DCIT, MUMBAI vs. MAHINDRA HOMES PVT LTD., MUMBAI

ORDER PER OM PRAKASH KANT, AM

This appeal by the Revenue is directed against order dated 26.12.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – 57, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2015-16, raising following grounds:

Ground 1 Whether on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in not appreciating the difference between Debt/Term Loan vs CCDs duly distinguished by the TPO in his order, requiring different benchmarking?

Ground 2 Whether on the facts and circumstances of the case and Ground 2 Whether on the facts and circumstances of the case and Ground 2 Whether on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in directing to accept the in law, the Hon'ble CIT(A) has erred in directing to accept the in law, the Hon'ble CIT(A) has erred in directing to accept the benchmarking of interest on term loan/debt for interest on marking of interest on term loan/debt for interest on CCDs, marking of interest on term loan/debt for interest on which are primarily different instruments? which are primarily different instruments? Ground 3 Whether on the facts and circumstances of the case and Ground 3 Whether on the facts and circumstances of the case and Ground 3 Whether on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in relying on the Hon'ble in law, the Hon'ble CIT(A) has erred in relying on the Hon'ble in law, the Hon'ble CIT(A) has erred in relying on the Hon'ble ITAT's decision in assesse ITAT's decision in assessee's own case for AY 2014 e's own case for AY 2014-15 wherein reliance is placed on decision of Bombay High Court in the case of reliance is placed on decision of Bombay High Court in the case of reliance is placed on decision of Bombay High Court in the case of India Debt Management in ITA.No.7518/Mum/2014 order dated India Debt Management in ITA.No.7518/Mum/2014 order dated India Debt Management in ITA.No.7518/Mum/2014 order dated 10.03.2016, the facts of which are distinguishable in 10.03.2016, the facts of which are distinguishable in 10.03.2016, the facts of which are distinguishable in the case of the assessee. In this case of the assessee. In this case of India Debt Management, the high India Debt Management, the high court has observed that Bloomberg data has no INR denominated court has observed that Bloomberg data has no INR denominated court has observed that Bloomberg data has no INR denominated instrument; whereas in the case of the assessee Bloomberg data instrument; whereas in the case of the assessee Bloomberg data instrument; whereas in the case of the assessee Bloomberg data in INR are available and which were duly intimated to the in INR are available and which were duly intimated to the in INR are available and which were duly intimated to the Assessee in the show Assessee in the show-cause notice by TPO? Ground 4 Whether on the facts and ciroumstances of the case and Ground 4 Whether on the facts and ciroumstances of the case and Ground 4 Whether on the facts and ciroumstances of the case and in law, the Hon'ble CIT(A) has erred in restricting the disallowance in law, the Hon'ble CIT(A) has erred in restricting the disallowance in law, the Hon'ble CIT(A) has erred in restricting the disallowance of Legal & Professional expenses to the amount of Rs. of Legal & Professional expenses to the amount of Rs. of Legal & Professional expenses to the amount of Rs. 1,80,78,800/ 1,80,78,800/- and also erred in holding the balance Legal & and also erred in holding the balance Legal & Professional expenses as Revenue Expenditure in nature and Professional expenses as Revenue Expenditure in nature and Professional expenses as Revenue Expenditure in nature and deleting the disallowance made by the AO, without appreciating deleting the disallowance made by the AO, without appreciating deleting the disallowance made by the AO, without appreciating the fact that the said expense has not contributed in earning any the fact that the said expense has not contributed in earning any the fact that the said expense has not contributed in earning any income during the year under consideration and have multiyear income during the year under consideration and have multiyear income during the year under consideration and have multiyear effect on the business of the assessee and therefore are liable to on the business of the assessee and therefore are liable to on the business of the assessee and therefore are liable to be treated as Capital Expenditure. be treated as Capital Expenditure. Ground 5 Whether on the facts and circumstances of the case and Ground 5 Whether on the facts and circumstances of the case and Ground 5 Whether on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in holding the Advertisement in law, the Hon'ble CIT(A) has erred in holding the Advertisement in law, the Hon'ble CIT(A) has erred in holding the Advertisement & Sale expenses as Revenue Exp & Sale expenses as Revenue Expenditure in nature and deleting enditure in nature and deleting the disallowance made by the AO, without appreciating the fact the disallowance made by the AO, without appreciating the fact the disallowance made by the AO, without appreciating the fact that the said expense has not contributed in that the said expense has not contributed in earning any income earning any income during the year under consideration and have multiyear effect on during the year under consideration and have multiyear effect on during the year under consideration and have multiyear effect on the business of the assessee and the business of the assessee and therefore are liable to be treated therefore are liable to be treated as Capital Expenditure. as Capital Expenditure. Ground 6 Whether on the facts and circumstances of the case and Ground 6 Whether on the facts and circumstances of the case and Ground 6 Whether on the facts and circumstances of the case and in law, the Hon'ble CI in law, the Hon'ble CIT(A) has erred in holding the Com T(A) has erred in holding the Commission and brokerage expenses as Revenue Expenditure in nature and and brokerage expenses as Revenue Expenditure in nature and and brokerage expenses as Revenue Expenditure in nature and deleting the disallowance made by the AO, without appreciating the disallowance made by the AO, without appreciating the disallowance made by the AO, without appreciating the fact that the said expense has not contributed in the fact that the said expense has not contributed in earning any income during the year under consideration and have multiyear income during the year under consideration and have multiyear income during the year under consideration and have multiyear effect on the business of the assessee and therefore are liable to effect on the business of the assessee and therefore are liable to effect on the business of the assessee and therefore are liable to be treated as Capital ated as Capital Expenditure.

2.1 For the year und For the year under consideration, the assessee filed return of er consideration, the assessee filed return of income electronically on 30.11.2015 declaring total loss of income electronically on 30.11.2015 declaring total loss of income electronically on 30.11.2015 declaring total loss of Rs.13,39,91,969/-. The return of income filed by the assessee was . The return of income filed by the assessee was . The return of income filed by the assessee was selected for scrutiny selected for scrutiny assessment and notice u/s 143(2 assessment and notice u/s 143(2) of the Income-tax Act, 1961 tax Act, 1961 (in short ‘the Act’) was issued and duly served (in short ‘the Act’) was issued and duly served upon the assessee on 04.04.2016 upon the assessee on 04.04.2016. Thereafter notices u/s 142(1) of hereafter notices u/s 142(1) of the Act were issued the Act were issued through Income-tax Business Application tax Business Application (ITBA) portal on various (ITBA) portal on various dates. In view of international transactions . In view of international transactions of making interest terest payment payment on on Compulsorily Compulsorily Convertible Convertible Debentures (CCDs) issued to (CCDs) issued to ‘SCM Real Estate Singapore Ltd.’ Singapore and other specified domestic transaction and other specified domestic transaction and other specified domestic transaction disclosed in Form No. 3CEB filed by the assessee, the Ld. Assessing Officer(AO) Form No. 3CEB filed by the assessee, the Ld. Assessing Officer Form No. 3CEB filed by the assessee, the Ld. Assessing Officer referred the matter for determination of arm’s length price of those referred the matter for determination of arm’s length price of those or determination of arm’s length price of those international transactions to Ld. Transfer Pricing Officer (TPO). The transactions to Ld. Transfer Pricing Officer (TPO). The transactions to Ld. Transfer Pricing Officer (TPO). The Ld. TPO in his order dated 29.12.2018 proposed transfer pricing Ld. TPO in his order dated 29.12.2018 proposed transfer pricing Ld. TPO in his order dated 29.12.2018 proposed transfer pricing adjustment amounting to Rs.28,94,33,680/ amounting to Rs.28,94,33,680/- to the transaction of to the transaction of interest on CCDs. The value of the remaining specified domestic . The value of the remaining specified domestic . The value of the remaining specified domestic transaction however transaction however was considered as at arm’s length. The arm’s length. The Assessing Officer also made disallowance u/s 57 of the Act in Assessing Officer also made disallowance u/s 57 of the Act in Assessing Officer also made disallowance u/s 57 of the Act in respect of ‘legal and professional expenses legal and professional expenses’ (Rs.1,90,57,834); (Rs.1,90,57,834); ‘advertisement and sales expenses’ (Rs.5,50,69,726/ (Rs.5,50,69,726/-) ; and ‘commission and brokerage expenses commission and brokerage expenses’ (Rs.4,47,50,455/ (Rs.4,47,50,455/-) totaling to Rs.1,26,33,412/-. The Ld. Assessing Officer also adjusted the work . The Ld. Assessing Officer also adjusted the work . The Ld. Assessing Officer also adjusted the work- in-progress at value of Rs.3,49,59,30,826 progress at value of Rs.3,49,59,30,826/- as against inventory or as against inventory or work-in-progress value of Rs.368,40,06,222/ gress value of Rs.368,40,06,222/- as reported by the as reported by the assessee.

