BELLISSIMO HEALTHY CONSTRUCTION AND DEVELOPERS PRIVATE LIMITED,MUMBAI vs. ACIT CC 7(3), MUMBAI

The brief facts of the case are that the assessee is engaged in the business of construction and development of real estate projects. For A.Y. 2018-19, the assessee had issued 13,87,85,714 Compulsorily Convertible Debentures (“CCDs”) of Rs.10/- each to its Associated Enterprise (“AE”), Russard Holdings Ltd. (“RHL”), under the Debenture Subscription Agreement (“DSA”) dated 16.04.2008, carrying interest @ 15% per annum. Under the same DSA, 62,14,286 CCDs of Rs.10/- each were also subscribed by HDFC Venture Trustee Company Limited on behalf of HDFC Investment Trust (“HDFC”), an unrelated third party, on substantially identical terms. The funds so raised were utilised for acquisition, construction and development of the real estate projects.

The assessee had reported interest on CCDs in Form No. 3CEB at Rs.23,99,98,959/-. During the transfer-pricing proceedings, the assessee explained that the said amount had been inadvertently reported and that the actual interest pertaining to RHL for the year was Rs.20,81,78,571/-. The assessee benchmarked the transaction by applying the internal comparable, namely, the CCDs subscribed by HDFC at the same rate of 15%. The Ld. TPO, however, recharacterised the CCDs as equity and determined the ALP of the interest at Nil, resulting in a transfer-pricing adjustment of Rs.23,99,98,959/-. Since the assessee had already made a suo motu disallowance of Rs.13,14,31,658/- u/s 94B of the Act, the balance amount of Rs.10,85,67,301/- was ultimately added to the income. The Ld. DRP upheld the action of the Ld. TPO/AO. Being aggrieved, the assessee is in appeal before us.

The Ld. AR argued and has filed a paper book comprising pages 1 to 189, which has been placed on record. The Ld. AR submitted that the controversy relating to benchmarking of interest on the very same CCDs is squarely covered by the order of the Coordinate Bench in the assessee's own case, Bellissimo Healthy Constructions and Developers Pvt. Ltd. v. DCIT, ITA No.2255/Mum/2022, A.Y. 2017-18, order dated 28.03.2023.

The Ld. AR further submitted that in A.Y. 2017-18, the Coordinate Bench examined this very internal comparable and held that internal comparables ordinarily deserve preference over external comparables because their quality and reliability are higher. The Coordinate Bench further observed that the difference in volume did not adversely affect the assessee's benchmarking because both the AE and non-AE were paid interest at the same rate notwithstanding the AE having made a substantially larger investment.

It was further argued that the Ld. TPO could not disregard the actual character of the transaction and determine the ALP at Nil merely by treating the CCDs as equity. The assessee relied upon the decision in its own case wherein the Coordinate Bench, after examining the DSA and the nature of the CCDs, ultimately directed the Ld. AO/TPO to delete the TP adjustment and accept the interest rate actually paid @ 15% as being at arm's length. 3

The Ld. AR further submitted that the actual interest pertaining to RHL during the relevant year was Rs.20,81,78,571/- and not Rs.23,99,98,959/- as inadvertently reported in Form No. 3CEB. Regarding section 94B, the Ld. AR submitted that the assessee had inadvertently computed the disallowance at Rs.13,14,31,658/- in the return. A revised working was furnished before the Ld. AO, according to which the correct disallowance u/s 94B(1) works out to Rs.4,89,57,804/-. The revised computation was stated to have been filed before the Ld. AO at APB pages 180 to 189.

As regards the brought-forward business loss of Rs.1,65,82,611/-, the Ld. AR submitted that the corresponding issue arising from the original assessment had subsequently been decided by the Ld. CIT(A) with a direction to the Ld. AO to allow the set-off after due verification.

The Ld. DR relied upon the orders of the revenue authorities and supported the approach adopted by the Ld. TPO and the Ld. DRP. It was contended that the CCDs carry an inherent and compulsory conversion feature and ultimately result in equity ownership; therefore, the Ld. TPO was justified in examining their true character and determining the ALP accordingly.

The Ld. DR further submitted that the transfer-pricing analysis has to be undertaken independently for each assessment year and the order for A.Y. 2017-18 cannot automatically govern the assessment for the year under consideration. It was accordingly contended that the adjustment made by the Ld. AO/TPO and sustained by the Ld. DRP does not call for interference.

We have heard the rival submissions and perused the material available on record, including the paper book filed by the assessee and the order of the Coordinate Bench in the assessee's own case for the immediately preceding assessment year.

At the time of hearing, the assessee has sought adjudication of the appeal on merits and has requested that the question concerning validity of the reassessment proceedings be kept open. The written submissions also specifically record this request.

The principal controversy is whether the Ld. TPO was justified in disregarding the assessee's benchmarking and recharacterising the CCDs as equity so as to determine the ALP of interest at Nil. We find that the issue arising from the same DSA dated 16.04.2008 and the same CCDs was considered by the Coordinate Bench in the assessee's own case for A.Y. 2017- 18 in Bellissimo Healthy Constructions and Developers Pvt. Ltd. (supra). The Coordinate Bench specifically observed that an internal comparable is ordinarily preferable to an external comparable and found that the internal comparable selected by the assessee possessed similarity of contractual terms. It further held that the external comparables selected by the Ld. TPO were functionally dissimilar. Most importantly, the Coordinate Bench concluded as under:

The underlying DSA and the material terms of the CCDs remain the same for the year under consideration. Nothing has been brought before us to establish any material change in the relevant contractual terms so as to distinguish the decision of the Coordinate Bench for the immediately preceding assessment year.

Ground No. 3 is an alternate ground concerning the allowability of interest expenditure u/s. 36(1)(iii) and 37(1) of the Act. The assessee itself has raised this contention as an alternative to its principal challenge to the TP adjustment.

The assessee contends that while filing the return, the disallowance u/s 94B was inadvertently computed at Rs.13,14,31,658/-. The revised computation furnished before the Ld. AO works out the disallowance at Rs.4,89,57,804/-, based upon EBITDA of Rs.53,07,35,889/- and interest pertaining to the foreign AE of Rs.20,81,78,571/-. Since this issue involves verification of the revised computation and the underlying figures, we direct the Ld. AO to verify the revised computation furnished by the assessee and determine the disallowance u/s 94B strictly in accordance with law after considering the correct amount of interest pertaining to the AE. The assessee is directed to furnish all necessary details and supporting documents before the Ld. AO.

The assessee seeks set-off of brought-forward business loss amounting to Rs.1,65,82,611/-. The material placed before us indicates that the corresponding claim in the proceedings arising from the original assessment has been allowed by the Ld. CIT(A), subject to verification by the Ld. AO. Considering the factual verification required, Ground No. 5 is set aside to the file of the Ld. AO with a direction to verify the quantum and availability of the brought-forward business loss and allow the eligible set-off in accordance with law, while also giving effect to the relevant appellate order, if applicable. Needless to say, the assessee shall furnish the necessary particulars before the Ld. AO.

Ground No. 6 challenges the initiation of penalty proceedings u/s 270A of the Act. At the present stage, the ground is premature and does not call for adjudication.

Ground No. 7 is general in nature and requires no separate adjudication.

In the result, the assessee’s appeal bearing ITA No. 8027/Mum/2025 is partly allowed for statistical purposes. Order pronounced in the open court on 17th day of September 2026.