TaxTMI 
TaxTMI 
2026 (9) TMI 860
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.....09.2024, issued by the Ld. Commissioner of Income Tax (DRP-1) Mumbai-2 (in short "Ld. DRP") passed under section 144C(5) of the Act. 2. Brief facts of the case are that the assessee is engaged in the business of providing management-related services, including facilities management and property management services. For AY 2021-22, the assessee filed its return declaring a loss of Rs. 4,69,10,050/-. The final assessment order dated 25.10.2024 was passed under section 143(3) read with sections 144C(13) and 144B of the Act, pursuant to the directions of the Ld. DRP. 3. The assessee is a wholly-owned subsidiary of BSREP II India Office Holdings II Pte. Limited, which constitutes its Associated Enterprise ("AE") within the meaning of sect....
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....ted the CCDs as being in the nature of equity, consequently determining the ALP of the interest at Nil. Since the assessee had already suo motu disallowed Rs. 89,86,08,221/- under section 94B, the ultimate disallowance for the year was restricted to Rs. 4,47,51,845/-, besides denying carry-forward of Rs. 89,86,08,221/- under section 94B. The assessee is, therefore, in appeal before us. 6. The Ld. AR argued filed the paper books which have been kept in record. He submitted that the approach adopted by the Ld. DRP in re-characterising the CCDs as equity is contrary to the settled legal position. It was argued that a compulsorily convertible debenture continues to retain the character of debt until its actual conversion into equity. Relianc....
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....ate Limited v. DCIT reported in [2025] 171 taxmann.com 385 (Hyderabad-Trib.)(SB). According to the written submissions, the Special Bench accepted domestic PLR as an appropriate benchmark in the case of INR-denominated FCCDs and held that merely because the debentures were issued to a foreign AE, the transaction could not be treated as a foreign-currency borrowing. 9. The Ld. AR further argued that the assessee's effective interest cost was 12.37% and not 14%, since no interest was payable during the moratorium period from December 2017 to 31.03.2020. Thus, the coupon rate of 14% could not be mechanically adopted for benchmarking without considering the actual economic cost of the borrowing. 10. The Ld. AR further drew our attenti....
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....ied upon the orders of the Ld. TPO/Assessing Officer and the directions of the Ld. DRP. It was submitted that the CCDs are hybrid instruments possessing characteristics of both debt and equity and, being compulsorily convertible, the Ld. DRP was justified in examining their true economic character. 14. The Ld. DR further supported the rejection of the assessee's CUP analysis. It was contended that credit rating is an important factor governing the interest rate applicable to a financial instrument and that the assessee had not undertaken adequate comparability analysis on this parameter. The Ld. TPO had also recorded that data in respect of four of the assessee's comparables was not available in the public domain. On that basis, ....
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....ir character under the provisions of the Income-tax Act until their conversion into equity. 17. On benchmarking also, the assessee's contention carries support from the Hon'ble Special Bench decision in Hyderabad Infratech Private Limited (supra). The principle emerging there from, as relied upon before us, is that the currency in which the debt is denominated assumes significance for benchmarking the interest transaction. Where the debentures are denominated in Indian Rupees, domestic lending rates/PLR constitute the relevant reference rather than treating the borrowing as a foreign-currency loan merely because the subscriber happens to be a foreign AE. 18. In the present case, the assessee's CCDs are INR-denominated. The mat....