THE BRITISH INSTITUTE OF ENGINEERING AIND TECHNOLOGY (INDIA) PVT LTD,MUMBAI vs. DCIT CIRCLE 2(3)(1), MUMBAI

In this appeal, the assessee has raised the following grounds: -

The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is an educational institute and for the year under consideration, filed its return of income on 28/11/2022, declaring a total income of Rs. 92,39,460. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. Pursuant to the reference by the Assessing Officer (“AO”) under section 92CA(1) of the Act, the Transfer Pricing Officer (“TPO”) issued notice under section 92CA(2) of the Act seeking the requisite details regarding the international transactions undertaken by the assessee during the year under consideration. In response, the assessee furnished its Form 3 CEB, as per which, the only international transaction undertaken by the assessee during the year under consideration pertains to investment in NCDs issued by the associated enterprise, i.e. Rajang Ltd. The details of the international transaction reported by the assessee in Form 3 CEB are as follows: –

The assessee submitted that during the year under consideration, it has subscribed to non-interest-bearing 1000 NCDs of GBP 1000 each issued by its associated enterprise for making further investment. It was further submitted that in the financial year 2017-18, the assessee subscribed to similar non-interest-bearing 1360 NCDs of GBP 1000 each issued by its associated enterprise. Accordingly, during the year under consideration, it has a closing balance of Rs. 31,21,22,147 on account of the purchase of NCDs from its associated enterprise. The assessee submitted that, as per the subscription agreement entered into with the associated enterprise, it is entitled to receive a premium at the time of redemption of NCDs at a rate that varies according to the period of holding of NCDs. It was further submitted that the Comparable Uncontrolled Price Method was adopted for benchmarking this transaction, which was found to be at arm’s length price (“ALP”). The assessee also emphasised that in the assessment year 2018- 19, this transaction was found to be at ALP by the TPO, and no adjustment was proposed vide order dated 30/07/2021 passed under section 92CA(3) of the Act.

The TPO, vide order dated 04/01/2025, passed under section 92CA(3) of the Act, disagreed with the submissions of the assessee and held that the assessee has extended interest-free loans to its associated enterprise in the form of NCDs that are in the nature of debt instruments. It was further held that, for the associated enterprise, i.e., the issuer of the NCD, the funds have been received free of cost, and the associated enterprise has not incurred any expenditure for the debt received. Thus, it was held that the assessee had given an undue benefit to the associated enterprise, which, in an uncontrolled scenario, no investor would provide to a 3rd party. As regards the redemption premium payable to the assessee, the TPO held that since the date of redemption is not fixed, the effective return on investment cannot be determined. Accordingly, the TPO held that the consideration for the loan is a must, and since the assessee did not charge any interest on the amount of NCDs, the international transaction of investment in NCDs is not at arm’s length. As the NCDs were issued in GBP, the TPO computed interest at 6.57%, based on 6 months' average LIBOR +400 basis points, following the “Other Method” as the most appropriate method. As the closing balance of investments in NCDs issued by the associated enterprise was reported in the audited financials at Rs. 4 31,21,22,147, which includes investments of Rs. 10,32,27,750 made in the assessment year under consideration, the TPO computed interest on NCDs at Rs. 2,05,06,425.

In conformity with the transfer pricing adjustment proposed, the AO passed the draft assessment order. Being aggrieved, the assessee filed detailed objections before the learned DRP. Vide its directions dated 15/10/2025, issued under section 144C(5) of the Act, the learned DRP rejected the objections filed by the assessee and upheld the transfer pricing adjustment proposed by the TPO. In compliance with the directions of the learned DRP, the AO passed the impugned final assessment order computing the total income of the assessee at Rs. 2,97,45,885. Being aggrieved, the assessee is in appeal before us.

During the hearing, the learned Authorised Representative (“learned AR”) submitted that the assessee's capital during the year under consideration was Rs. 46 crore and there are no borrowings by the assessee. Further, the learned AR submitted that, similar to the year under consideration, the assessee entered into a Non-Convertible Debentures Subscription Agreement on 16/05/2017 with its associated enterprise, under which the assessee subscribed to 1360 NCDs of GBP 1000 each. The learned AR submitted that all the terms and conditions of this agreement are similar to the Non-Convertible Debentures Subscription Agreement entered into in the year under consideration, including payment of redemption premium and Nil interest. It was submitted that for the assessment year 2018-19, similar international transaction of investment in NCDs was found to be at arm’s length by the TPO vide order passed under section 92CA(3) of the Act. Thus, placing reliance upon the decision of the Hon’ble Supreme Court in Radhasoami Satsang v. CIT, reported in [1992] 193 ITR 321 (SC), the learned AR submitted that as the Revenue have accepted a similar transaction to be at ALP in the assessment year 2018- 19, there is no basis for making the transfer pricing adjustment in the year under consideration for the very same international transaction.

