SEIL ENERGY INDIA LIMITED,GURGAON vs. DCIT, GURGAON

The Assessee SEIL Energy India Ltd (hereinafter referred to as ‘assessee) by filing the present appeal sought to set aside the impugned assessment order dated 19.12.2025 passed by the Assessing Officer (AO) u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (for short ‘the Act’) inconsonance with the order passed by the Dispute Resolution Panel (DRP)-1, New Delhi dated 30.11.2025 u/s 144C(5). 2. Ground No. 1 is general in nature. 1

Ground No. 2 raised by the assessee was withdrawn by the assessee by way of a separate letter. Accordingly, the same is hereby dismissed as withdrawn. 4. Ground Nos. 3 to 3.5 raised by the assessee are challenging the transfer pricing adjustment made on account of interest on Masala Bonds amounting to Rs. 68,71,32,368/-. 5. We have heard the rival submissions and perused the material available on record. The assessee company was incorporated on 08.01.2008 with the main objective of power generation and transmission as a public limited company. The Assessee was a joint venture between Gayatri Energy Ventures Private limited (Gayatri India) and Singapore based Sembcorp Utilities Pte Ltd (Sembcorp Singapore). The shareholding pattern of the Assessee company as on 31-3-2021 is as under:- Sembcorp Utilities Pte Ltd: 100 % shareholding. 6. The Assessee entered into several international transactions with its Associated Enterprise (AE) which are tabulated in para 3 of the order of the ld TPO. During the FY 2021-22, the Assessee company has issued 12 % and 10 % INR denominated notes (unsecured) on which interest is payable on half yearly basis. The details of the same are tabulated as under:-

During the year under consideration, the Assessee has claimed interest on INR denominated bonds (hereinafter referred to as Masala Bonds) amounting to Rs. 314,07,34,965/- at interest rate of 10 % and 12 % per annum on the said bonds as under:- 12 % bonds Rs. 66,95,75,737 10 % bonds Rs. 247,11,59,228 Total interest Rs. 314,07,34,965

The Assessee applied Internal Comparable Uncontrolled Price (CUP) method as the Most Appropriate Method (MAM) for benchmarking this interest payment on Masala Bonds using actual third party bank rate as a benchmark i.e. fixed borrowing cost applicable to the borrower Sembcorp Gayathri Power Limited (hereinafter referred to as SGPL) for the relevant years in which bonds were issued (i.e. AY 2017-18 and 2018-19) which were ranging from 12.75 % to 14.40%. Masala bonds have been issued by SGPL to Sembcorp Singapore in 5 tranches during FYs 2016-17 and 2017-18. 9. The Assessee as stated earlier, has issued masala bonds at fixed interest rates which are as follows:- 12 % bonds in FY 2016-17 10 % bonds in FY 2016-17 10 % bonds in FY 2017-18. 10. This rate of interest being fixed, is not subject to any change as in the case of floating interest rates. The actual third party bank borrowing cost of interest was ranging from 12.75 % to 14.40 %. The details of third party borrowing interest rates used by the Assessee for benchmarking are under:-

The notes forming part of accounts or part of financial statements of SGPL as on 31-03-2017, clearly mentions the following:- e. Interest and repayment per Common Loan Agreement i. Rupee loan from ICICI Bank Limited (ICICI) carried interest rate ranging from 12.85% p.a. to 13.15% p.a. and is repayable in 48 equal quarterly installments of Rs. 2,167 Lakhs ii. Rupee loan from Rural Electrification Corporation Limited (REC) carries interest rate ranging from 13.15% p.a. to 13.75% p.a. and is repayable in 48 equal quarterly installments of Rs. 6,072 Lakhs iii. Rupee loan from Power Finance Corporation Limited (PFC) carries interest rate ranging from 13.15% p.a. to 13.75% p.a. and is repayable in 48 equal quarterly installments of 5,934 Lakhs iv. Rupee loan from PTC India Financial Services Limited (PFS) carries an interest rate of 13.25% p.a. and is repayable in 48 equal quarterly installments of 414 lakhs. 12. It is pertinent to note that bank borrowings are secured loans as they are secured by assets of the borrower. Masala bonds issued are unsecured loans but SGPL had paid lesser rate of interest on unsecured loans when compared to interest on secured loans.