2.2 On appeal, the Ld. CIT(A) deleted the transfer pricing On appeal, the Ld. CIT(A) deleted the transfer pricing On appeal, the Ld. CIT(A) deleted the transfer pricing adjustment, following the decision of the Co adjustment, following the decision of the Co-ordinate Bench of the ordinate Bench of the Tribunal in the assessee’s own case for A.Ys. 2014-15, 2016-17, Tribunal in the assessee’s own case for A.Ys. 2014 Tribunal in the assessee’s own case for A.Ys. 2014 and 2017-18, wherein similar additions had been deleted. The 18, wherein similar additions had been deleted. The 18, wherein similar additions had been deleted. The CIT(A) relied upon the judgment of the Hon’ble Bombay High Court CIT(A) relied upon the judgment of the Hon’ble Bombay High Court CIT(A) relied upon the judgment of the Hon’ble Bombay High Court in the case of Pr. CIT v. India Debt Management (P.) Ltd. Pr. CIT v. India Debt Management (P.) Ltd. [2019] 106 Pr. CIT v. India Debt Management (P.) Ltd. taxmann.com 55 (Bom), which had affirmed the Tribunal’s view that taxmann.com 55 (Bom), which had affirmed the Tribunal’s view th taxmann.com 55 (Bom), which had affirmed the Tribunal’s view th benchmarking based on Bloomberg/Thomson Reuters databases, in benchmarking based on Bloomberg/Thomson Reuters databases, in benchmarking based on Bloomberg/Thomson Reuters databases, in the absence of INR denominated debt instruments, could not be the absence of INR denominated debt instruments, could not be the absence of INR denominated debt instruments, could not be regarded as appropriate. regarded as appropriate. The relevant finding of the Ld. CIT(A) is The relevant finding of the Ld. CIT(A) is reproduced as under: reproduced as under:

“Further, it is noted that similar methodology were adopted by Further, it is noted that similar methodology were adopted by Further, it is noted that similar methodology were adopted by the appellant as well as TPO in later A.Y.2016 the appellant as well as TPO in later A.Y.2016-17 and 2017 17 and 2017-18 also. The appellant has submitted that relying on the above also. The appellant has submitted that relying on the above also. The appellant has submitted that relying on the above decision of Hon'ble ITAT for A.Y.2014 decision of Hon'ble ITAT for A.Y.2014-15, the Hon'ble Mumbai 15, the Hon'ble Mumbai ITAT order in the Appellant's own case for AY 2016 in the Appellant's own case for AY 2016-17 and AY 17 and AY 2017-18 of 2021 and of 2021) vide 18 ITA No. 2179 of 2021 and ITA No. 1008 of 2021) vide 18 ITA No. 2179 of 2021 and ITA No. 1008 of 2021) vide order dated 30.09.2022 decided the issue in favour of the order dated 30.09.2022 decided the issue in favour of the order dated 30.09.2022 decided the issue in favour of the appellant. The Hon'ble Mumbai ITAT in this regard had also appellant. The Hon'ble Mumbai ITAT in this regard had also appellant. The Hon'ble Mumbai ITAT in this regard had also referred to the case of India referred to the case of India Debt Management in Management in ITA. No. 7518/Mum/2014 (affirmed by the Hon'ble Bombay High Court) 7518/Mum/2014 (affirmed by the Hon'ble Bombay High Court) 7518/Mum/2014 (affirmed by the Hon'ble Bombay High Court) also. The relevant extract of the said case law has been also. The relevant extract of the said case law has been also. The relevant extract of the said case law has been reproduced as below. reproduced as below. "Respectfully following the same, we direct the Id. TPO to delete "Respectfully following the same, we direct the Id. TPO to delete "Respectfully following the same, we direct the Id. TPO to delete the TP adjustment made to the TP adjustment made towards the interest paid on CCDs to wards the interest paid on CCDs to its AE. Accordingly, the Ground Nos. 3 to 13 raised by the its AE. Accordingly, the Ground Nos. 3 to 13 raised by the its AE. Accordingly, the Ground Nos. 3 to 13 raised by the assessee are allowed" assessee are allowed" 6.1.5 From the above, it is clear that the claim of the appellant 6.1.5 From the above, it is clear that the claim of the appellant 6.1.5 From the above, it is clear that the claim of the appellant is correct that the issue involved is similar and the TP grounds is correct that the issue involved is similar and the TP grounds is correct that the issue involved is similar and the TP grounds of appeal -

1 to 9 1 to 9 - are squarely covered by the decision of the are squarely covered by the decision of the Hon'ble jurisdictional ITAT in its own case for A.Y. 2014 Hon'ble jurisdictional ITAT in its own case for A.Y. 2014 Hon'ble jurisdictional ITAT in its own case for A.Y. 2014-15. Hence, respectfully, relying on this decision of Hon'ble ITAT ITA Hence, respectfully, relying on this decision of Hon'ble ITAT ITA Hence, respectfully, relying on this decision of Hon'ble ITAT for A.Y.2014 No.7159/Mum/2018 for A.Y.2014-15 dated 03.08,2022, the TP 15 dated 03.08,2022, the TP grounds of app grounds of appeal nos. 1 to 9 are considered as allowed. eal nos. 1 to 9 are considered as allowed. Consequently, Consequently, Consequently, the the the TP TP TP adjustment adjustment adjustment of of of Rs.28,94,33,680/- Rs.28,94,33,680/ Rs.28,94,33,680/ u/s.92CA of the Act (Rs.24,80,269/ u/s.92CA of the Act (Rs.24,80,269/- added to the returned added to the returned income and the amount of Rs.28,69,53,411/ income and the amount of Rs.28,69,53,411/- being reduced being reduced from from from inventory inventory inventory on on on account account account of of of this this this TP TP TP adjustme adjustme adjustment) is directed to be be deleted.”

3. Aggrieved with the finding of the Ld. CIT(A), the Revenue is in Aggrieved with the finding of the Ld. CIT(A), the Revenue is in Aggrieved with the finding of the Ld. CIT(A), the Revenue is in appeal before us by way of grounds as reproduced above. appeal before us by way of grounds as reproduced above. appeal before us by way of grounds as reproduced above.

5.1 For the purpose of benchmarking the arm’s length price of For the purpose of benchmarking the arm’s length price of For the purpose of benchmarking the arm’s length price of international transaction, the assessee carried out analysis for international transaction, the assessee carried out analysis for international transaction, the assessee carried out analysis for indentifying comparable fying comparables on website of Bombay Stock Exchange on website of Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and National Security (BSE), National Stock Exchange (NSE) and National Security (BSE), National Stock Exchange (NSE) and National Security Deposit Ltd. (NSDL). The assessee carried out Deposit Ltd. (NSDL). The assessee carried out through through search on the websites for ‘debt instruments debt instruments’ including securities including securities consisting of Central Government Securities, State Government Securities, Central Government Securities, State Government Securities, Central Government Securities, State Government Securities, Treasury Bill Securities, Memorandum of privately placed bonds Treasury Bill Securities, Memorandum of privately placed bonds Treasury Bill Securities, Memorandum of privately placed bonds list, privately debt instruments. Out of the above debt instruments, list, privately debt instruments. Out of the above debt instruments, list, privately debt instruments. Out of the above debt instruments, the list of privately debt instruments the list of privately debt instruments was selected for unde selected for undertaking a detailed analysis. O . Out of list generated, the assessee further ut of list generated, the assessee further eliminated the list based on following criteria : eliminated the list based on following criteria :

 Debt instruments not issued during FY 2013 Debt instruments not issued during FY 2013-14; 14;  Debt instruments issued at floating rate or at zero debt coupon Debt instruments issued at floating rate or at zero debt coupon Debt instruments issued at floating rate or at zero debt coupon rates;  Debt instrument Debt instruments, issued by companies not engaged in real estate s, issued by companies not engaged in real estate industry; and industry; and  Debt instruments issued at floating Debt instruments issued at floating redemption. redemption.