On the other hand, the learned Departmental Representative (“learned DR”), by vehemently relying upon the order passed by the lower authorities, submitted that the principle of res judicata is not applicable to assessment proceedings. The learned DR further submitted that, as complete details regarding the redemption premium were not available, the TPO correctly imputed interest on the investment in NCDs.

We have considered the submissions of both sides and perused the material available on record. For the year under consideration, the assessee subscribed to the NCDs issued by its associated enterprise. As per the Non- Convertible Debentures Subscription Agreement dated 29/10/2021, which forms part of the paper book from pages 20-26, we find that the NCDs subscribed by the assessee were not carrying any interest. However, the assessee was entitled to receive a redemption premium amounting to GBP 80 to GBP 320, depending on the period of holding, ranging from 3 years to 10 years. It is evident from the record that prior to subscribing for 1000 NCDs for GBP 1000 each, the assessee also subscribed to NCDs issued by its associated enterprise in the year 2017 vide agreement dated 16/05/2017. There is no dispute regarding the fact that the terms and conditions of both Non-Convertible Debentures Subscription Agreements are identical except for the no. of NCDs subscribed by the assessee. It is pertinent to note that under both agreements, the NCDs carried no interest. Further, the rate of redemption premium was also identical vis-à-vis the period of holding.

It is evident from the perusal of the record that for the assessment year 2018-19, i.e. the year in which the assessee for the first time subscribed to the NCDs issued by its associated enterprise, reference was made to the TPO under section 92CA(1) of the Act for the determination of the ALP in respect of the international transaction entered into by the assessee. It is undisputed that, for the assessment year 2018-19, the assessee, inter alia, duly disclosed the purchase of NCDs from its associated enterprise as an international transaction. We find that vide its order dated 30/07/2021 passed under section 92CA(3) of the Act, the TPO after analysing all the necessary details and documents in support of the ALP determined by the assessee, concluded that no adjustment is required qua the international transactions entered into by the assessee with its associated enterprise.

However, in the year under consideration, from the perusal of the TPO’s order passed under section 92CA(3) of the Act, it is evident that not only the interest was computed in respect of the value of NCDs as purchased during the year under consideration, but the TPO also imputed the interest in respect of the value of NCDs purchased during the financial year 2017- 18. This fact is evident from the computation of interest on the closing balance of NCDs as on 31/03/2022. Thus, we find that the TPO, once arrived at the conclusion that for the assessment year 2018-19 no adjustment is required in respect of the international transactions undertaken by the assessee, suo moto overturned the said findings in the year under consideration. We are of the considered view that such an action of the TPO is de hors the provisions of the Act, as no permissible proceedings under the statute were initiated to reverse its earlier decision for the assessment year 2018-19.

Insofar as the transfer pricing adjustment qua the purchase of NCDs in the year under consideration, as noted in the foregoing paragraph, all the terms and conditions of both Non-Convertible Debentures Subscription Agreements are identical. Further, the international transaction pertaining to the purchase of/investment in NCDs was already a subject matter of transfer pricing assessment in the assessment year 2018-19, wherein no adjustment was proposed. Further, it is pertinent to note that the Revenue has also not disputed that the fundamental facts permeating across different assessment years are similar. Thus, we are of the considered view that in the absence of any change in facts or arrangement between the parties, a different stand cannot be taken in the year under consideration. In this regard, gainful reference can be made to the decision of the Hon’ble 8 Supreme Court in Radhasoami Satsang (supra). We find that the Hon’ble Jurisdictional High Court in Commissioner of Income-tax vs Gopal Purohit, reported in [2011] 336 ITR 287 (Bombay), held that even though the principle of res judicata is not applicable to assessment proceedings, there ought to be uniformity in treatment and consistency when facts and circumstances are identical. Accordingly, respectfully following the decisions cited supra, we are of the considered view that once the Revenue authorities have accepted the position, as explained in the foregoing paragraph in the preceding year, the impugned transfer pricing adjustment in the peculiar facts and circumstances of the present case deserves to be quashed. Therefore, the impugned transfer pricing adjustment made by the TPO/AO is deleted. As a result, the grounds raised by the assessee are allowed.

In the result, the appeal filed by the assessee is allowed.