HILTI MANUFACTURING INDIA PRIVATE LIMITED,MUMBAI vs. ASSESSMENT UNIT INCOME TAX DEPARTMENT, MUMBAI

आयकर अपीलीय अधिकरण, म ुंबई पीठें, म ुंबई INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI BENCH: H BEFORE SMT. BEENA PILLAI, HON’BLE JUDICIAL MEMBER AND SHRI JAGADISH, HON’BLE ACCOUNTANT MEMBER ITA 8950/MUM/2025 (निर्धारण वर्ा/Assessment Year: 2022-23) HILTI MANUFACTURING INDIA ASSESSMENT UNIT PRIVATE LIMITED INCOME TAX DEPARTMENT 1,2,3 GROUND FLOOR, KARMA STAMBH INDUSTRIAL ESTATE, 3RD FLOOR, ROOM NO LBS MARG, CHANDAN NAGAR, Vs. 381 AYAKAR BHAVAN, C VIKHROLI (WEST), MUMBAI- I T, M C, M K ROAD 400083, MAHARASHTRA MUMBAI-400020, MAHARASHTRA अपीलधर्थी Appellant प्रत्यर्थी Respondent

Permanent Account Number of Assessee: AADCB2566L

अपीलधर्थी द्वारा/Appellant represented by: Shri. Ajit Kumar Jain, AR प्रत्यर्थी द्वारा/Respondent represented by: Shri. Pravin Salunkhe, Sr. DR सुनवाई की तारीख / Date of conclusion of hearing: 22-Jun-2026 घोषणा की तारीख / Date of pronouncement: 18-09-2026 आदेश / ORDER PER SMT. BEENA PILLAI, JUDICIAL MEMBER: Present appeal is filed by the assessee against the final assessment order dated 01/10/2025 passed by the Ld. Assessing Officer (“Ld. AO”) u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income-tax Act, 1961 (“the Act”) for A.Y. 2022-23, pursuant to the directions dated 10/09/2025 issued by the Ld. Dispute Resolution Panel-1, Mumbai (“Ld. DRP”) u/s. 144C(5) of the Act.

