm's length price. Further, applying the borrower's country filter does not leave any comparables in ECB2, and hence the said filter has been relaxed. The benchmarking analysis and loan comparable identified is shown in the attached enclosed as Annexure 8." 16. During the appellate proceedings both sides reiterated the stands taken before the authorities below. We have given thoughtful consideration to the rival submission and have perused the material on record. 17. The Assessee has availed ECB from its two different AES: (a) ECB1: USD 75,000,000 (b) ECB 2: USD 200,000,....
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....lding company. Thus there was assignment of ECB1 from the original lender (i.e.) Goldman Sachs (Mauritius) LLC. To Goldman Sachs International Service Entities Holdings Limited. ECB1 assigned as aforesaid continued to carry the same interest rate of 6 months LIBOR plus 490 Bps (fixed every six months on April 01 and October 01) till March 16, 2021. (c) With effect from March 17, 2021 the rate of interest was changed from the floating rate of LIBOR plus 490 Bps to fixed rate of 3.3% per annum. Therefore, for the balance financial year starting from March 17, 2021 to March 31, 2021, ECB1 carried fixed interest rate of 3.3% per annum. (d) During the relevant financial year 2020-2021, ECB1 agreement was amended to extend the maturity by another 10 years from April 01, 2022 to April 01, 2032 19. In view of the above, we find merit in the contention advanced on behalf of the Assessee that the TPO failed to appreciate that ECB1 was transferred from Goldman Sachs (Mauritius) LLC. to Goldman Sachs International Service Entities Holdings Limited during financial year 2020-21. Therefore, the lender's jurisdiction had changed from Mauritius to USA. The Learned DRP noted th....
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.... condition of ECB1 on account of assignment and amendment of the applicable agreement (including but not limited to change of lender, change in lenders jurisdiction, change of tenor and change in the rate of interest). Since we have restored the issue as aforesaid, all the rights and contentions of the Assessee are left open. 20. During the course of hearing the Assessee had placed reliance upon the Master Circular issued by Reserve Bank of India in relation to ECB and had contended that since the rate at which interest was paid by the Assessee was below all-in-cost ceiling prescribed by the RBI, the interest payments were at arm's length. The DRP has rejected the aforesaid contention making the observations which have been reproduced in paragraph 15 above. In our view the applicable of all-in-cost ceiling for ECB provided by the RBI is dependent upon fulfillment of the corresponding conditions related to tenor, maturity, end-use etc. applicable in case of automatic or approval route, as the case may be. While the aforesaid all-in-cost ceiling acts as a regulatory upper cap, the actual rate of interest negotiated between unrelated parties can be lower. The transfer pricing provi....
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.... further been held that Transfer Pricing Officer after considering the assessee's submission has accepted the rate of interest fixed in the loan agreements. It is also pertinent to mention here that the rate of interest has been accepted by the Assessing Officer for the years 2002-03 to Assessment Year 2008-09 except the Assessment Year 2006-07. Therefore, the tribunal has rightly held that the revenue cannot be allowed to make a departure in case of rate of interest for Assessment Year 2006-07." 21. In view of the above, the TPO is directed to take into consideration the above judgment of the Hon'ble High Court while determining the ALP afresh. 22. As regards Assessee's contention regarding violation of rule of consistency is concerned, we do not find any merit in the same in view of our observations/findings in paragraph 18 above. We have noted the change in facts and circumstances which require consideration. We hold that the findings returned by the TPO/Assessing Officer in the earlier years without considering the same would be of no assistance to the Assessee. Further, it is settled position that the benchmarking analysis is to be carried out for each assessment yea....