5.2 In this manner, search result of the three websi In this manner, search result of the three websi In this manner, search result of the three website resulted in total 65 listing. The The assessee further eliminated the duplicate assessee further eliminated the duplicate entries and the instruments issued by the companies not operating entries and the instruments issued by the companies not operating entries and the instruments issued by the companies not operating in residential sub-sector of real estate. The above criteria resulted in sector of real estate. The above criteria resulted in sector of real estate. The above criteria resulted in elimination of listing of 60 debt instruments leaving a list of five elimination of listing of 60 debt instruments leaving a list of five elimination of listing of 60 debt instruments leaving a list of five indentified debt instruments tified tified debt debt instruments instruments issued. Further, issued. Further, the issued. Further, the the assessee assessee assessee considered two debt instruments which were accepted in last year’s considered two debt instruments which were accepted in last year considered two debt instruments which were accepted in last year documentation but not appearing in current year list of probable documentation but not appearing in current year list of probable documentation but not appearing in current year list of probable companies, were additionally indentified and included. In this additionally indentified and included. In this additionally indentified and included. In this manner, the the the assessee assessee assessee finally finally finally indentified indentified indentified seven seven seven comparable comparable comparable companies with mean mean coupon rate of which was worked out at 18%. worked out at 18%. The relevant list of comparables along with The relevant list of comparables along with their their coupon rate of interest is reproduced for ready interest is reproduced for ready reference: S No. Company ISIN Number Issue date date Coupon rate

5.4 The assessee also supported its transaction at arm’s length The assessee also supported its transaction at arm’s length The assessee also supported its transaction at arm’s length following a secondary ana following a secondary analysis relied upon RBI published lending lysis relied upon RBI published lending rates offered by various rates offered by various commercial banks in India as published by banks in India as published by the RBI at quarterly basis in respect of advance the RBI at quarterly basis in respect of advances other than export other than export credits. The term loan lending rates published by RBI on its website credits. The term loan lending rates published by RBI credits. The term loan lending rates published by RBI are considered as indicative rates at which banks in India lend ed as indicative rates at which banks in India lend ed as indicative rates at which banks in India lend money to its credit worthy customers. The assessee worked out money to its credit worthy customers. The assessee worked out money to its credit worthy customers. The assessee worked out median of 35th percentile and ending on the 65 percentile and ending on the 65th percentile of the percentile of the term loan rates offered by banks in India for the quarter ended term loan rates offered by banks in India for the quarter ended term loan rates offered by banks in India for the quarter ended September, 2013 which was worked out to 17.25% 2013 which was worked out to 17.25%. I . It was explained by the assessee that interest rate on CCD issued to the assessee to by the assessee that interest rate on CCD issued to the assessee to by the assessee that interest rate on CCD issued to the assessee to its AE was 17.65% (gross of tax) and therefore, it was within arm’s its AE was 17.65% (gross of tax) and therefore, it was within arm’s its AE was 17.65% (gross of tax) and therefore, it was within arm’s length price under the Indian Transfer Pricing perspective. length price under the Indian Transfer Pricing perspective. length price under the Indian Transfer Pricing perspective.

5.5 The Ld. TPO was not satisfied with the benchmarking result of he Ld. TPO was not satisfied with the benchmarking result of he Ld. TPO was not satisfied with the benchmarking result of the assessee. Accordingly, he rejected the benchmarking carried out the assessee. Accordingly, he rejected the benchmarking carried out the assessee. Accordingly, he rejected the benchmarking carried out by the assessee. The Ld. TPO rejected the assessee’s alternative by the assessee. The Ld. TPO rejected the assessee’s alternative by the assessee. The Ld. TPO rejected the assessee’s alternative benchmarking holding that lending rates benchmarking holding that lending rates of Commercial Banks of Commercial Banks available on RBI database ailable on RBI database were not strictly comparable to the were not strictly comparable to the international transaction carried out by the assessee as same were international transaction carried out by the assessee as same were international transaction carried out by the assessee as same were indicative rates without any evidence of actual transaction between indicative rates without any evidence of actual transaction between indicative rates without any evidence of actual transaction between two independent entities. Further, the rates were subjected to the two independent entities. Further, the rates were subjected t two independent entities. Further, the rates were subjected t financial strength of the borrowing financial strength of the borrowing company. The Ld. TPO noted ompany. The Ld. TPO noted that Comparable Uncontrolled ncontrolled Price method (CUP) requires strict (CUP) requires strict comparability of the benchmarking data whereas the benchmark comparability of the benchmarking data whereas the benchmark comparability of the benchmarking data whereas the benchmark interest rate from the RBI website considered by the assessee interest rate from the RBI website considered by the assessee interest rate from the RBI website considered by the assessee indicated a broad range of lending rates offered by range of lending rates offered by commercial range of lending rates offered by banks in India to varied customers with differing profile then that of banks in India to varied customers with differing profile then that of banks in India to varied customers with differing profile then that of the assessee and also the lending rates had been taken into the assessee and also the lending rates had been taken into the assessee and also the lending rates had been taken into account without considering the without considering the distinctive terms attached to distinctive terms attached to subscription of CCDs. The Ld. TPO further held that convertible subscription of CCDs. The Ld. TPO further held that convertible subscription of CCDs. The Ld. TPO further held that convertible debentures issued by the company debentures issued by the company were as a type of loan which as a type of loan which could be converted converted into stock and therefore, the convertible into stock and therefore, the convertible debentures are different from different from the non-convertible debentures as in convertible debentures as in the event of bankruptcy e event of bankruptcy, debenture are paid after other fixed debenture are paid after other fixed income holders whereas convertible debentures are a hybrid income holders whereas convertible debentures are a hybrid income holders whereas convertible debentures are a hybrid financial products i.e. benefit of both debt and equity. The Ld. TPO financial products i.e. benefit of both debt and equity. The Ld. TPO financial products i.e. benefit of both debt and equity. The Ld. TPO accordingly applied filters viz. issuance accordingly applied filters viz. issuance date, 12 years maturity 12 years maturity, effective annual yield effective annual yield, considering quarterly payment considering quarterly payment etc. The Ld. TPO carried out search on “ search on “Bloomberg” loan database database involving jurisdiction of India and Singapore jurisdiction of India and Singapore for benchmarking for benchmarking. Accordingly, the Ld. TPO arrived at ALP on interest rate of 8.6% on the arrived at ALP on interest rate of 8.6% on the basis of arrived at ALP on interest rate of 8.6% on the two comparables namely ‘SVOGL’ and ‘Soma Enterprises Ltd’. The two comparables namely ‘SVOGL’ and ‘Soma Enterprises Ltd’. two comparables namely ‘SVOGL’ and ‘Soma Enterprises Ltd’. complete search criteria and screenshot of Bloomberg database was complete search criteria and screenshot of Bloomberg database complete search criteria and screenshot of Bloomberg database shared by the TPO with by the TPO with the assessee.

5.4 The assessee however contended that CCDs were unsecured The assessee however contended that CCDs were unsecured The assessee however contended that CCDs were unsecured, high risk instrument ent, specific to the real estate sector, unlike the specific to the real estate sector, unlike the ‘Bloomberg’ comparables comparables, which pertain to the industry like which pertain to the industry like ‘oil and gas’ and ‘infrastructure infrastructure’. It was contended that industry risk and . It was contended that industry risk and terms of issue made the transaction non terms of issue made the transaction non-comparable. The assessee comparable. The assessee also argued that reliance on only two and three Bloomberg o argued that reliance on only two and three Bloomberg o argued that reliance on only two and three Bloomberg comparable was strictly insufficient for benchmarking. comparable was strictly insufficient for benchmarking. comparable was strictly insufficient for benchmarking.

5.5 The Ld. TPO however maintained that CCDs are till The Ld. TPO however maintained that CCDs are till The Ld. TPO however maintained that CCDs are till conversion, debt instrument and therefore, benchmarking debt instrument and therefore, benchmarking debt instrument and therefore, benchmarking of loan yields on Bloomberg databas yields on Bloomberg database was the correct approach. It was held e was the correct approach. It was held by Ld. TPO that industry filter Ld. TPO that industry filter was of limited relevance since limited relevance since Bloomberg provides reliable corporate bond yield. The assessee’s Bloomberg provides reliable corporate bond yield. The assessee Bloomberg provides reliable corporate bond yield. The assessee reliance on RBI data and sector specific risk was reliance on RBI data and sector specific risk was also also not accepted by the Ld. TPO.

5.6 The Ld. TPO noted that the Ld. DRP in assessee’s own case for The Ld. TPO noted that the Ld. DRP in assessee’s own case for The Ld. TPO noted that the Ld. DRP in assessee’s own case for assessment year 2014 assessment year 2014-15 had upheld the action of benchmarking action of benchmarking interest rate on CCD using Bloomberg database. Based on the interest rate on CCD using Bloomberg database. Based on the interest rate on CCD using Bloomberg database. Based on the above, the Ld. TPO concluded that ALP of the interest on CCDs above, the Ld. TPO concluded that ALP of the interest on CCDs above, the Ld. TPO concluded that ALP of the interest on CCDs should be computed computed at rate of 8.61% per annum. per annum. The assessee’s payment of interest at the rate of of interest at the rate of 17.65% was considered as 17.65% was considered as excessive, resulting into transfer pricing resulting into transfer pricing adjustment adjustment of Rs.28.94 crores.

