TaxTMI 
TaxTMI 
2026 (9) TMI 1463
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....) r.w.s. 144℃ of the Income-tax Act, 1961 ("the Act"), is bad in law and on facts. 1(b) The Learned Transfer Pricing Officer ('Ld. TPO') has erred in not recording an opinion on any of the conditions in section 92C(3) of the Act were satisfied in the instant case. Accordingly, the Order passed by the Ld. TPO is without jurisdiction. The Ld. Panel erred in upholding the actions of the Ld. TPO. Transfer Pricing Grounds 2. Ground against erroneous disallowance of interest on the equity component of compulsorily convertible debentures ("CCDs") INR 18,818,312 2.1 The Ld. TPO and the Ld. DRP erred in law and on facts in not appreciating that CCDs are nothing but debt till the date of conversion to Equity and the said view is supported by several judicial precedents. 2.2 The Ld. TPO and the Ld. DRP erred in law and on facts in disallowing the interest paid on CCDs to the extent classified as equity, without appreciating the fact that such classification of CCD into equity and debt is merely a presentation requirement under Ind AS financials, the same is made only for disclosure purposes, and does not change the char....
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....thod, interest is not chargeable to AEs. 3.3 The Ld. TPO and the Ld. DRP grossly erred in arbitrarily adopting a 30-day credit period to impute notional interest on overdue receivables and in not providing any comparability analysis. 3.4 The Ld. TPO and the Ld. DRP erred in law and on facts in mechanically applying a LIBOR-based interest rate (6-month LIBOR + 350 bps) without determining whether such a rate is appropriate for the tenure, risk profile and commercial circumstances of the Appellant and without any comparability analysis. 4 Erroneous initiation of penalty proceedings under section 270A of the Act 4.1 Based on the facts and circumstances of the case, there was no basis for the Assessing Officer to seek to initiate proceedings under section 270A of the Act. 2. The assessee is a company engaged in the business of providing web-based support services using internet technology with call centre solutions, software development and testing services and consulting and engineering services in and outside India for carrier services/telecom industries. The assessee provides such services to Movate Group c....
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....equity portion cannot be claimed. Accordingly, the TPO made a downward adjustment of Rs. 7,40,67,000/-. The relevant observations of the TPO in this regard is extracted here under - "7.3.........To conclude CCDs are Financial investments which consists of both equity and debt components. The CCDs are convertible into equity shares which is not a normal character of any debt. Now whether the argument that since CCDs are not converted into shares therefore, interest payment should be allowed on the entire amount is correct? In the considerable view of TPO, while interest is allowable only on the debt portion not on the equity portion reported by the assessee itself. Further, the TPO is of the view that an accounting standard cannot change the inherent nature of a transaction as reported by the assessee in his Audited Financial Statements. Further, since adjustment has been made in AY 2018-19 on the same issue with regard to CCDs and the assessee's appeal is still pending, the interest payment on debt portion only is allowed to maintain consistency. Therefore, the interest is allowable on the debt portion only and the excessive interest charged by the assessee in assessee's P....
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....ot be applied in the present case. It has been a judicially well settled proposition that CCDs constitute debt and interest payable thereon is a deductible expenditure till the time the same are converted into equity. The Hon'ble Rajasthan High Court in the case of Secure Meters Ltd reported in 321 ITR 611 (Raj), held 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 co....
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....eal against the above decision of the Tribunal and therefore the revenue cannot object to the claim for the year under consideration ignoring its own stand for the earlier year. The Ld. AR also submitted that in the following case the Tribunal has rejected the TPO's reclassification of CCDs as equity and held that until the CCDs are converted, the same constitutes as Debt. • TE Connectivity Services India Pvt Ltd [IT(TP)A No. 921/Bang/2022] • Stahl India Pvt. Ltd., [IT(TP)A No. 52/CHNY/2024] • WeWork India Management (P.) Ltd. [IT(TP) A No. 819/Bang/2022] • CAE Flight Training (India) Pvt. Ltd. [IT(TP)A No.48/Bang/2023] 10. We further notice that the impugned disallowance is made on the outstanding CCD which was originally issued during the FY 2016-17 and the Ld. DR during the course of hearing did not bring any new material on record in support of the downward adjustment made by the TPO. Therefore, respectfully following the above decisions of the Coordinate Benches, we remit the issue back to the AO/TPO with a similar direction. Ground No.2 raised by the assessee is allowed for statistical purposes. Upward adjustment towar....