DCIT, CIRCLE-5(1), HYDERABAD vs. MAANAVEEYA DEVELOPMENT & FINANCE PRIVATE LIMITED, HYDERABAD

PER VIJAY PAL RAO, VICE PRESIDENT :

This appeal by the Revenue and Cross Objection by the Assessee is directed against the Order dated 14.10.2025 of the learned CIT(A)-National Faceless Appeal Centre [in short “NFAC], Delhi, for the assessment year 2017-2018.

3 ITA.No.2354/Hyd./2025 & CO.No.4/Hyd./2026 4. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in not appreciating the fact that PLR has been replaced by MCLR (from April, 2016) therefore, comparing with PLR for A.Y.2017-18 contrary to the prevailing market practices and RBI guidelines. 5. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in holding that interest paid @ 10% by the assessee on Non-convertible Debentures at arms length price by considering/comparing with the rate of 13.75 percent by taking guidance from CBDT notification dated 29.07.2013 without appreciating the fact that the said notification pertains to Sec. 194LD of the Income Tax Act, which speaks about the upper limit/maximum ceiling of the rate of interest for a rupee denominated bond that too for the purpose of making TDS and the same cannot be used for determination of arms length price. 6. Any other grounds that may be urged at the time of hearing.”

4 ITA.No.2354/Hyd./2025 & CO.No.4/Hyd./2026 did not furnish any reply or the relevant record. He has referred to the impugned order passed by the learned CIT(A) and submitted that the learned CIT(A) has considered the arm’s length analysis/ documentary evidence filed by the assessee at the stage of the appeal before him without giving an opportunity to the Assessing Officer/TPO which is complete violation of Rule-46A(2) of the I.T. Rules, 1962. The learned CIT(A) accepted the Arm’s Length Price [in short “ALP”] of interest paid on NCDs at 10% by taking the Prime Lending Rate [in short “PLR”] on State Bank of India [in short “SBI”] instead of Marginal Cost on Lending Rate [in short MCLR”] prevailing at the relevant time as per the Reserve Bank of India [in short “RBI”] benchmarking rate for lending. Thus, the learned CIT-DR has submitted that the learned CIT(A) has not afforded an opportunity to the Assessing Officer before passing the impugned order. He has relied upon the Orders of the Assessing Officer/TPO.

5 ITA.No.2354/Hyd./2025 & CO.No.4/Hyd./2026 2014 relevant to the assessment year 2014-2015 in rupee denomination therefore, the PLR plus 500 basis point is an approved rate of interest by the RBI as well as the CBDT on rupee denominated NCDs. He has pointed out that for the assessment year 2014-2015 the TPO examined this issue for determination of the ALP and accepted the rate of interest at 10% on these NCDs issued to the AE of the assessee at arm’s length. Thus, he has submitted that the CBDT has also accepted the ALP of interest on rupee denominated NCDs at PLR plus 500 basis. He has thus submitted that the issue is covered as per the earlier Order of the TPO.

6 ITA.No.2354/Hyd./2025 & CO.No.4/Hyd./2026 “6.1. Interest paid on Non Convertible Debentures: During the financial year under consideration, the taxpayer has paid an amount of Rs.6,11,97,006/- to their parent company Oikocredit towards interest @ 10% on Non Convertible Debentures. In the TP Report, the taxpayer submitted that the company has paid interest 10% on the Non Convertible Debentures to Orikocredit, hence the same is benchmarked under the CUP method. 6.1.1. During the course of TP proceedings, the AR was asked why interest rate of LIBOR+200 basis points i.e., 2.63% for the FY 2013-14 should not be applied on the NCDs instead of 10% charged by the assessee. The AR of the taxpayer submitted that the taxpayer has paid interest 10% on non-convertible debentures issued during the FY 2013-14. The AR has also submitted that the maximum interest rate fixed by CBDT on NCDs is base rate of SB1 plus 500 basis points on the date of issue of the said NCDs. The AR has submitted the CBDT notification dated 29.07.2013 in support of his claim. 6.1.2. The submissions of the AR have been perused. The taxpayer has paid interest on Rs.100,00,00,000/- of Non Convertible Debentures. The amount received on 12.06.2013 and 30.10.2013 amounting Rs.50,00,00,000/- on each occasion. The taxpayer contended that the maximum interest rate fixed by CBDT on NCDs is base rate of SBI + 500 was to basis points vide notification dated 29.07.2013. From the perusal of the notification, it is noticed that the notification deals with providing a concessional rate of TDS in respect of interest income arising from rupee denominated bonds or government securities payable to FIIS and QFIs. Further, the notification was issued under proviso to subsection (2) of section 194LD of IT Act, 1961, which is primarily to decide the TDS rate on the interest on certain rupee denominated