“1.General That the learned AO / Transfer Pricing Officer (‘TPO’) has factually and legally erred in determining the total income of the Appellant at INR 28,78,91,296 by making adjustment in respect of which specific ground has been raised. 2. Final Assessment Order is time barred That the learned AO has erred on the facts and circumstances of the case and in law, in issuing the final assessment order dated 1 October 2025, beyond the time-limit as prescribed under section 153 of the Act. The final assessment order is, thus, time-barred and liable to be quashed. 3. Notice under section 143(2) of the Act is invalid On the facts and circumstances of the case, the learned AO has erred in issuing notice under section 143(2) of the Act dated 02 June 2023 in violation of CBDT Instruction F.No.225/157/2017/ITA-II dated 23.06.2017. Therefore, the said notice is invalid, and consequently the entire assessment is bad in law and liable to be quashed. 4. Transfer Pricing Adjustment - Interest on Compulsorily Convertible Debenture of INR 3,60,00,000 4.1 That the Learned AO / TPO / Dispute Resolution Panel (‘DRP’) erred in law and on facts, in making arbitrary, adhoc and inconsistent upward adjustment of INR 3,60,00,000 to the total income of the Appellant in relation to the international transactions of payment of interest on Compulsory Convertible Debentures (‘CCDs’) by re-characterizing the CCDs as ‘equity’ and re-determining the arm’s length price (‘ALP’) ignoring the fundamental differences between the CCDs and equity instrument. 4.2 That the Learned AO / TPO / DRP has, contrary to provisions of section 92CA(3) read with Section 92C(3), erred in disregarding the detailed benchmarking approach and the methodology adopted by the Appellant, in its TP documentation maintained under section 92D of the Income Tax Act, 1961 read with Rule 10D of the Income Tax Rules, 1962. 4.3 That the Learned AO / TPO / DRP has erred in not stating / disclosing any cogent reasons to show that either of the conditions mentioned in clause (a) to (d) of section 92C(3) of the Act were satisfied before proposing an adjustment to the total income of the Appellant. 4.4 That the Learned AO / TPO / DRP erred in law and on facts, in exceeding his jurisdiction by challenging a genuine transaction and commercial expediency, and thereby, concluding that CCDs are equity instruments, as the Learned TPO is empowered only to determine the ALP as per the provisions under Section 92C of the Act by applying any one of the methods stipulated in sub section (1) of Section 92C of the Act as the most appropriate method. 4.5 That the Learned AO / TPO / DRP erred in not following rule of consistency of allowing interest on the same CCDs in each Transfer Pricing Assessment since FY 2015-16 and changing his opinion. 4.6 That the Learned AO / TPO / DRP have erred in concluding the transaction of the Appellant not to be at arm’s length, even when the mirror reporting of the same transaction in the hands of the Associated Enterprise (AE), Hilti Aktiengesellschaft (‘Hilti AG’) was accepted to be at arm’s length. 4.7 That the Learned AO / TPO / DRP has erred in law and on facts in ignoring the fact of Tax Deducted at Source (‘TDS’) has been deducted on the income earned by the AE on account of Interest on CCDs and deposited with the government treasury. 5. Transfer Pricing Adjustment - Notional interest on outstanding receivables of INR 14,766 5.1 That the Learned AO / TPO / DRP erred in law and on facts, in making a transfer pricing adjustment and thereby making an addition of INR 14,766 to the income, by imputing notional interest on outstanding receivables from its AE, Hilti AG. 5.2 That the Learned AO / TPO / DRP has erred in re-characterizing the outstanding receivables balances of AE as loan granted by the Appellant to the AE. 5.3 That the Learned AO / TPO / DRP erred in not considering that the Appellant has already benchmarked outstanding receivables by undertaking working capital adjustment wherein the margins earned by the Appellant is significantly higher as compared to the margins earned by comparable companies. Hence it can be said that the higher margins earned by Appellant indicates that the implied cost of funding if any, has been factored in selling price. 5.4 That the Learned AO / TPO / DRP erred in law and on facts that the Appellant had no intention to provide the outstanding receivables as a loan or advance to the AE for such miniscule period of time. 5.5 That the Learned AO / TPO / DRP has erred in arbitrarily adopting 6 months LIBOR plus 300 basis points for imputing interest on the outstanding receivables of the Appellant. 5.6 That the Learned AO / TPO / DRP erred in ignoring the fact that neither Hilti AG charges to Appellant nor the Appellant charges to Hilti AG in case of delay of the amount receivable / payable.

5.7 That the Learned TPO erred in ignoring the fact that there are long overdue receivables from unrelated parties as well during the year under consideration, however even in such cases the assessee has not levied any interest on such unrelated parties, whereas the delay in case of receivables from AE is very miniscule. 6. Short grant of credit of taxes paid of INR 1,76,308 The learned AO has erred on the facts and in circumstances of the case and in law in giving short credit of taxes paid to the extent of INR 1,76,308 ignoring the provisions of the Act. 7. Incorrect calculation of interest under Section 234C of the Act The learned AO has erred in calculating interest under Section 234C of the Act. 8. Levy of interest under Section 234B of the Act The learned AO has erred in levying interest under Section 234B of the Act. 9. Initiation of penalty proceedings under section 270A r.w.s. 274 of the Act That the learned AO / TPO has erred in law and on facts in initiating the penalty u/s 270A r.w.s. 274 of the Act. 10. Violation of Principles of natural justice The learned TPO had given the assessee only two days to respond to the show cause notice thereby violating the principles of natural justice of not providing reasonable time to the Appellant to respond. Thus, based on the principle of natural justice the TP Order is liable to be quashed. 11. Disallowance under section 36(1)(iii) and 37(1) of the Act Without prejudice to above, the learned DRP has erred on the facts and in circumstances of the case and in law by directing learned AO to provide alternate disallowance for payment of interest on CCDs under section 36(1)(iii) and 37(1) of the Act.” Brief facts of the case are as under:- 3.