“7. We have heard the rival submissions of both the We have heard the rival submissions of both the We have heard the rival submissions of both the parties, perused the paper book filed by the assessee, parties, perused the paper book filed by the assessee, parties, perused the paper book filed by the assessee, orders of the authorities below and the material orders of the authorities below and the material orders of the authorities below and the material available on record. In the instant case, we find that available on record. In the instant case, we find that available on record. In the instant case, we find that similar issu similar issue on hand has been came before the e on hand has been came before the Mumbai Bench of the Tribunal in the case of India Debt Mumbai Bench of the Tribunal in the case of India Debt Mumbai Bench of the Tribunal in the case of India Debt Management Management (P.) (P.) Ltd. Ltd. v. v. Dy. Dy. CIT CIT [2016] [2016] 69 69 taxmann.com 125 taxmann.com 125 and the order of the Tribunal has and the order of the Tribunal has been affirmed by the Hon'ble Bombay High been affirmed by the Hon'ble Bombay High Court in Court in the case of Pr. CIT v. India Debt Management (P.) Ltd. the case of Pr. CIT v. India Debt Management (P.) Ltd. the case of Pr. CIT v. India Debt Management (P.) Ltd. [2019] 106 taxmann.com 55/264 Taxman 42/417 ITR [2019] 106 taxmann.com 55/264 Taxman 42/417 ITR [2019] 106 taxmann.com 55/264 Taxman 42/417 ITR 103 wherin the Hon'ble Court observed that as far as wherin the Hon'ble Court observed that as far as wherin the Hon'ble Court observed that as far as the benchmarking done by the lower authorities based the benchmarking done by the lower authorities based the benchmarking done by the lower authorities based on external data using Thomson Reuters, DealScan external data using Thomson Reuters, DealScan external data using Thomson Reuters, DealScan and Bloomberg Database is not correct. The relevant and Bloomberg Database is not correct. The relevant and Bloomberg Database is not correct. The relevant observations of Hon'ble Jurisdictional High Court is observations of Hon'ble Jurisdictional High Court is observations of Hon'ble Jurisdictional High Court is reproduced as under : reproduced as under : "15. The last leg of the controversy is, whether the "15. The last leg of the controversy is, whether the "15. The last leg of the controversy is, whether the benchmarking analysis done by benchmarking analysis done by the assesses is correct the assesses is correct or not and whether the average rate of interest of or not and whether the average rate of interest of or not and whether the average rate of interest of 11.30% paid by the assessee to its AE is at ALP or not. 11.30% paid by the assessee to its AE is at ALP or not. 11.30% paid by the assessee to its AE is at ALP or not. So far as the assesses's benchmarking analysis as So far as the assesses's benchmarking analysis as So far as the assesses's benchmarking analysis as done in TP Study report based on external data using done in TP Study report based on external data using done in TP Study report based on external data using Thomson Thomson Reuters' Reuters' Deal Deal Scan, Scan, and and Bloomberg Bloomberg Database, we find that such an approach is not Database, we find that such an approach is not Database, we find that such an approach is not correct, firstly, there are no INR denominated debt correct, firstly, there are no INR denominated debt correct, firstly, there are no INR denominated debt issuance available on such databases and; secondly, issuance available on such databases and; secondly, issuance available on such databases and; secondly, in absence of such a data the assessee has to carry in absence of such a data the assessee has to carry in absence of such a data the assessee has to carry out huge adjustments on account o out huge adjustments on account of country risk, f country risk, currency risk and tenor risk. With all these factors of currency risk and tenor risk. With all these factors of currency risk and tenor risk. With all these factors of adjustments, it would be difficult to arrive at an adjustments, it would be difficult to arrive at an adjustments, it would be difficult to arrive at an appropriate arm's length range of price; therefore, in appropriate arm's length range of price; therefore, in appropriate arm's length range of price; therefore, in our opinion such an approach of the assessee for our opinion such an approach of the assessee for our opinion such an approach of the assessee for benchmarking the arm's length benchmarking the arm's length interest rate may not interest rate may not be correct. However, as regards the search undertaken be correct. However, as regards the search undertaken be correct. However, as regards the search undertaken for comparable debt issuances in BSE data, we find for comparable debt issuances in BSE data, we find for comparable debt issuances in BSE data, we find that the assessee has shortlisted two comparables that the assessee has shortlisted two comparables that the assessee has shortlisted two comparables namely; Starlight Systems Private Limited and Share namely; Starlight Systems Private Limited and Share namely; Starlight Systems Private Limited and Share Microfin Limited which hav Microfin Limited which have a coupon rate of 15% and e a coupon rate of 15% and 13.75%. Since these data belong to year 2013, the 13.75%. Since these data belong to year 2013, the 13.75%. Since these data belong to year 2013, the assessee had made minor tenor adjustment to factor assessee had made minor tenor adjustment to factor assessee had made minor tenor adjustment to factor the time period to arrive at interest rate of 15.97% and the time period to arrive at interest rate of 15.97% and the time period to arrive at interest rate of 15.97% and 14.05% giving a mean rate of 15.01%. Though the 14.05% giving a mean rate of 15.01%. Though the 14.05% giving a mean rate of 15.01%. Though the assessee was required t assessee was required to benchmark its transaction o benchmark its transaction by taking the financial year data for year 2009 by taking the financial year data for year 2009-10,but, 10,but, if such a data were not available then it cannot be held if such a data were not available then it cannot be held if such a data were not available then it cannot be held that such a tenor adjustment for taking into time period that such a tenor adjustment for taking into time period that such a tenor adjustment for taking into time period cannot be made under CUP, if has been made quite cannot be made under CUP, if has been made quite cannot be made under CUP, if has been made quite accurately taking into account the material factors y taking into account the material factors y taking into account the material factors relating to time of the transaction affecting the price. relating to time of the transaction affecting the price. relating to time of the transaction affecting the price. We though agree that, a high degree of comparability We though agree that, a high degree of comparability We though agree that, a high degree of comparability is required under CUP, but in absence of such a is required under CUP, but in absence of such a is required under CUP, but in absence of such a comparable data, a minor adjustment can be made to comparable data, a minor adjustment can be made to comparable data, a minor adjustment can be made to eliminate the material effect of time difference for inate the material effect of time difference for inate the material effect of time difference for arriving at a comparable uncontrolled price. Now arriving at a comparable uncontrolled price. Now arriving at a comparable uncontrolled price. Now before us, the assessee had filed two comparable before us, the assessee had filed two comparable before us, the assessee had filed two comparable transactions for the year 2009, that is, for the same transactions for the year 2009, that is, for the same transactions for the year 2009, that is, for the same financial year in the case of Shriram Transport financial year in the case of Shriram Transport financial year in the case of Shriram Transport Financial Company Ltd. and Tata Capital Ltd., al Company Ltd. and Tata Capital Ltd., al Company Ltd. and Tata Capital Ltd., wherein, for credit rating ofAA Enterprises the coupon wherein, for credit rating ofAA Enterprises the coupon wherein, for credit rating ofAA Enterprises the coupon rate of interest per annum was between 11% to 12% rate of interest per annum was between 11% to 12% rate of interest per annum was between 11% to 12% for a tenor of 60 months. The yield on redemption is for a tenor of 60 months. The yield on redemption is for a tenor of 60 months. The yield on redemption is also around 11.25% to 12%. If for a credit rating also around 11.25% to 12%. If for a credit rating also around 11.25% to 12%. If for a credit rating company AA orAA(+) the interest rate is ranging A orAA(+) the interest rate is ranging A orAA(+) the interest rate is ranging between 11% to 12%, then in the case of the assessee between 11% to 12%, then in the case of the assessee between 11% to 12%, then in the case of the assessee which is admittedly BBBQ credit rating company, which is admittedly BBBQ credit rating company, which is admittedly BBBQ credit rating company, 11.30% interest paid by the assessee to its AE is much 11.30% interest paid by the assessee to its AE is much 11.30% interest paid by the assessee to its AE is much within the ami's length rate. This data/document from within the ami's length rate. This data/document from within the ami's length rate. This data/document from public domain now made available before us is worth domain now made available before us is worth domain now made available before us is worth reiving to benchmark and analyse the current reiving to benchmark and analyse the current reiving to benchmark and analyse the current transaction of coupon rate of interest paid/payable on transaction of coupon rate of interest paid/payable on transaction of coupon rate of interest paid/payable on CCDs issued by the assessee. Accordingly, we hold CCDs issued by the assessee. Accordingly, we hold CCDs issued by the assessee. Accordingly, we hold that 11.30% interest rate is at arm's length price. Thus, that 11.30% interest rate is at arm's length price. Thus, that 11.30% interest rate is at arm's length price. Thus, in our conclusion, the transfer pricing adjustment made our conclusion, the transfer pricing adjustment made our conclusion, the transfer pricing adjustment made by the TPO and as confirmed by the DRP at Rs. by the TPO and as confirmed by the DRP at Rs. by the TPO and as confirmed by the DRP at Rs. 48,53,19,310/stands 48,53,19,310/stands 48,53,19,310/stands deleted, deleted, deleted, and and and consequently consequently consequently ground no. 1 is allowed." ground no. 1 is allowed." 7.1 In the TP study the assessee had taken the 7.1 In the TP study the assessee had taken the 7.1 In the TP study the assessee had taken the comparables in CUP method related to d comparables in CUP method related to database used atabase used NSE, BSE and NSDL database margin of the appellant NSE, BSE and NSDL database margin of the appellant NSE, BSE and NSDL database margin of the appellant is 17.65% gross or 15% net of tax system whereas the is 17.65% gross or 15% net of tax system whereas the is 17.65% gross or 15% net of tax system whereas the rate or merging as per database 18.13%. The assessee rate or merging as per database 18.13%. The assessee rate or merging as per database 18.13%. The assessee in secondary analysis calculated the rate at the rate of in secondary analysis calculated the rate at the rate of in secondary analysis calculated the rate at the rate of 17.89% on basis of the term l 17.89% on basis of the term loan lending rates offered oan lending rates offered by various banks in India as published in the Reserve by various banks in India as published in the Reserve by various banks in India as published in the Reserve Bank of India. the learned TPO undertook a fresh Bank of India. the learned TPO undertook a fresh Bank of India. the learned TPO undertook a fresh search using Bloomberg database to benchmark the search using Bloomberg database to benchmark the search using Bloomberg database to benchmark the international transaction without appreciating that the international transaction without appreciating that the international transaction without appreciating that the circumstances necessit circumstances necessitating determination of price by ating determination of price by the TPO as mentioned in sub the TPO as mentioned in sub-section (3) of section 92C section (3) of section 92C of the Act did not exist in the instant case. The arm's of the Act did not exist in the instant case. The arm's of the Act did not exist in the instant case. The arm's length rate of interest in CCDs was arrived @ 8.58% as length rate of interest in CCDs was arrived @ 8.58% as length rate of interest in CCDs was arrived @ 8.58% as per Bloomberg database. The assessee applied the per Bloomberg database. The assessee applied the per Bloomberg database. The assessee applied the same rate of interest both in foreign AE and domestic of interest both in foreign AE and domestic of interest both in foreign AE and domestic AE. No other uncontrolled comparable is determined AE. No other uncontrolled comparable is determined AE. No other uncontrolled comparable is determined during the TP study under CUP method. The during the TP study under CUP method. The during the TP study under CUP method. The application of CUP method as MAM without taking care application of CUP method as MAM without taking care application of CUP method as MAM without taking care the risk adjustment in terms of rule 10B(1)(e)(iii) of the the risk adjustment in terms of rule 10B(1)(e)(iii) of the the risk adjustment in terms of rule 10B(1)(e)(iii) of the Rules, which are generally involved in a third which are generally involved in a third- -party transaction vis transaction vis-à-vis between AEs to facilitate & vis between AEs to facilitate & maintain the level and was not transaction of maintain the level and was not transaction of maintain the level and was not transaction of rendering actual service to AE. So, the benchmarking rendering actual service to AE. So, the benchmarking rendering actual service to AE. So, the benchmarking done by the appellant by way of search conducted on done by the appellant by way of search conducted on done by the appellant by way of search conducted on NSE, BSE& & & NSDL NSDL NSDL comprising comprising comprising of of of following following following 7 7 7 comparable should be accepted in TP study by the comparable should be accepted in TP study by the comparable should be accepted in TP study by the TPO. The revenue in TP study had considered the TPO. The revenue in TP study had considered the TPO. The revenue in TP study had considered the interest paid on loans in the oil, gas and infrastructure interest paid on loans in the oil, gas and infrastructure interest paid on loans in the oil, gas and infrastructure industries as comparable to interest on CCDs under industries as comparable to interest on CCDs under industries as comparable to interest on CCDs under cup method. So, t cup method. So, the two comparables from list of he two comparables from list of comparable selected by the TPO be rejected as per the comparable selected by the TPO be rejected as per the comparable selected by the TPO be rejected as per the ground number 9 of the assessee. During the study the ground number 9 of the assessee. During the study the ground number 9 of the assessee. During the study the TPO should take care specific characteristics of the TPO should take care specific characteristics of the TPO should take care specific characteristics of the products products products being being being compared, compared, compared, functions functions functions performed, performed, performed, contractual terms contractual terms and conditions. It is directed that the and conditions. It is directed that the benchmarking undertaken by the assessee under CUP benchmarking undertaken by the assessee under CUP benchmarking undertaken by the assessee under CUP method using correct filter on NSE, BSE and NSDL method using correct filter on NSE, BSE and NSDL method using correct filter on NSE, BSE and NSDL data. We accepted, arithmetic mean of which comes data. We accepted, arithmetic mean of which comes data. We accepted, arithmetic mean of which comes 18.13%then the interest rate on CCD in respect of the 18.13%then the interest rate on CCD in respect of the 18.13%then the interest rate on CCD in respect of the impugned int impugned international transaction of 17.65% is at ernational transaction of 17.65% is at arm's length. The benchmark performed on Bloomberg arm's length. The benchmark performed on Bloomberg arm's length. The benchmark performed on Bloomberg database database database by by by the the the appellant appellant appellant be be be considered, considered, considered, the the the impugned international transaction of interest on CCD impugned international transaction of interest on CCD impugned international transaction of interest on CCD paid at 17.65% is at arm's length. paid at 17.65% is at arm's length. Respectfully following the decis Respectfully following the decision in the aforesaid ion in the aforesaid Judgment of Hon'ble Bombay jurisdictional High Court Judgment of Hon'ble Bombay jurisdictional High Court Judgment of Hon'ble Bombay jurisdictional High Court and in absence of any contrary decision brought to the and in absence of any contrary decision brought to the and in absence of any contrary decision brought to the notice of the Bench by the Ld. D.R, we delete the T.P. notice of the Bench by the Ld. D.R, we delete the T.P. notice of the Bench by the Ld. D.R, we delete the T.P. adjustment addition of Rs. 16,45,67,968/ adjustment addition of Rs. 16,45,67,968/- proposed proposed by the TPO and made b by the TPO and made by the A.O. in the draft y the A.O. in the draft assessment order and accordingly, grounds of appeal assessment order and accordingly, grounds of appeal assessment order and accordingly, grounds of appeal Nos.2 to 13 of the assessee company are setting aside Nos.2 to 13 of the assessee company are setting aside Nos.2 to 13 of the assessee company are setting aside to TPO considering the findings of the Bench. Needless to TPO considering the findings of the Bench. Needless to TPO considering the findings of the Bench. Needless to say the assessee should get reasonable opportunity to say the assessee should get reasonable opportunity to say the assessee should get reasonable opportunity for the case.” ”

