TaxTMI 
TaxTMI 
2025 (10) TMI 1427
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....ken the following international transactions:- International Transactions Transfer Pricing method Total Value of International Transactions (in INR) Issue of convertible compulsorily debentures (CCDs) Other method 2,44,77,26,400 Interest on CCDs Comparable Uncontrolled Price (CUP) Method 46,52,90,098 Issue of equity shares Other Method 45,04,31,700 3. We have heard both the sides and gone through the material on record. At outset it is pertinent to mention that the assessee has submitted that the ground No.1 is general and ground No.2 is not pressed. The ground No.3 arises out of the fact of AO/TPO holding the interest charged on CCD issue by the assessee as international transaction and subsequent ground No.4 to 11 are with regard to transfer pricing adjustments proposed on this alleged international transaction relating to payment of interest on CCDs. 4. Now with regard to these ground numbers 1 to 6, which are interrelated the same pertain to the proposed TP adjustment of Rs. 46,52,90,098/- on account of the interest on CCDs issued by the assessee to its AEs as a fact, during FY 2019-20, AEPL issued INR denominated CCDs to Alfanar Compan....
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....truments, the ALP of interest payment is determined to be NIL, by using the CUP method. 6. The assessee filed detailed submissions vided Form 35A before the DRP and the primary arguments of the assessee was against re-characterization of the CCDs issued by AEPL into equity as well as rejection of benchmarking analysis undertaken using Bloomberg database and NSDL database. The Panel considered the submissions and the fact that the Ld. TPO has mentioned that: "5.2 The assessee has submitted that it has "no intention" of converting the CCD into equity and it should therefore it should be considered as a debt instrument only. However, this "intention" fades before the formal written agreements that were entered between the assessee and its AEs, in which it is clearly written that the CCDs can he converted at will by both the issuers and subscribers. If the assessee indeed had the intention of not converting the CCDs, then there would not be an option to do so in the agreement itself. Therefore, this argument cannot be accepted. 5.3 The assessee has provided a list of differences between CCDs and Equity. The undersigned is in agreement with these differences in so f....
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.... not reliable. Therefore, the ALP of the international transaction of interest on CCDs has been considered as incorrect and adjustment of Rs. 46.52,90,098-has been proposed to the income of the Assessee. 8. The DRP then considered the Sub-section 92(2) of the Act, which provides that under an arrangement for facility of funding have to be such that "the cost or expense allocated or apportioned to, or, as the case may be, contributed by, any such enterprise shall be determined having regard to the arm's length price of such benefit, service or facility, as the case may be. DRP observed that in this case, the TPO has determined that the Arm's length price of the funding would be "Nil since the funding facility would be an equity infusion arrangement instead of a debt-based one. Thus, the TPO has determined the arm's length price of the funding facility as "Nil". As per the Ld. TPO, the Applicant has not obtained the Funds as debt but equity, and this the funding facility provided had to be in nature of equity infusion, for which the Arm's length payment will be "zero". Hence, leaving aside the re-characterization argument, ALP of the facility is confirmed to be "ze....
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....d u/s 92B(1) of the Act and section 94B(1) of the Act we are of considered view that the work-in-progress denotes the ongoing activity which is not ready to be used for generating revenue. Capitalisation of operating costs generally would cease only when all the activities necessary to prepare the use of the qualifying assets are complete and put to use. However, that does not mean that for the mere fact of non-deduction of interest expenses in preset FY, and the capitalization of same in WIP, will not have any bearing in the profits, income, losses or assets of the assessee at any time. The use of words 'bearing' in section 92B(1) of the Act when read along with word 'deductible' in Section 94B(1) of the Act, indicates that it is not just impact on financials for this year but at any stage also in subsequent years, if the interest component on CCD, shall be deductible then in that point of time it will certainly have a bearing on the profits, income, losses or assets of the assessee. We are of considered view that capitalisation of interest of CCD is a supernumerary but real exercise in the accounting of WIP and but such interest continues to be an expense side item and its allowa....
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....ome of the assessee representing interest expenditure on debenture/CCDs booked for the assessment year 2013-14. Now, in assessment year 2013-14, the Tribunal had overturned the view of the CIT(A) and had held that re-characterisation of transaction of issue of debentures/CCDs to issue of equity capital was not correct and, accordingly, directed the AO/TPO to re-work out the ALP of the transaction of interest payment. In that view of the matter, the direction given by the ld. CIT(A) for AY 2013-14 stood substituted with that of the Tribunal for re-determining the ALP of the transaction of payment of interest on debentures/CCDs. Thus, while deciding for AY 2015-16, the Tribunal observed that since the assessee has capitalized the interest on debentures/CCDs in its WIP for the AY 2013-14, it is but natural that when work-in-progress is reversed in the subsequent years, at the time when the inventory is finalized, the corresponding amounts of excess interest on debentures/CCDs over and above its ALP, needs to be reversed and added back to the income of that year. In these circumstances, the Tribunal concluded as follows:- "21. .......... To exemplify, if the WIP stood at Rs.10....