The assessee is a member of the Hilti Group and is engaged in manufacture and assembly of diamond saw blades, segments, grinding tools and core drills for its Associated Enterprises (“AEs”). It also renders certain contract development and testing services to its AEs. For the year under consideration, the assessee filed its return of income on 29/11/2022 declaring total income of Rs.25,18,76,530/-. The case was selected for scrutiny and, on

account of the international transactions reported in Form 3CEB, reference was made to the Ld.TPO on 12/07/2023 for determination of arm’s length price. The Ld.TPO passed order u/s. 92CA(3) dated 27/01/2025 proposing aggregate adjustment of Rs.3,60,14,766/-, consisting of adjustment of Rs.3,60,00,000/- in respect of interest paid on CCDs and Rs.14,766/- towards notional interest on outstanding receivables. On receipt of the order passed under section 92CA(3), the Ld.AO incorporated the proposed adjustment in the draft assessment order dated 12/02/2025 and proposed total income at Rs.28,78,91,296/-. On receipt of the draft assessment order, the assessee filed objections before the Ld. DRP. The DRP, vide its directions dated 10/09/2025, upheld the TP adjustments. In respect of interest paid on CCDs, the DRP directed that the sum could alternatively be disallowed under the normal provisions of sections 36(1)(iii) and 37(1) of the Act. On receipt of the DRP direction, the Ld.AO passed the final assessment order dated 01/10/2025 determining total income at Rs.28,78,91,296/-. Aggrieved by the final assessment order, the assessee is in appeal before this Tribunal. Ground No.4 Interest on Compulsorily Convertible Debentures Brief facts leading to the issue are that, during financial year relevant to assessment year under consideration, the assessee

issued CCDs aggregating to Rs.30,00,00,000/- to its AE, Hilti Aktiengesellschaft (“Hilti AG”), for a tenure of ten years. As per the terms of issue, interest was payable at the rate of 12% per annum and, during the year under consideration, the assessee paid interest amounting to Rs.3,60,00,000/-. For benchmarking the transaction, the assessee adopted CUP as the most appropriate method and selected broadly comparable debt instruments issued during FY 2015-16. The comparable range was determined between 12% and 14%, with median at 13%. Since the assessee paid interest at 12%, it considered the transaction to be at arm’s length. The Ld.TPO rejected the benchmarking undertaken by the assessee. He was of the view that, notwithstanding the nomenclature of the instrument as CCD, the contractual terms demonstrated that the investment was substantially in the nature of equity. According to the Ld.TPO, the principal was not repayable in cash and the instrument would ultimately convert into equity. The conversion ratio was predetermined and, therefore, the arrangement was considered akin to advance share capital/share application money. By applying the “Other Method”, the Ld. TPO determined the ALP of the interest at Nil and proposed adjustment of Rs.3,60,00,000/-. The DRP upheld the said conclusion, inter alia, relying on the decisions in Narendra Kumar Maheshwari v. Union of India, 1989 AIR 2138; Sahara India Savings & Investment Corpn. Ltd. v. SEBI, C.A. No. 9813 of 2011; and IFCI Ltd. v. Sutanu Sinha, Civil Appeal No. 4929/2023.

Before us, the Ld.AR submitted that the Ld.TPO as well as the DRP fundamentally erred in treating the CCDs as equity from inception. He submitted that till actual conversion, the CCDs continued to retain the character of debt and the holder thereof did not acquire any shareholder rights. He emphasised that the CCD Agreement specifically provide for payment of interest at 12% and that the CCD holders were not entitled to dividends or voting rights prior to conversion. He submitted that the agreement also makes it clear that the instrument continued to remain a debenture until discharged by conversion. The Ld.AR submitted that the very same CCDs was in existence since FY 2015-16 and the payment of interest thereon had been examined in earlier scrutiny/transfer pricing proceedings without any adjustment being proposed. It was thus submitted that, there was no change either in the underlying CCD Agreement or in the material facts warranting a departure during the year under consideration. The Ld.AR also referred to the corresponding reporting of the transaction in the hands of Hilti AG and submitted that the interest received by Hilti AG had been offered to tax in India and appropriate TDS was deducted by the assessee. The Ld.AR placed reliance upon, inter alia, Secure Meters Ltd., Reliance Natural Resources Ltd., HDFC Bank Ltd., Havells India Ltd. and the decision of the Coordinate Bench in Indorama Ventures Oxides Ankleshwar Private Limited v. DCIT, ITA No.4023/Mum/2024. It was submitted that, the terms governing the CCDs issued by the assessee were substantially similar to those examined by the Coordinate Bench in Indorama Ventures

