TaxTMI 
TaxTMI 
2026 (9) TMI 859
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.... limit prescribed under Section 153 of the Income Tax Act, 1961 is the outer limit for passing the Final Assessment Order and hence, the Final Assessment Order dated October 16, 2025 is time barred and liable to be quashed. TRANSFER PRICING ISSUES Interest Expenditure incurred in respect of the debentures issued to the Associated Enterprise 2 The learned Dispute Resolution Panel erred in confirming the action of the Transfer Pricing Officer with respect to an adjustment amounting to Rs. 8,05,35,000/- on account of interest expenditure in respect of the unsecured Compulsory Convertible Debentures ('CCD') issued to the Associated Enterprise by the Appellant Company and in determining the arm's length price at Rs. Nil. 3. The learned Dispute Resolution Panel erred in re-characterizing the issue of unsecured CCDs by the Appellant Company to its Associate Enterprise as part of the Equity Share Capital and not as a debt instrument and in ignoring the fact that the Transfer Pricing Officer had exceeded her jurisdiction in determining the arm's length rate of interest on the unsecured CCDs at Rs. Nil. 4. The learned Dispute Resol....
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....r benchmarking the rate of interest in respect of the unsecured compulsorily convertible debentures issued to the Associated Enterprise by the Appellant Company. 12. The learned Dispute Resolution Panel erred in not following the Directions of the Hon'ble Dispute Resolution Panels in the case of several group companies on this similar issue wherein the Hon'ble Panels have held that the Reserve Bank of India Base Lending Rate at the time of the initial issue of debentures with a risk adjustment of 3.5% is an arm's length rate to benchmark the rate of interest on unsecured CCDs. NON-TRANSFER PRICING ISSUES 13. The learned Dispute Resolution Panel erred in drawing a completely erroneous conclusion that the interest cost has been capitalised by the Appellant Company and that such interest cost cannot be capitalised under AS 16 but is to be considered as Revenue Expenditure. Further, the learned Dispute Resolution Panel erred in also concluding that the interest cost was not allowable under Section 36(1)(iii) of the Act or Section 37(1) of the Act. The conclusions drawn by the learned Dispute Resolution Panel is erroneous for the following reasons:....
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....ssociated Enterprise, GOF I (Master A) Pte. Ltd., during the financial year ended 31.03.2018. During the year under consideration, the assessee incurred interest expenditure of Rs. 8,05,35,000/- on the said CCDs at the rate of 12% per annum, which was reported as an international transaction. There was no fresh issue of debentures during the year under consideration and there was no change in the terms and conditions governing the CCDs from the year of their original issue. 4. The Ld. TPO, while determining the arm's length price ("ALP"), did not accept the character of the CCDs as debt instruments. According to the Ld. TPO, having regard to the features and contractual terms of the instruments, the CCDs were in substance equity instruments, since they were mandatorily convertible into equity shares and there was no repayment of principal. On that premise, the Ld. TPO held that an independent enterprise would not pay interest on equity capital and consequently determined the ALP of the interest at Nil. 5. The Ld. DRP affirmed the approach of the Ld. TPO and, inter alia, treated the unsecured CCDs as equity/share capital, having regard to the FEMA Regulations, the terms of the....
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....he alleged equity component at Nil. 10. The Ld. AR further advanced an alternative statutory argument based upon Chapter X-A of the Act. It was submitted that section 95 specifically provides a statutory mechanism under which an arrangement may be declared to be an "impermissible avoidance arrangement" and its tax consequences may thereafter be determined subject to the provisions of Chapter X-A. Section 95 applies to assessment years beginning on or after 01.04.2018. 11. Referring to section 96, the Ld. AR submitted that the legislature has specifically defined an "impermissible avoidance arrangement" as an arrangement whose main purpose is obtaining a tax benefit and which additionally satisfies the statutory conditions enumerated in clauses (a) to (d) of section 96(1). 12. The Ld. AR thereafter invited our attention to section 98 and, more particularly, sub-section (2) thereof, which is reproduced below: "(2) For the purposes of sub-section (1),- (i) any equity may be treated as debt or vice versa; (ii) any accrual, or receipt, of a capital nature may be treated as of revenue nature or vice versa; or (iii) any expenditure, deduction, ....
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....nterest at Nil was justified. This substantially corresponds with the reasoning recorded by the Ld. TPO in the draft under consideration. 18. The Ld. DR accordingly submitted that Chapter X-A and section 144BA were not attracted since, according to the Revenue, no impermissible avoidance arrangement had been invoked and the adjustment arose solely from determination of the ALP under the transfer-pricing provisions. 19. We have heard the rival submissions and perused the material available on record. The central controversy is whether, while determining the ALP of interest paid on the unsecured CCDs, the Revenue authorities were justified in treating those instruments as equity and consequently determining the ALP of interest at Nil. The material before us shows that the CCDs were issued in the financial year ended 31.03.2018; the interest stipulated thereon was 12% per annum; no fresh CCDs were issued during the year under consideration; and there was no alteration in their terms and conditions. The assessee incurred interest expenditure of Rs. 8,05,35,000/- during the relevant year. 20. We find that the issue relating to the character of CCDs prior to their conversion has....