7. Before us, the Ld. counsel for the assessee submitted that the Before us, the Ld. counsel for the assessee submitted that the Before us, the Ld. counsel for the assessee submitted that the Ld. TPO rejected the primary economic analysis of the assessee Ld. TPO rejected the primary economic analysis of the assessee Ld. TPO rejected the primary economic analysis of the assessee conducted on BSE, NSE and NSDL database without providing any conducted on BSE, NSE and NSDL database without providing any conducted on BSE, NSE and NSDL database without providing any valid reason for the same. valid reason for the same. He further submitted that t He further submitted that the Ld. TPO also rejected the secondary analysis of the assessee and proceeded also rejected the secondary analysis of the assessee and proceeded also rejected the secondary analysis of the assessee and proceeded to conduct a fresh search usi to conduct a fresh search using ‘Bloomberg’ Database to arrive Database to arrive at ALP on interest rate of interest rate of 8.6% on the basis of two comparables 8.6% on the basis of two comparables namely ‘SVOGL’ and and ‘Soma Enterprises Ltd’ and both and both were operating in the oil and gas and infrastructure sector ing in the oil and gas and infrastructure sector ing in the oil and gas and infrastructure sector, which is entirely un-related to the assessee’s business in the residential real related to the assessee’s business in the residential real related to the assessee’s business in the residential real estate sector.