Oxides Ankleshwar Private Limited (supra), wherein the instrument was recognised as debt until its conversion. Reliance was also placed upon LMN India Ltd. [2008] 175 Taxman 139 (AAR) and Zaheer Mauritius v. DIT [2014] 47 taxmann.com 247 (Delhi) for the proposition that the fact that the debt is discharged by conversion into equity rather than repayment in cash does not alter its character as debt until conversion. The Ld.DR strongly relied upon the observations of the Ld. TPO and the DRP. It was submitted that the contractual terms of the CCDs, when examined cumulatively, demonstrated their equity character. The Ld.DR referred to the fact that the CCDs were expressly non- redeemable, even on liquidation they were required to be converted into equity and that interest was stated to be payable at the discretion of the management. He also submitted that the instruments were unsecured and subordinated, that conversion price was predetermined and the agreement would terminate only upon conversion. He submitted that either party could trigger conversion and the funds were intended for setting up a greenfield plant. It was thus submitted by the Ld.DR that the substance of the transaction was an equity infusion rather than a loan transaction. The Ld.DR further relied on the decision of the Hon’ble Supreme Court in IFCI Ltd. v. Sutanu Sinha and submitted that absence of an obligation to repay principal constituted an important indicator against characterisation of the instrument as debt. According to the Ld.DR, the decisions relied upon by the assessee primarily dealt with allowability of interest u/s. 36(1)(iii)/37 in ordinary

assessment proceedings and did not answer the transfer pricing question as to whether an unrelated lender would enter into the transaction on the same terms. In rejoinder, the Ld.AR submitted that non-redeemability by itself does not convert a debenture into equity and that a convertible debt may be discharged through issuance of equity shares without losing its debt character during the period prior to conversion. It was submitted that the agreement expressly provided for interest at 12% and the discretion referred to therein related to the timing/regulatory mechanism of payment rather than existence of the liability itself. Likewise, he submitted that unsecured and subordinated debt remains a recognised form of borrowing. Ld.AR submitted that predetermined conversion ratio and the fact that the agreement terminates on conversion were stated to be inherent features of a convertible debt instrument and not sufficient to treat it as equity from inception. The Ld.AR further distinguished IFCI Ltd. v. Sutanu Sinha on the factual context in which the said judgment was rendered. Reliance was placed on Goldman Sachs (India) Finance (P.) Ltd. [2025] 177 taxmann.com 797 (Mum.-Trib.), wherein applicability of IFCI Ltd. in the context of characterisation of CCDs under the Income-tax Act was considered and distinguished on account of the different contractual matrix. The Ld.AR thus reiterated his reliance on the decision of Zaheer Mauritius v. DIT (supra), wherein it was observed that a compulsorily convertible debenture essentially remains debt until discharged by conversion into equity.

