TaxTMI 
TaxTMI 
2026 (10) TMI 327
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.... impugned order originated by pursuing to the order of the Ld. Commissioner of Income Tax (DRP-1) Mumbai-1 (for brevity 'Ld. DRP'), order passed under Section 144C(5) of the Act, date of order 28.09.2024. 2. The assessee has taken the following grounds: "Transfer Pricing grounds: Generic grounds: Assessment and reference to the Learned Transfer Pricing Officer ('Ld. TPO') are bad in law 1. The assessment order passed by the National Faceless Assessment Centre, Delhi ('Ld. AO'), under section 143(3) read with section 144C(13) and 144B of the Income-tax Act, 1961 (the Act) dated 25% October 2024 is bad in law and on facts 2. The Ld. Panel Ld. AO/ Ld. TPO erred in rejecting the be....
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.... 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 o....
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.... regarded as equity merely by reference to the regulatory framework. 8. The Ld. AR further relied upon the decision of the Coordinate Bench in Indorama Ventures Oxides Ankleshwar Pvt. Ltd. v. Assessment Unit/DCIT, ITA No.4023/Mum/2024, order dated 29.10.2024. It was submitted that the Coordinate Bench held that re-characterisation of CCDs into equity by the Ld. TPO was beyond the scope of transfer-pricing determination and observed that CCDs continue as debt instruments until conversion. The Coordinate Bench also rejected reliance upon the RBI/FEMA regulatory classification for recharacterising CCDs as equity for income-tax purposes in the factual setting of that case. 9. The Ld. AR also placed reliance upon the subsequent decision of....
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....rebate may be recharacterised." 13. It was submitted that section 98(1) itself permits, after an arrangement is declared to be an impermissible avoidance arrangement, the disregarding, combining or re-characterising of any step or any part or whole of such arrangement. According to the Ld. AR, therefore, where the Revenue seeks to treat an instrument legally structured as debt as equity, such power of recharacterisation has been specifically contemplated by Parliament within the GAAR framework and is subject to the safeguards and procedure prescribed therein. 14. The Ld. AR further submitted that such statutory power cannot be exercised dehors the procedure prescribed under section 144BA. Where the Ld. AO considers it necessary to dec....
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.... assessee. It was argued that an independent enterprise would not pay interest upon equity capital and hence determination of the ALP of interest 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,....
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....uch conversion. 22. We also find substance in the statutory argument advanced by the Ld. AR to the limited extent that Chapter X-A expressly contemplates recharacterisation as one of the consequences after an arrangement is declared to be an impermissible avoidance arrangement. Section 98(1)(a) expressly refers to re-characterisation of a step or part or whole of such arrangement, while section 98(2)(i) specifically provides that equity may be treated as debt or vice versa. 23. The exercise of the provisions of Chapter X-A is accompanied by the specific procedure prescribed under section 144BA. The statutory scheme contemplates reference by the Ld. AO to the Principal Commissioner/ Commissioner, notice and opportunity of hearing to th....