7 ITA.No.2354/Hyd./2025 & CO.No.4/Hyd./2026 bonds of an Indian company. The notification determine only the TDS rate applicable in certain conditions and does not determine any arm's length price with regard to interest on NCDs. 6.1.3. In view of the above, a letter dated 25.09.2017 was issued to the taxpayer to show cause as to why interest rate of LIBOR 200 basis points i.e., 2.63% for FY 2013-14 should not be applied on the NCDs instead of 10% paid by the taxpayer as interest. In response to the above letter, the taxpayer vide letter dated 04.10.2017 submitted that the NCDs received by the taxpayer company from its AE were rupee denominated and redeemable in Indian currency and the interest paid on these NCDs was remitted to bank account held by the AE in India in Indian currency. The AR also filed the copies of bank account statements of Oikocredit containing the NCD investment transactions and FPI registration certificate of Oikocredit. 6.1.4. The submissions of the taxpayer have been perused. From the submissions, it is observed that NCDs received by the taxpayer company from its AE were in Indian rupee denominated. Hence, SBI PLR applicable. However, since, the interest rate paid by the taxpayer 10% pa is below the rate of SBI PLR 14.75% p.a, no adverse inference is drawn and hence no adjustment is proposed on this transaction.”

5.1. Thus, it is manifest from the record that this issue was taken up by the TPO for the assessment year 2014-2015 for determination of the ALP on the NCDs issue by the assessee to its AE at the interest rate of 10% and the TPO found the said interest rate at arm’s length by considering the SBI PLR @ 14.75%. The learned CIT(A) for the year under

8 ITA.No.2354/Hyd./2025 & CO.No.4/Hyd./2026 consideration while passing the impugned order has considered this issue at Para-VI as under:

“VI. SUMMARY OF DECISION: Before going into the merits of the case the grounds dealing with technical or procedural issues are discussed here. 2. The order of the NFAC is illegal and against the law in so far as it is passed without allowing the appellant to file its objections to the Draft Assessment order U/s 144C. 3. The NFAC erred in passing a final order U/s 143(3) when the appellant company is in the process of filing the objections U/s 144C. Therefore the order passed U/s 143(3) is void and it is to be annulled. As per the provisions of the Act assessee has to file its objections to the DAO u/s 144C. Technically the order passed u/s 143(3) without considering the objections filed by the assessee is void. But since the order u/s 143(3) is under appeal the same is taken into consideration and the provisions of the Act under section 292BB of the Act such objections have to be raised before the completion of the proceedings. The assessing officer's stand is acceptable for the reason that under section 2928 no return of income, assessment, notice, summons or other proceedings furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of summons or other proceedings if such return of income, assessment, notice, summons or other proceedings is in substance and effect in conformity with or according to the intent and purpose of this Act. This section invariably takes into account all acts of omission by the assessing

9 ITA.No.2354/Hyd./2025 & CO.No.4/Hyd./2026 officers. I take umbrage under section 2928 and hold that the assessing officers lapse by not waiting for 30 days in finalising the order u/s 143(3) is condoned. Earlier the Draft assessment order was passed on 8/4/2021 and final assessment order was passed on 21/4/2021 which is the order under appeal. The 30 day period ends on 1st of May 2021 where as the final assessment order under section 143(3) was passed on 21/4/2021. The assessing officer should have waited till 1st of May to pass the final order. Having applied section 292B the ground raised is answered and order under appeal is decided on merits. AS FAR AS merits are concerned the ALP was determined as Nil by the TPO. The issue involved in the TPO Proceedings is the arm s length rate of interest on NCDs. The NCDs issued by the appellant company to the parent company are rupee denominated bonds on which interest is payable in Indian Rupees and the amount payable on Redemption is also in Indian Rupees. The appellant company paid interest at the rate of 10% and the rate of Interest is subject to the limits notified U/s 194LD of the Income Tax Act. The rate notified by the Central Government through notification dated 29.7.2013 is 500 basis points above SBIs base Rate of interest. Accordingly to the notification the Return of Interest notified is 13.75%, whereas the appellant company incurred interest rate of only 10%. The rate of interest paid is thus within the limit fixed by the Central Government. The interest on NCDs incurred by the appellant company was also accepted to be at arm s length rate of interest by the TPO in his order for the A.Y 2014-15, in the case of the appellant company. Without appreciating these facts on the records, the AO and the TPO proceeded to determine the arm s length interest at Nil and disallowed in the Faceless Assessment the whole of interest of Rs.8,27,24,756/- incurred by the appellant company.