We have perused the submissions advanced by both sides in light of the record placed before us. The limited controversy before us is whether the Ld.TPO was justified in disregarding the CCDs as debt instruments, treating the investment as equity from inception and consequently determining the ALP of the interest paid thereon at Nil. It is undisputed that the assessee issued the subject CCDs in FY 2015-16 for a tenure of ten years and that, during the subsistence of the instrument, interest was contractually stipulated at 12% per annum. The CCD holders did not acquire voting rights or entitlement to dividend prior to conversion. The instrument admittedly remained outstanding as CCD during the year under consideration and no conversion into equity had taken place. The assessee benchmarked the interest under CUP by identifying comparable debt instruments yielding a range of 12% to 14%, with median at 13%. The rate actually paid by the assessee at 12% fell within such range. The Ld.TPO has not rejected the assessee’s benchmarking by demonstrating that the comparable interest rate of 12% was excessive; instead, the entire exercise was discarded on the threshold premise that the CCD itself had to be treated as equity and, therefore, no interest was payable thereon. We find merit in the contention of the Ld. AR that the compulsory conversion feature by itself does not result in the CCD assuming the character of equity from the date of its issuance. Till the occurrence of conversion, the holder continues to hold the instrument issued as a debenture and the return contractually attached to such instrument is interest. In Zaheer Mauritius v. DIT

(supra), relied upon by the assessee, Hon’ble Delhi High Court observed that a debenture creates and recognises the existence of debt until it is discharged, either by payment or by conversion, and that a compulsorily convertible debenture is essentially debt which is compulsorily liable to be discharged by conversion into equity. The fact that discharge ultimately takes place through issue of shares does not, by itself, retrospectively transform the character of the instrument for the period prior to conversion. We further note that the Coordinate Bench in Indorama Ventures Oxides Ankleshwar Private Limited v. DCIT (supra), specifically relied on by the assessee, considered the terms of CCDs having features which, according to the assessee, were materially comparable with the subject CCDs and accepted that such instruments continued to retain the character of debt until conversion. The Ld.AR has placed before us a comparative analysis of the terms governing both instruments, including the mandatory conversion mechanism and regulatory approval requirements. We do not find any material distinction brought out by the Revenue which would warrant treating the present CCDs differently merely because conversion is compulsory. We have also considered the reliance of the Revenue on IFCI Ltd. v. Sutanu Sinha. The assessee relied on the subsequent decision of the Coordinate Bench in Goldman Sachs (India) Finance (P.) Ltd. (supra), wherein the aforesaid decision of Hon’ble Supreme Court was considered in the context of characterisation of CCDs and was held to arise in a materially different contractual matrix. The decision in IFCI Ltd. arose in the context of rights of parties under

the Insolvency and Bankruptcy Code and upon examination of the particular agreement involved therein. In the present case, the subject instrument has continued to be recognised under the contractual arrangement as a CCD carrying a stipulated interest rate until conversion. We therefore do not find the said decision sufficient to justify substitution of the actual transaction entered into between the parties by an equity transaction for purposes of determining the ALP. We also find significance in the fact that the Ld.TPO determined the ALP at Nil not on the basis of any comparable uncontrolled transaction demonstrating that no interest was payable, but on the premise that an independent party would not have entered into such financing arrangement. The transaction actually undertaken by the assessee was issuance of CCDs. Once such transaction is recognised as a debt instrument during the pre-conversion period, its arm’s length character has to be tested by examining the interest rate attached thereto. The assessee carried out such benchmarking under CUP. No infirmity in the interest-rate comparables or in the resulting range has been demonstrated by the lower authorities. We take note of the assessee’s submission that the very same CCD arrangement subsisted in the preceding years and the interest paid thereon had been examined without any TP adjustment being proposed. Though each assessment year is separate, in the absence of any demonstrated change in the underlying contractual terms or material facts, a departure in the present year requires cogent reasons. In the facts before us, the change has arisen solely

from a different characterisation of the same instrument rather than from any variation in the underlying transaction. In view of the above and respectfully following the judicial precedents specifically relied upon by the Ld.AR, we hold that the subject CCDs retained their character as debt instruments during the year under consideration, till their actual conversion into equity. Consequently, the payment of interest thereon could not have been disregarded by treating the CCDs as equity from inception. As the rate of 12% paid by the assessee falls within the range of the CUP analysis placed on record, the impugned transfer pricing adjustment of Rs.3,60,00,000/- is directed to be deleted. Accordingly, Ground Nos.4.1 to 4.7 raised by the assessee are allowed. 5. Ground No. 5 – Notional interest on outstanding receivables Ground No.5 relates to the adjustment of Rs.14,766/- by imputing interest on alleged delay in realisation of outstanding receivables from the AE. The assessee had disclosed outstanding receivables aggregating to Rs.10,31,99,603/- from its AEs. The Ld.TPO treated the period beyond 30 days as a separate financing transaction and applied six-month LIBOR plus 300 basis points to compute notional interest of Rs.14,766/-. The DRP upheld the adjustment on the reasoning that delayed receivables fall within the expanded definition of “international transaction” under Explanation to section 92B and rejected the assessee’s contention regarding working capital adjustment.