7.1 The Ld. counsel further submitted that the Ld. TPO erred in The Ld. counsel further submitted that the Ld. TPO erred in The Ld. counsel further submitted that the Ld. TPO erred in not adopting proper filters such as debt instr not adopting proper filters such as debt instruments industry etc. uments industry etc. while undertaking a search of Bloomberg Database and erred in while undertaking a search of Bloomberg Database and erred in while undertaking a search of Bloomberg Database and erred in selection of non-comparable data comparable dataset. The Ld. counsel submitted counsel submitted that the dataset adopted by the Ld. TPO was erroneous for following set adopted by the Ld. TPO was erroneous for following set adopted by the Ld. TPO was erroneous for following reasons: i. Comparables selected by the TP i. Comparables selected by the TPO operate in the Oil & Gas and O operate in the Oil & Gas and Infrastructure sectors, which are entirely unrelated to the Infrastructure sectors, which are entirely unrelated to the Infrastructure sectors, which are entirely unrelated to the Respondent's business in the residential real estate sector. Respondent's business in the residential real estate sector. Respondent's business in the residential real estate sector. ii. The real estate industry, is an inherently highly risky sector and ii. The real estate industry, is an inherently highly risky sector and ii. The real estate industry, is an inherently highly risky sector and during AY 2015 during AY 2015- 16, real estate developers faced high borrowing evelopers faced high borrowing costs, rising input prices and shrinking profit margins owing to the costs, rising input prices and shrinking profit margins owing to the costs, rising input prices and shrinking profit margins owing to the high rise in real estate inventory. On the contrary, in the Oil & Gas high rise in real estate inventory. On the contrary, in the Oil & Gas high rise in real estate inventory. On the contrary, in the Oil & Gas industry, for example, there are ready buyers for the products and industry, for example, there are ready buyers for the products and industry, for example, there are ready buyers for the products and hence there is rare hence there is rarely any unsold inventory thereby lowering the ly any unsold inventory thereby lowering the inventory risk for companies operating in the Oil & Gas sector. inventory risk for companies operating in the Oil & Gas sector. inventory risk for companies operating in the Oil & Gas sector. iii. Out of the 6 loan transactions selected by learned TPO, 5 iii. Out of the 6 loan transactions selected by learned TPO, 5 iii. Out of the 6 loan transactions selected by learned TPO, 5 transactions pertained to secured loans taken SOMA Enterprises. transactions pertained to secured loans taken SOMA Enterprises. transactions pertained to secured loans taken SOMA Enterprises. However, in the case However, in the case of the Appellant, the CCDs have been issued of the Appellant, the CCDs have been issued on an unsecured basis, and hence, same cannot be considered to on an unsecured basis, and hence, same cannot be considered to on an unsecured basis, and hence, same cannot be considered to be comparable to the CCD's issued by Respondent. be comparable to the CCD's issued by Respondent. iv. The loan transactions selected by learned TPO have floating iv. The loan transactions selected by learned TPO have floating iv. The loan transactions selected by learned TPO have floating interest rate vis interest rate vis-à- vis fixed coupon rate in case of the CCDs issued on rate in case of the CCDs issued by the Appellant. Appellant. 7.2 The Ld. counsel further relied on the decision of the Co The Ld. counsel further relied on the decision of the Co The Ld. counsel further relied on the decision of the Co- ordinate Bench of the Tribunal in assessment year 2014-15 which ordinate Bench of the Tribunal in assessment year 2014 ordinate Bench of the Tribunal in assessment year 2014 was further followed by the Tribunal in assessment years 2016-17 was further followed by the Tribunal in assessment year was further followed by the Tribunal in assessment year and 2017-18.

(i) the specific characteristics of the specific characteristics of the property transferred or services provided property transferred or services provided; (ii) the functions performed, assets employed and risks assumed (FAR ii) the functions performed, assets employed and risks assumed (FAR ii) the functions performed, assets employed and risks assumed (FAR analysis); (iii) (iii) (iii) the the the contractual contractual contractual terms terms terms of of of the the the transaction; transaction; transaction; and and and (iv) the economic circumstances of the parties and the markets in which they (iv) the economic circumstances of the parties and the markets in which they (iv) the economic circumstances of the parties and the markets in which they operate.

9.1 The Rule 10B(3) further provides that an uncontrolled The Rule 10B(3) further provides that an uncontrolled The Rule 10B(3) further provides that an uncontrolled transaction shall be considered comparable only if none of the transaction shall be considered comparable only if transaction shall be considered comparable only if differences between the transactions materially affect the price, or if differences between the transactions materially affect the price differences between the transactions materially affect the price reasonably accurate adjustments can be made to eliminate such reasonably accurate adjustments can be made to elimin reasonably accurate adjustments can be made to elimin differences.

9.2 Further, the Hon’ble Bombay High Court in Further, the Hon’ble Bombay High Court in Further, the Hon’ble Bombay High Court in Pr. CIT v. India Debt Management (P.) Ltd. Debt Management (P.) Ltd. [2019] 106 taxmann.com 55 categorically [2019] 106 taxmann.com 55 categorically high degree of comparability, and where held that CUP demands a held that CUP demands a high degree of comparability databases (Bloomberg/Thomson Reuters) lac databases (Bloomberg/Thomson Reuters) lacked INR ked INR-denominated transactions, benchmarking could not be sustained without transactions, benchmarking could not be sustained without transactions, benchmarking could not be sustained without suitable adjustments for country risk, currency risk, and tenor risk. suitable adjustments for country risk, currency risk, and tenor risk. suitable adjustments for country risk, currency risk, and tenor risk.

9.3 The CCDs, by their very nature, are The CCDs, by their very nature, are hybrid instruments hybrid instruments. Unlike plain NCDs, they carry an Unlike plain NCDs, they carry an embedded equity opt embedded equity option since they mandatorily convert into equity shares at a future date. The they mandatorily convert into equity shares at a future date. The they mandatorily convert into equity shares at a future date. The option to convert confers a significant option to convert confers a significant equity upside equity upside to the investor, thereby reducing the required coupon rate compared to a straight thereby reducing the required coupon rate compared to a straight thereby reducing the required coupon rate compared to a straight debt instrument. The The CCDs are not comparable with ordinary e with ordinary debentures as they embody the dual character of debt and equity. debentures as they embody the dual character of debt and equity. debentures as they embody the dual character of debt and equity. The comparability under CUP cannot be presumed between two comparability under CUP cannot be presumed between two comparability under CUP cannot be presumed between two instruments of fundamentally distinct risk and return profile. instruments of fundamentally distinct risk and return profile. instruments of fundamentally distinct risk and return profile.

9.4 In the case, the assessee has issued Compulsory the assessee has issued Compulsory the assessee has issued Compulsory Convertible Debentures (CCD) to its Associated E (CCD) to its Associated Enterprises and paid interest nterprises and paid interest on the same at gross interest interest(coupon) rate of 17.65%. The assessee has 17.65%. The assessee has compared the said compared the said interest rate with the data set of debt rate with the data set of debt instruments on ‘BSE BSE’, ‘NSE’ and ‘NSDL’ which compr which comprises of non- convertible debentures convertible debentures (NCD). The assessee has not carried out any . The assessee has not carried out any adjustment to eliminate the effect of compulsory conversion of this adjustment to eliminate the effect of compulsory conversion of this adjustment to eliminate the effect of compulsory conversion of this debenture at the end of the 12 years into equity which has added debenture at the end of the 12 years into equity which has added debenture at the end of the 12 years into equity which has added advantage to its associated enterprises. advantage to its associated enterprises. Further, t ther, the secondary analysis has been made on the basis of the set of the interest rate analysis has been made on the basis of the set of the interest rate analysis has been made on the basis of the set of the interest rate charged by the various Indian charged by the various Indian Commercial Banks on loans other Banks on loans other than the export loans loans but in our opinion said database is not the but in our opinion said database is not the interest rate charged in actual interest rate charged in actual loan transactions with nsactions with customers and thus this is not a valid CUP transaction which could be used and thus this is not a valid CUP transaction which could be used and thus this is not a valid CUP transaction which could be used for comparison under the strict comparability of CUP method. for comparison under the strict comparability of CUP method. for comparison under the strict comparability of CUP method. Secondly, said interest rates are not adjusted to the rating of the Secondly, said interest rates are not adjusted to the rating of the Secondly, said interest rates are not adjusted to the rating of the customer, tenor of the loans etc. and tenor of the loans etc. and therefore, said database is therefore, said database is liable to be rejected.

