TaxTMI 
TaxTMI 
2026 (9) TMI 858
X X X X Extracts X X X X
X X X X Extracts X X X X
....f Income Tax, Transfer Pricing Officer - 3(3)(1), Mumbai (hereinafter referred to as 'Ld. TPO') and the Assessment Unit, National Faceless Assessment Centre, Income tax department (hereinafter referred to as 'Ld. AO') pursuant to the directions issued by the learned Dispute Resolution Panel ('Ld. Panel'/ 'DRP') erred in making a transfer pricing adjustment of INR 6,36,07,108 and corporate tax adjustment of INR 5,27,56,728 to the Assessee's income and thereby determining a total assessed loss of INR 4,44,52,808. 1.2 The Ld. AO has passed an order without taking cognizance of the facts, information and documents submitted during the course of scrutiny assessment and DRP proceedings for the subject AY. 1.3 The Ld. AO has erred in facts and in law by upholding the adjustment as made in the draft assessment order passed under section 143(3) r.w.s. 144C(13) r.w.s. 144B of the Act. 2. Transfer pricing grounds 2.1 The Ld. AO/Ld. TPO/Ld. Panel has erred both in law and in facts in rejecting the benchmarking analysis conducted by the Assessee undertaken in accordance with the provisions of the Act read the Rules in the TP study for the purpose of determina....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 94B of the Act 3.1 The Ld. AO has erred in law by computing the additional disallowance amounting to INR 5,27,56,728 under section 94B of the Act, based on the recommendation of the TPO in the TP order dated January 20, 2025 passed under section 92CA(3) of the Act, in a manner and extent that is not in accordance with the provisions of the law. 3.2 The Ld. AO has erred in law in considering all interest expenses (including other finance costs and interest paid/payable to unrelated parties i.e. other than AEs) in the computation of 'total interest' under sub-section (2) of section 94B of the Act; as against only interest paid/payable to non-resident AEs. 3.3 The Ld. AO has erred in law in failing to appreciate that the intent of the legislature in introduction of Section 94B of the Act was to restrict only such interest expense of an Indian entity as is payable to its non-resident AEs, to a maximum of 30 percent of its Earnings Before Interest, Taxes, Depreciation and Amortisation ('EBITDA')." "3.4 The Ld. AO has erred in law in disregarding Assessee's submission that the computation of 'excess interest' under the provisions of sub-section (2) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....conomic Zones and is a co-developer of an existing SEZ under construction. The assessee is part of the CapitaLand Group. For the assessment year under consideration, the assessee filed its return of income on 30.11.2022 declaring total income at Nil after showing current-year business loss of Rs. 16,08,16,644/-. The case was selected for scrutiny. During FYs 2018-19 and 2019-20, the assessee had issued 12,800 NCDs having face value of Rs. 1,00,000/- each in five tranches, aggregating to Rs. 128 crore, to Ascend as Property Fund (FDI) Pte. Ltd. ("APFF"). The NCDs had the tenure of 30 years. During FY 2021-22 relevant to AY 2022- 23, the assessee paid interest of Rs. 18,30,38,447/- on the NCDs at a coupon rate of 14.299% and benchmarked the transaction under CUP method. 4. The Ld. TPO, vide order dated 20.01.2025 under section 92CA(3), determined a TP adjustment of Rs. 6,36,07,108/- in respect of payment of interest on NCDs. The TPO also computed the alleged excess interest under section 94B and recommended examination thereof by the Ld. AO. The Ld. AO consequently made an additional disallowance of Rs. 5,27,56,728/- under section 94B, apart from the assessee's suo motu disall....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te Properties (P.) Ltd. v. ACIT reported in [2020] 116 taxmann.com 952 (Delhi-Trib.) and Hacienda Projects (P.) Ltd. v. ACIT reported in [2021] 126 taxmann.com 258 (Delhi-Trib.). The Ld. AR further submitted that the assessee had already made a suo motu disallowance of Rs. 13,02,81,719/- under section 94B and, therefore, to the extent the TP adjustment related to the very same interest expenditure, it would result in duplication of the disallowance. 8. The Ld. DR relied upon the orders of the revenue authorities and specifically invited our attention to paragraphs 5.1.3.1 and 5.1.3.2 of the TPO's order, which are reproduced below: "5.1.3.1 Reply of the Assessee: The assessee submitted its reply in response to show cause notice vide letter dated 17/01/2025. The assessee has submitted following key points in response to show cause notice: (a) The Assessee requests that the international transaction of interest on Non-Convertible Debentures (NCDs) be considered at arm's length for AY 2022-23, as it was for AY 2021-22, given that the facts and circumstances are identical. (b) The Assessee proposes using the SBI Prime Lending Rate (PLR) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ings where the applicability of such a spread was discussed in the context of specific types of debt instruments, like FCCDs or bonds. The NCDs in this case are different in terms of their features, including tenure and risk profile. These NCDs are further secured. A blanket reliance on the SBI PLR + 300 bps methodology is inappropriate given the unique nature of the NCDs under consideration here. Further, better comparable are available which are more alike to the NCDs compared to the SBI PLR. SBI PLR would have been useful for a general loan. In the case of assessee secured 30 years NCDs are there which cannot be compared to basic SBI PLR." 9. We have heard the rival submissions and perused the material available on record. Ground No.1 is general in nature and does not require separate adjudication. Ground No.2 relates to the transfer-pricing adjustment of Rs. 6,36,07,108/- on account of interest paid on NCDs. The material placed before us indicates that the assessee benchmarked the transaction under the CUP method by selecting 161 comparables, with the arm's-length range stated at 10% to 14.50%, whereas the actual interest paid by the assessee was at 14.299%. The princ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Act is as under Particulars Computation disallowance as per the TP order (please see pages 14 -15 of the TP order) Re-computation of the disallowance EBITDA (A) Rs. 17,58,55,760/- Rs. 17,58,55,760/- 30% EBITDA (B) Rs. 5,27,56,728/- Rs. 5,27,56,728/- Total Interest (includes interest paid to both AEs and Non-AEs) (C) Rs. 32,45,54,783/- Rs. 26,09,47,674/- (Rs. 32,45,54,783 - Rs. 6,36,07,108 (TP adjustment)) Excess Interest (D= C-B) Rs. 27,17,98,055/- Rs. 20,81,90,947/- Total AE Interest (E) Rs. 18,30,38,447/- Rs. 11,94,31,339/- (ALP as per the TPO in the TP order) Disallowance under Section 94B (Lower of (D) or (E)) Rs. 18,30,38,447/- Rs. 11,94,31,339/- Suo-moto disallowance Rs. 13,02,81,719/- Rs. 13,02,81,719/- Difference Rs. 5,27,56,728/- (Rs.1,08,50,380/-) 12. The Ld. AR has also invited our attention to the Explanatory Notes to the provisions of the Finance Act, 2017, enclosed at APB Volume-I, page 364. Paragraph 46.4 thereof is reproduced below: "46.4 The provisions of the section 94B of the Income-tax Act shall be applicable to an Indian company, or a permanent establishment of a f....