The Ld.AR submitted that the delay involved in realisation from the AE was insignificant and there was never any intention to provide financing to the AE. It was submitted that neither Hilti AG charges interest from the assessee nor does the assessee charge interest from Hilti AG on delayed settlements. The assessee also demonstrated that receivables from unrelated third-party customers remained outstanding for substantially longer periods, including delays running into several hundred days, without any interest being charged. Accordingly, it was submitted that the assessee followed the same commercial policy for AEs and non- AEs. The Ld.AR submitted that the impact of receivables had already been factored while benchmarking the principal international transaction by way of working capital adjustment. It was submitted that the entity-level NCP margin earned by the assessee was substantially higher than the working-capital-adjusted margins of the comparable companies and, therefore, the funding effect, if any, stood subsumed in the price of the principal transaction. Reliance was placed upon the decision of the Hon’ble Delhi High Court in PCIT v. Kusum Health Care Pvt. Ltd., ITA No.765/2016, and the decisions of the Tribunal in Amwin Automotive Pvt. Ltd. and Strides Pharma Science Ltd. The Ld.DR on the contrary, relied upon the findings of the Ld.TPO and the directions of the DRP and submitted that the Explanation to section 92B specifically includes receivables and any debt arising during the course of business within the expression “international transaction”. According to the Revenue, the excess

credit period therefore required separate benchmarking. The DRP also observed that the assessee had not satisfactorily demonstrated before it the precise working-capital difference with the comparables. We have considered the submissions advanced by both sides in light of records placed before us. We note that the controversy in the present case does not require us to decide, as an abstract proposition, whether delayed receivables can ever constitute an international transaction. The peculiar facts before us demonstrate that the assessee has not adopted a discriminatory credit policy in favour of its AE. Material placed before us indicates significant overdue of receivables from unrelated customers also, on which no interest was charged. The delay in relation to the subject AE receivable, resulting in an adjustment of only Rs.14,766/-, is comparatively insignificant. More importantly, the assessee has benchmarked the principal transaction after undertaking working-capital adjustment. The Hon’ble Delhi High Court in PCIT v. Kusum Health Care Pvt. Ltd. (supra), specifically relied upon by the Ld.AR, considered the impact of receivables in the context of working-capital adjustment and observed that where such impact is already factored into the pricing/profitability analysis, a further separate adjustment on the same account may distort the benchmarking exercise. On facts before us, the assessee has demonstrated that its margin, after the relevant working-capital exercise, remained higher than that of the comparable set.

In these circumstances, and particularly considering the assessee’s uniform conduct vis-à-vis unrelated customers, we are unable to uphold a separate notional interest adjustment merely on account of a minor delay in realisation from the AE. The outstanding receivable in the present facts cannot be viewed in isolation from the principal transaction which has already been benchmarked after taking into consideration the working-capital differences. We therefore do not find any force in the addition of Rs.14,766/-. Accordingly, Ground Nos.5.1 to 5.7 raised by the assessee stands allowed. 6. Ground No. 11 – Alternate disallowance u/s. 36(1)(iii) and 37(1) Ground No.11 challenges the alternate direction of the Ld. DRP to sustain the payment of interest on CCDs as a disallowance under sections 36(1)(iii) and 37(1) of the Act even in the event of the transfer pricing adjustment not surviving. The Ld. DRP observed that the CCDs represented investment/equity rather than “capital borrowed” and therefore interest thereon could not qualify for deduction u/s. 36(1)(iii). It was further held that the assessee had failed to establish the business nexus for purposes of section 37(1). The Ld.AR submitted that, the alternate disallowance proceeds on the same fundamental premise on which the transfer pricing adjustment was made, namely that the CCDs constituted equity rather than debt. It was submitted that the audited financial statements themselves disclose the CCDs under “Long-term