9.5 Thus, any comparability analysis between CCDs and plain Thus, any comparability analysis between CCDs and plain Thus, any comparability analysis between CCDs and plain NCDs, without adjustment for option value, subordination, and adjustment for option value, subordination, and adjustment for option value, subordination, and equity convertibility, fails the test of Rule 10B(3). Similarly, equity convertibility fails the test of Rule 10B(3). Similarly, Bloomberg loan transactions ransactions ransactions selected selected selected by by by the the the TPO—largely TPO TPO comprising secured floating comprising secured floating-rate loans in unrelated industries like rate loans in unrelated industries like oil and gas and infrastructure oil and gas and infrastructure—cannot be regarded as comparable cannot be regarded as comparable to unsecured CCDs issued in the real estate sector, which is to unsecured CCDs issued in the real estate sector, which is to unsecured CCDs issued in the real estate sector, which is inherently riskier and inherently riskier and carries higher borrowing costs. carries higher borrowing costs. The Ld. TPO has also not considered the effect of equity conversion optionality. has also not considered the effect of equity conversion optionality has also not considered the effect of equity conversion optionality 9.6 As far as the contention of the assessee that in earlier year, As far as the contention of the assessee that in earlier year, As far as the contention of the assessee that in earlier year, the Tribunal has deleted the transfer pricing adjustment and the Tribunal has deleted the transfer pricing adjustment and the Tribunal has deleted the transfer pricing adjustment and rejected the transfer pricing analysis of the TPO, w er pricing analysis of the TPO, w er pricing analysis of the TPO, we are of the opinion that there are factual differences in the year under opinion that there are factual differences in the year under opinion that there are factual differences in the year under consideration as compared to as compared to the assessment year 2014 the assessment year 2014-15. The Tribunal has relied on the decision in the case Data Management Tribunal has relied on the decision in the case Data Management Tribunal has relied on the decision in the case Data Management (supra) wherein the Hon’ble High court observed that the data set he Hon’ble High court observed that the data set he Hon’ble High court observed that the data set used of the Bloomberg used by the TPO was not having INR used of the Bloomberg used by the TPO was not having INR used of the Bloomberg used by the TPO was not having INR denominated data set. denominated data set. Further, Hon’ble High Court observed that Further, Hon’ble High Court observed that since the CCDs in question were used and utilize in question were used and utilize in question were used and utilized in India, the ‘Bloomberg’ data set w data set without INR transactions was not accurate for was not accurate for comparison and if at all same comparison and if at all same was to be used then same to be used then same would required a lot of adjustment for country risk, currency risk and required a lot of adjustment for country risk, currency risk and required a lot of adjustment for country risk, currency risk and tenor risk and therefore, s tenor risk and therefore, said data set may not be appropriate for data set may not be appropriate for comparison. But in the instant assessment year the instant assessment year, the Ld. TPO used the Ld. TPO used Bloomberg INR interest rate d interest rate data set and therefore, decision ata set and therefore, decision in the assessment year 2014 assessment year 2014-15 is distinguishable on facts. 15 is distinguishable on facts.

9.7 We are of the opinion that the comparison carried out by the We are of the opinion that the comparison carried out by the We are of the opinion that the comparison carried out by the assessee as well as assessee as well as the Ld. TPO, both are not meeting the both are not meeting the requirement of the comparison with the CCD issued by the requirement of the comparison with the CCD issued by the requirement of the comparison with the CCD issued by the assessee. It is admittedly clear that no CUP transaction of the CCD assessee. It is admittedly clear that no CUP transaction of the CCD assessee. It is admittedly clear that no CUP transaction of the CCD has been cited either has been cited either by the assessee or by the Ld. TPO. The the assessee or by the Ld. TPO. The assessee has compared with the d assessee has compared with the database of the NCD issued in the atabase of the NCD issued in the real estate sector. The assessee has not made any adjustment for real estate sector. The assessee has not made any adjustment for real estate sector. The assessee has not made any adjustment for subordination and equity conversion optionality. subordination and equity conversion optionality. A subordination A subordination agreement prioritizes agreement prioritizes debts, ranking one behind another for debts, ranking one behind another for purposes of collecting repayment purposes of collecting repayment from a debtor in the event of from a debtor in the event of foreclosure or bankruptcy foreclosure or bankruptcy.. The CCDs has mandatory conversion The CCDs has mandatory conversion therefore, as independent investor coupon therefore, as independent investor coupon interest rate would be interest rate would be lower because they also receive hey also receive equity upside. The assessee’s BSE, equity upside. The assessee’s BSE, NSE and NSDL data set largely reference NSE and NSDL data set largely reference straight debentures (NCD debentures (NCD type terms) with no equity options terms) with no equity options; absent a defensible option absent a defensible option-value deduction. Further, the assessee has not shown any parity on deduction. Further, the assessee has not shown any parity deduction. Further, the assessee has not shown any parity security, seniority or security, seniority or covenants versus the tested CCDs. These are venants versus the tested CCDs. These are material price drivers under Rule 10B(2)/(3) of the Income-tax material price drivers under Rule 10B(2)/(3) of the Income material price drivers under Rule 10B(2)/(3) of the Income Rules, 1962. The assessee has treated itself as standalone unrated Rules, 1962. The assessee has treated itself as standalone unrated Rules, 1962. The assessee has treated itself as standalone unrated real estate borrower real estate borrower, inflating the coupon whereas the passive , inflating the coupon whereas the passive association and impli association and implicit parental support can uplift the borrower’s parental support can uplift the borrower’s credit profile. Accordingly, we conclude that : Accordingly, we conclude that :

(i) The The The assessee assessee assessee relied relied relied on on on seven seven seven comparables comparables comparables from from from BSE/NSE/NSDL databases, with coupon rates ranging between BSE/NSE/NSDL databases, with coupon rates ranging between BSE/NSE/NSDL databases, with coupon rates ranging between 16.5% and 20%. These, however, pertain to 16.5% and 20%. These, however, pertain to straight straight NCDs and no adjustment was carried out for the embedded equity feature of adjustment was carried out for the embedded equity feature of adjustment was carried out for the embedded equity feature of CCDs. By ignoring the convertibility element, the assessee’s CCDs. By ignoring the convertibility element, the assessee’s CCDs. By ignoring the convertibility element, the assessee’s benchmarking is inflated. benchmarking is inflated.

(ii) The secondary analysis based on RBI’s published lending The secondary analysis based on RBI’s published lending The secondary analysis based on RBI’s published lending rates was rightly rejected by the rates was rightly rejected by the TPO, as those are indicative policy indicative policy rates and not the outcome of actual independent transactions. They and not the outcome of actual independent transactions. They and not the outcome of actual independent transactions. They are therefore outside the purview of CUP as envisaged in Rule are therefore outside the purview of CUP as envisaged in Rule are therefore outside the purview of CUP as envisaged in Rule 10B(1)(a).

(iii) On the other hand, the TPO’s reliance on Bloomberg On the other hand, the TPO’s reliance on Bloomberg On the other hand, the TPO’s reliance on Bloomberg comparables is also fla comparables is also flawed. Firstly, the selected comparables wed. Firstly, the selected comparables pertain to unrelated industries with different risk pertain to unrelated industries with different risk- -return profiles, violating Rule 10B(2)(b). Secondly, the majority of transactions were violating Rule 10B(2)(b). Secondly, the majority of transactions were violating Rule 10B(2)(b). Secondly, the majority of transactions were secured loans, while the assessee’s CCDs are unsecured. Thirdly, while the assessee’s CCDs are unsecured. Thirdly, while the assessee’s CCDs are unsecured. Thirdly, the coupon structures (floating vs fixed) are materially different. No ructures (floating vs fixed) are materially different. No ructures (floating vs fixed) are materially different. No adjustments were attempted to neutralize these differences, adjustments were attempted to neutralize these differences, adjustments were attempted to neutralize these differences, contrary to Rule 10B(3). contrary to Rule 10B(3).

(iv) In effect, neither the assessee’s comparables nor the TPO’s neither the assessee’s comparables nor the TPO’s neither the assessee’s comparables nor the TPO’s comparables satisfy the statutory test of strict comparables satisfy the statutory test of strict comparability under comparability under CUP. In such a position In such a position where neither party demonstrates reliable where neither party demonstrates reliable comparables, the benchmarking must fail and the matter must be comparables, the benchmarking must fail and the matter must be comparables, the benchmarking must fail and the matter must be reconsidered with appropriate adjustments. reconsidered with appropriate adjustments.