10 ITA.No.2354/Hyd./2025 & CO.No.4/Hyd./2026 The ALP which can be adopted is the rate at which assessee had paid the interest which is 10%, where as maximum interest rate fixed by CBDT on NCDs is base note of SBI + 500 basis points vide notification dated 29.7.2013. From the perusal of the notification, it is noticed that the notification deals with providing a concessional rate of TDS in respect of interest income arising from rupee denominated bonds or government securities payable to FIIS and QFIs. Further, the notification was issued under proviso to subsection (2) of section 194LD of IT Act, 1961, which is primarily to decide the TDS rate on the interest on certain rupee denominated bonds of an Indian company. The notification determine only the TDS rate applicable in certain conditions and does not determine any arm's length price with regard to interest on NCDs. During the course of TP proceedings, AR was asked why interest rate of LIBOR+200 basis points i.e, 2.63% for the FY 2013-14 should not be applied on the NCDs instead of 10% charged by the assessee. The AR of the taxpayer submitted that the taxpayer has paid interest at 10% on non-convertible debentures issued during the FY 2013-14, The AR also submitted that the maximum interest rate fixed by CBDT on NCDs is base rate of SB1+500 basis points on the date of issue of the said NCDs. The assessee submitted the CBDT notification dated 29.7.2013 in support of his claim. Considering the three comparable interest rates i.e 10%, 13.75% (interest rate of LIBOR+200 basis points i.e., 2.63%) and SBI PLR @ 14.75% р.а. NCDs received by the taxpayer company from its AE were rupee denominated and redeemable in Indian currency and the interest paid on these NCDs was remitted to bank account held by the AE in India in Indian currency. Considering the fact that the entire transactions are in Indian currency applying prudence and the fact that assessee had paid interest at 10% the same is accepted as the ALP. The assessing officer shall fix the interest rate

11 ITA.No.2354/Hyd./2025 & CO.No.4/Hyd./2026 at 10% for NCD's. The assessing officer shall have a look at the correct amount of disallowance because the interest levied on NCD's comes to only Rs.6,11,97,006, there is an amount of interest charged on CCD's at Rs.3,68,70,610. Since the bench marking is only on NCD's the interest chargeable has to be restricted to actual interest paid and the remaining has to be disallowed. 6.1. In the result the appeal is partly allowed.”

5.2. Thus, the learned CIT(A) has considered this transaction of payment of interest @ 10% on these NCDs at arm’s length in view of rate notified by the Central Government at 500 basis point above SBI PLR. Accordingly, in the facts and circumstances of the case and particularly when the TPO already examined the ALP of the interest on NCDs issued to the AE for the assessment year 2014-2015, we do not find any error/illegality in the impugned order of the learned CIT(A) qua this issue. Hence, we do not find any merit in the appeal of the Revenue.

C.O.No.4/Hyd./2026 – A.Y.2017-2018:

12 ITA.No.2354/Hyd./2025 & CO.No.4/Hyd./2026

13 ITA.No.2354/Hyd./2025 & CO.No.4/Hyd./2026 9. The learned DR has not disputed that the learned CIT(A) has taken an incorrect amount of adjustment made by the TPO as well as Assessing Officer while passing the Order and submitted that the correct amount of adjustment made for the year under consideration is Rs.8,27,24,756/-. 10. Having considered the rival submissions as well as careful perusal of the record, at the outset, we note that the TPO has proposed the adjustment on account of the interest paid on NCDs in question at Rs.8,27,24,756/- which is also added by the Assessing Officer while passing the Final Assessment Order as under:

“Order u/s 92CA(3) of the I.T. Act, 1961 was passed by DCIT, TPO-3, Hyderabad on 29/01/2021 which was duly received for faceless assessment scheme to faceless Assessing Officer further on. As per order of DCIT, TPO-3, Hyderabad the TPO officer has provided many opportunities including show cause notice dated 24/12/2020 to provide final opportunity to the assessee but no reply was given by taxpayer to the TPO officer. According to TPO officer in the above facts and circumstances payment of interest of Rs. 8,27,24,756/- is considered as excessive with regard to relevant facts as discussed. Penalty proceedings u/s 271AA, 271G and 271BA is initiated separately on the issue of Transfer Pricing Adjustment. No any other adverse action has been drawn in this case other than transfer pricing adjustment. (Total TP Adjustment Rs.8,27,24,756/-).”

14 ITA.No.2354/Hyd./2025 & CO.No.4/Hyd./2026

10.1. Accordingly, we direct the Assessing Officer to consider the correct amount of interest on the NCDs at Rs.8,27,24,756/-. Cross Objection of the Assessee is allowed.

Order pronounced in the open Court on 30.04.2026. Sd/- Sd/- [MANJUNATHA G.] [VIJAY PAL RAO] ACCOUNTANT MEMBER VICE PRESIDENT Hyderabad, Dated 30th April, 2026. VBP Copy to : The DCIT, Circle-5(1), Room No.344, 3D, IT Towers, AC 1. Guards, Masab Tank, Hyderabad – 500 004. Telangana. Maanaveeya Development & Finance Private Limited, H.No.8-2-293/82/564 A 43, 4th Floor, Prashanthi 2. Towers, Road No.92, Jubilee Hills, Hyderabad-500034. 3. The Pr. CIT, Hyderabad. 4. The DR, ITAT, “B” Bench, Hyderabad. 5. Guard file. BY ORDER Digitally signed VADREVU by VADREVU PRASADA RAO PRASADA Date: RAO 2026.04.30 14:10:16 +05'30'