Borrowings”. The assessee further submitted that interest was actually incurred on the CCDs issued for purposes of its business, TDS u/s. 195 had been duly deducted, and the corresponding interest income had been offered to tax by Hilti AG. Reliance was placed upon various judicial precedents dealing with allowability of expenditure incurred wholly and exclusively for purposes of business. We have already held hereinabove, while adjudicating Ground No.4, that the CCDs retained their character as debt instruments during the pre-conversion period. The foundational premise adopted by the DRP for denying deduction u/s. 36(1)(iii), namely that there was no “capital borrowed”, therefore ceases to survive. The interest of Rs.3,60,00,000/- represents the contractual cost attached to the funds raised by way of CCDs. There is no finding by the Ld.AO that the expenditure was fictitious or that the funds were diverted for a non-business purpose. We further find the observations of the DRP regarding absence of “services rendered” by the AE to be misplaced in the context of interest on borrowed capital. The payment in question is not a service fee. It represents consideration for use of funds raised by the assessee and, once the instrument is recognised as debt and the borrowing is for the purposes of business, the deductibility of interest is governed by the specific provision contained in section 36(1)(iii). The alternate invocation of section 37(1) cannot sustain the same disallowance on the premise that no services were rendered by the lender.

6.4. In view of our finding that the subject CCDs constituted debt till conversion and there being no adverse finding regarding utilisation of the borrowed funds for non-business purposes, the alternate disallowance directed by the DRP u/s.36(1)(iii)/37(1) cannot be sustained. The same is directed to be deleted. Accordingly, Ground No.11 raised by the assessee stands allowed. Remaining grounds 7. In respect of Ground Nos.2 and 3 concerning limitation of the final assessment order and validity of notice u/s. 143(2), the Ld.AR submitted that, in view of the relief sought on the substantive grounds being granted, these grounds would become academic. Accordingly, Ground Nos.2 and 3 is dismissed as infructuous. 7.1. Ground No.1 is general in nature and does not require separate adjudication. 7.2. Ground No.6 concerns short grant of credit of taxes paid amounting to Rs.1,76,308/-. The Ld. AO is directed to verify the claim of the assessee and grant due credit in accordance with law. 7.3. Ground Nos.7 and 8 relating to levy/computation of interest u/s. 234C and 234B are consequential and the Ld. AO is directed to recompute the same, if any, in accordance with law while giving effect to this order. 7.4. Ground No.9 relating to initiation of penalty proceedings u/s. 270A r.w.s. 274 is premature and does not call for adjudication at this stage.

7.5. Ground No.10 alleging violation of principles of natural justice in the course of transfer pricing proceedings becomes academic in view of our adjudication of the substantive transfer pricing grounds in favour of the assessee and is therefore not adjudicated.

In the result, appeal filed by the assessee stands allowed in terms indicated hereinabove.

Order pronounced in the open court on 18-09-2026.

Sd/- Sd/- JAGADISH BEENA PILLAI ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai Dated: 18-09-2026 Shamik Sr. P.S.

Copy to: HILTI MANUFACTURING INDIA PRIVATE LIMITED, 1,2,3 GROUND FLOOR, KARMA STAMBH INDUSTRIAL ESTATE, LBS 1 MARG, CHANDAN NAGAR, VIKHROLI (WEST), MUMBAI-400083, MAHARASHTRA ASSESSMENT UNIT INCOME TAX DEPARTMENT, 2 3RD FLOOR, ROOM NO 381 AYAKAR BHAVAN, C I T, M C, M K ROAD, MUMBAI-400020, MAHARASHTRA 3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE TRUE COPY

ASSISTANT REGISTRAR / SR. PRIVATE SECRETARY I.T.A.T., MUMBAI