TaxTMI 
TaxTMI 
2026 (9) TMI 577
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....law and on facts in rejecting the AE and Non- AE segmental approach adopted by the Appellant in its Transfer Pricing ('TP') Study and aggregating the same, based on his own conjectures and surmises and without providing any cogent reasons to justify the rejection of the segmentation maintained by the Appellant. 2.2 The Ld. TPO and the Ld. DRP erred in law and on facts in rejecting the internal TNMM analysis to benchmark the IT and IT enabled Services (ITES) rendered to Associated Enterprises (AEs). 2.3 The Ld. DRP erred in stating that the segmentation was not submitted as part of TP study and AE and non-AE segmentation was not audited separately, although the TP Study provided the segmentation and during the course of proceedings before the Ld. TPO, the certified segmentation was furnished. 7. The Ld. TPO and the Ld. DRP erred in law and on facts in including following companies as a comparable, though the company is functionally dissimilar and has high turnover in comparison to the Appellant's AE- IT services segment. i) L&T Infotech Limited ii) Tata Elxsi Limited 8. The Ld. TPO and the Ld. DRP erred in law and on facts in inc....
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....bjections and after providing opportunity to the Assessee, the DRP issued directions u/s. 144C(5) of the Act dated 14.06.2024 in principle confirming the adjustments proposed by the TPO. Subsequently, the AO passed an order u/s. 143(3) r.w.s.144C(13) r.w.s.144B of the Act dated 25.07.2024. Aggrieved by the order of the AO / DRP the Assessee is in appeal before us. 5. The ld.AR for the assessee submitted the following arguments: 6. Ground No.1 is general and does not require any adjudication. 7. Ground No.2 is in relation to non-acceptance of AE segmental in IT division and for rejection of Internal TNMM: 7.1 The TPO has rejected the AE segmental in IT division with the reasoning that the External accountant certificate submitted by Movate India is after issuance of SCN and hence cannot be considered as evidence. Further, the TPO has held that most of the expenses on non-AE segment are on account of employee cost and the Assessee has not furnished Month-on-month data for allocation of expenses between the segments not furnished. Accordingly, TPO rejected the segmental and has reckoned the margin of the Assessee at 12.73% vis a vis fresh comparable search conducted the TP....
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....itrarily disregarded by the TPO by merely saying it is obtained after issuance of SCN though it was obtained and furnished before the completion of TP assessment. In fact, we are of the view that the IT Act/Rules does not mandate that audited segmental should be furnished. In support of the view, we gainfully rely on the following decisions: 7.6 The Chennai Tribunal decision in the case of M/s.3i Infotech Limited in ITA No.21/Mds/2013 has held as under: "On the above facts, in view of the decision of the Delhi Bench of the Tribunal quoted above, we find that rate of profit achieved in other comparable cases are to be compared with the profit level declared by the Assessee in respect of its AE transactions after excluding domestic transactions." 7.7 The Chennai Tribunal decision in the case of M/s. Honeywell Electrical Devices & Systems India Ltd. in ITA No. 2152/Mds/2011 has held as under: "In the above facts and circumstances, we do not find any valid reason for not accepting the segmental reports in determining the ALP on the AE sales for this assessment year i.e. 2007-08 having accepted the segmentation approach for the earlier assessment years i.e. 2005-....
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....bt part. Since some part of the CCDs are converted into equity and the balance remain the debt portion, the interest is allowable only on the debt portion. Both the authorities have also relied on the TP order of the previous A.Y.2018-19, wherein the same adjustment was made and on appeal to the ld.CIT(A), the order is yet to be passed. 10.2 The Ld.AR submitted that the Assessee had issued 3,77,690 CCDs of Rs. 10,000/- each, allotted on 23.03.2017 (AY 2017-18) with a put option to transfer the CCD to the Company or any other person nominated by it at arm's length any time on or after 23.03.2018, but prior to 24.09.2026. During A.Y. 2019-20, the subscriber to CCDs had exercised the option of transfer to the CCDs to the Company and accordingly, 25% of the outstanding CCDs i.e. 94,423 were redeemed. The total outstanding CCDs thereafter is 2,83,267 i.e. Rs. 283.27 crores. During F.Y. 2019-20, the assessee paid an actual interest amounting to Rs. 284,043,074/- at 10% per annum towards outstanding CCDs. In the first year in which the CCDs were issued i.e. A.Y.2017-18, the Assessee had adopted the normal IGAAP format of the Financials wherein entire CCDs were disclosed as debt and the....
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....eld that the debentures when issued is a loan, and therefore, whether it is convertible, or non-convertible, does not militate against the nature of the debenture, being loan. 10.5 Further the Ld.AR also pointed out that the TPO and the DRP have held that since the adjustment was made in A.Y.2018-19 and it is pending in appeal, the adjustment is being made/sustained in the subject A.Y. as well. However, presently, the ld.CIT(A) has decided the appeal for A.Y.2018-19 and copy of the said order was placed on record. The ld.CIT(A) has held that as under: "5.4.4 On an analysis of the above, it is clear that reclassification was mandated by Ind AS and the appellant had accordingly treated CCDs as compound financial instruments in its accounts. The nature of presentation does not alter the characteristics of CCDs. Despite its treatment in the accounts, CCDs continued to be debt instruments until converted into equity. Further, it is seen that as per clause 3.5 of Investment Agreement for issue of compulsorily convertible debentures between Glow Networks Pvt Ltd and CSS Corp Technologies (MAURITIUS) Ltd, the Subscriber shall have a put option to transfer the CCDs to the Compan....