9.8 In light of the foregoing discussion, we are of the conside In light of the foregoing discussion, we are of the conside In light of the foregoing discussion, we are of the considered view that the issue cannot be resolved on the present record. Both view that the issue cannot be resolved on the present record. Both view that the issue cannot be resolved on the present record. Both sets of comparables are deficient in terms of Rule 10B(2)/(3). The sets of comparables are deficient in terms of Rule 10B(2)/(3). The sets of comparables are deficient in terms of Rule 10B(2)/(3). The fundamental fundamental fundamental comparability comparability comparability differences differences differences in in in respect respect respect of of of equity conversion option, subordination, security, industry risk, and conversion option, subordination, security, industry risk, conversion option, subordination, security, industry risk, coupon structure remain unaddressed. remain unaddressed. As approach of both the As approach of both the assessee as well as of TPO is not meeting the comparability assessee as well as of TPO is not meeting the comparability assessee as well as of TPO is not meeting the comparability standards required under the method of CUP , standards required under the method of CUP , no alternative left no alternative left with us except to set aside the order of the lower authorities an to set aside the order of the lower authorities an to set aside the order of the lower authorities and restore the matter back to the file of the Ld. AO/TPO for carrying restore the matter back to the file of the Ld. AO/TPO for carrying restore the matter back to the file of the Ld. AO/TPO for carrying out appropriate adjustment to cover the convertibility (option value out appropriate adjustment to cover the convertibility (option value out appropriate adjustment to cover the convertibility (option value factor) to minimize the difference between the comparable to minimize the difference between the comparable to minimize the difference between the comparable transaction either of the NCD or Bloomberg INR denominated loan transaction either of the NCD or Bloomberg INR denominated l transaction either of the NCD or Bloomberg INR denominated l interest transaction or SBI base/CLR credit tenor spread interest on interest transaction or SBI base/CLR credit tenor spread interest on interest transaction or SBI base/CLR credit tenor spread interest on loan transaction. Accordingly, in the interest of justice, we set aside Accordingly, in the interest of justice, we set aside Accordingly, in the interest of justice, we set aside the order of the CIT(A) and restore the matter to the file of the the order of the CIT(A) and restore the matter to the file of the the order of the CIT(A) and restore the matter to the file of the AO/TPO with a direction to re AO/TPO with a direction to re-examine the issue de novo. We make ue de novo. We make it clear that our observations are confined to the comparability it clear that our observations are confined to the comparability it clear that our observations are confined to the comparability analysis and shall not prejudice the merits of the case. The AO/TPO analysis and shall not prejudice the merits of the case. The AO/TPO analysis and shall not prejudice the merits of the case. The AO/TPO shall pass a reasoned order in accordance with law. It is needless to shall pass a reasoned order in accordance with law. shall pass a reasoned order in accordance with law. mention that the adequate opportu mention that the adequate opportunity of being heard nity of being heard should be afforded to the assessee afforded to the assessee while proposing adjustment to the value of while proposing adjustment to the value of international transaction. international transaction. The ground Nos. 1 to 3 of the appeal of . 1 to 3 of the appeal of the Revenue are accordingly allowed for statistical purposes. the Revenue are accordingly allowed for statistical purposes. the Revenue are accordingly allowed for statistical purposes.

10.1. Per Per Per contra, contra, contra, the the the Learned Learned Learned Departmental Departmental Departmental Representative Representative Representative submitted that in the assessment years 2016 that in the assessment years 2016-17 and 2017 17 and 2017-18, the Tribunal, after considering the ICAI guidelines, had restored the Tribunal, after considering the ICAI guidelines, had restored the Tribunal, after considering the ICAI guidelines, had restored the matter to the file of the Assessing Officer with specific directions. It matter to the file of the Assessing Officer with specific directions. It matter to the file of the Assessing Officer with specific directions. It was argued that the Assessing Officer had to examine the nature of was argued that the Assessing Officer had to examine the natur was argued that the Assessing Officer had to examine the natur such such expenses such expenses and expenses and determine and determine whether determine whether they whether they they were were directly were directly directly attributable to the pre attributable to the pre-construction or construction period, in construction or construction period, in which case they ought to be capitalised as work which case they ought to be capitalised as work-in in-progress, and only the residual general administrative and selling expenses only the residual general administrative and selling expenses only the residual general administrative and selling expenses should be allowed as revenue expenditure. The Ld. DR placed d be allowed as revenue expenditure. The Ld. DR placed d be allowed as revenue expenditure. The Ld. DR placed reliance upon the relevant findings of the Tribunal, which read as reliance upon the relevant findings of the Tribunal, which read as reliance upon the relevant findings of the Tribunal, which read as under:

7.10. It is not in dispute that the expenditures incurred by the 7.10. It is not in dispute that the expenditures incurred by the 7.10. It is not in dispute that the expenditures incurred by the assessee were incurred wholly and exclusively for the purpose assessee were incurred wholly and exclusively for the purpose assessee were incurred wholly and exclusively for the purpose of business only. What is required to be analysed here is as to of business only. What is required to be analysed here is as to of business only. What is required to be analysed here is as to whether they are connected with the project or to be allowed whether they are connected with the project or to be allowed whether they are connected with the project or to be allowed as general administrative and selling costs. In any event, as general administrative and selling costs. In any event, as general administrative and selling costs. In any event, allowing revenue expenditure to the extent of 42.08% of allowing revenue expenditure to the extent of 42.08% of allowing revenue expenditure to the extent of 42.08% of relevant expenditure is grossly incorrect. There is absolutely no iture is grossly incorrect. There is absolutely no iture is grossly incorrect. There is absolutely no basis for the Id. AO for doing this. All said and done, the basis for the Id. AO for doing this. All said and done, the basis for the Id. AO for doing this. All said and done, the relevant expenditure has already been incurred by the relevant expenditure has already been incurred by the relevant expenditure has already been incurred by the assessee. Restricting the business expenditure to the extent of assessee. Restricting the business expenditure to the extent of assessee. Restricting the business expenditure to the extent of business income is certainly not provided in the entire scheme business income is certainl y not provided in the entire scheme of the Act. Considering the totality of facts circumstances of the of the Act. Considering the totality of facts circumstances of the of the Act. Considering the totality of facts circumstances of the case, we deem it fit and appropriate, in the interest of justice case, we deem it fit and appropriate, in the interest of justice case, we deem it fit and appropriate, in the interest of justice and fair play, to remand this entire issue to the file of Ld. AO and fair play, to remand this entire issue to the file of Ld. AO and fair play, to remand this entire issue to the file of Ld. AO for adjudication In the light of the following directions: for adjudication In the directions:- a) Restricting the allowability of expenses to the extent of 42.08% is wrong. a) Restricting the allowability of expenses to the extent of 42.08% is wrong. a) Restricting the allowability of expenses to the extent of 42.08% is wrong. b) Expenses directly attributable to Pre-construction and construction period b) Expenses directly attributable to Pre construction and construction period should be identified and added to the Inventory/ cost of work in progress. should be identified and added to the Inventory/ cost of work in progress. c) Other expenses should be allowed as revenue expenses as General c) Other expenses should be allowed as revenue expenses as General c) Other expenses should be allowed as revenue expenses as General Administration and Selling Expenses. Administration and Selling Expenses. The Id. AO is directed to carry out the verification in the light of aforesaid The Id. AO is directed to carry out the verification in the light of aforesaid The Id. AO is directed to carry out the verification in the light of aforesaid directions and then decide the issue accordingly. Hence the Ground Nos. 14 to directions and then decide the issue accordingly. Hence the Ground Nos. 14 to 25 raised by the assessee before us are allowed for statistical 25 raised by the assessee before us are allowed for statistical purposes.

10.2 Having considered the rival submissions and perused the Having considered the rival submissions and perused the Having considered the rival submissions and perused the material available on record, we note that the controversy stands material available on record, we note that the controversy stands material available on record, we note that the controversy stands squarely covered by the directions is squarely covered by the directions issued by the Tribunal in sued by the Tribunal in assessee’s own case for assessment years 2016 assessee’s own case for assessment years 2016-17 and 2017 17 and 2017-18. Respectfully following the said precedent, we deem it just and Respectfully following the said precedent, we deem it just and Respectfully following the said precedent, we deem it just and proper to restore this issue to the file of the Assessing Officer for the proper to restore this issue to the file of the Assessing Officer for the proper to restore this issue to the file of the Assessing Officer for the limited purpose of verification. limited purpose of verification. The Assessing Officer shall examine The Assessing Officer shall examine whether the impugned expenses, namely whether the impugned expenses, namely legal and professional legal and professional fees, advertisement and sales promotion expenses, and commission fees, advertisement and sales promotion expenses, and commission fees, advertisement and sales promotion expenses, and commission and brokerage expenses and brokerage expenses, are directly connected with the real estate , are directly connected with the real estate project. To the extent suc project. To the extent such expenditure is attributable to pre h expenditure is attributable to pre- construction or construction activity, the same shall be capitalised construction or construction activity, the same shall be capitalised construction or construction activity, the same shall be capitalised as part of work-in-progress; and to the extent they are in the nature progress; and to the extent they are in the nature progress; and to the extent they are in the nature of general administrative or selling expenses, they shall be allowed of general administrative or selling expenses, they shall be allowed of general administrative or selling expenses, they shall be allowed as revenue expenditure in the year of incurrence, in accordance expenditure in the year of incurrence, in accordance expenditure in the year of incurrence, in accordance with law.

10.3 In view thereof, the findings of the Learned CIT(A) on this issue In view thereof, the findings of the Learned CIT(A) on this issue In view thereof, the findings of the Learned CIT(A) on this issue are set aside, and the matter is restored to the file of the Assessing are set aside, and the matter is restored to the file of the Assessing are set aside, and the matter is restored to the file of the Assessing Officer for fresh adjudication in the light of the Officer for fresh adjudication in the light of the above directions. above directions. Accordingly, Ground Nos. 4 and 5 raised by the Revenue are Accordingly, Ground Nos. 4 and 5 raised by the Revenue are Accordingly, Ground Nos. 4 and 5 raised by the Revenue are allowed for statistical purposes. allowed for statistical purposes.

Order pronounced in the open Court on nounced in the open Court on 15/09/2025. /09/2025.