It is also pertinent to understand the shareholding pattern of various entities together with their credit ratings as under:- Sembcorp Singapore holds 100% stake in SCIL India (the Assessee herein) and in SGPL. 14. SGPL is amalgamated with SEIL India on 31-10-2018. Credit rating of SGPL in AY-2017-18 was ‘BBB- ‘ and in AY-2018-19 was ‘A’. The credit rating of SCIL India in AY 17-18 and AY 18-19 was ‘A’. 15. The ld TPO applied external benchmarking lending rate which is a floating interest rate which is for primary benchmarking for RBI repo rate purpose. The ld TPO gave credit risk premium at the rate of 0.1% based on credit rating of assessee. It is to be noted that SGPL had taken the loan in AY 2017-18 and not the assessee herein. 16. The ld TPO accepted the CUP method adopted by the assessee. However, the ld TPO applied floating interest rate of 6.75% (external benchmarking lending rate of 6.65% +plus credit risk premium of 0.10% ) based on the credit rating of SEIL India for AY 2022-23 which was ‘AA-‘. The ld TPO made transfer pricing adjustment accordingly. The assessee preferred objections before the ld DRP. The ld DRP adopted floating interest rate i.e. MCLR + credit risk premium (8% + 0.10%) to benchmark the transaction. The ld DRP accepted the assessee’s, without prejudice, floating rate benchmark but applied an incorrect credit rating; applied understated credit risk premium and disregarded the credit risk premium agreed under the internal CUP from which MCLR has been adopted. 17. The ld AR submitted that the floating internal CUP was furnished on without prejudice basis although the same is not comparable to the assessee’s agreed fixed rate Masala Bonds. It was submitted that fixed rate of interest was determined after factoring in the credit rating, tenor of the bonds and quantum of Masala Bonds. The floating rate does not reflect the terms of intercompany agreement entered into by the parties. The agreements once executed between independent parties, typically not subject to renegotiation on an annual basis solely to align with prevailing market conditions. Accordingly it was argued that adoption of floating interest rate by ld TPO and ld DRP was unjustifiable. The ld AR also submitted that the MCLR is applicable to different class of lenders and borrowers as tabulated below:- Appellant’s Particulars MCLR Framework Transaction All Scheduled Commercial Type of lender Corporate Banks Capital-intensive Individuals, MSMEs and retail Type of borrower corporate entity borrowers No fixed cap; depends on Loan size Approx. INR 4,000 crore bank’s capital and exposure limits $ Primarily floating rate loans Large corporate Nature of loan linked to MCLR (corporate + financing retail + MSME) High-value structured Standardized bank lending Comparability financing across segments

Hence it was argued that there is fundamental difference in application of MCLR vis-a-vis fixed rate applied by the assessee for interest on masala bonds. The ld DRP rejected the benchmarking of the assessee on account of non consensus regarding the credit rating adopted by the assessee i.e. credit rating of the borrower for the relevant year. However, the ld DRP itself accepted the fundamental principle advocated by the assessee i.e. the use of borrowers credit rating for the relevant year in which the bonds were issued. Accordingly, it was argued that having accepted this underlying principle, the rejection of benchmarking of the assessee was unsustainable. 19. Per contra, the ld DR submitted that usually the spread is between 0.1 % or 2 %. In the instant case, SGPL merged with assessee after the issuance of bonds. Hence, the ld DRP had picked up the credit rating of the whole group instead of standalone SGPL. The ld DR vehemently supported the order of the ld DRP.

At the outset, we find the deficiencies pointed out by the ld DRP in para 5.3 to 5.12 of its order are actually incorrect inasmuch as all the relevant details were duly filed by the assessee before both ld TPO and the ld DRP. All the details are available in the annual report of SGPL itself, enclosed in pages 665 to 696 of the paper book itself. We find that the ld DRP had held that adoption of fixed rate or floating rate is not material. The ld DRP practically had accepted the CUP adopted by the assessee and ld DRP says CUP requires strict comparability. Having held that CUP requires strict comparability, the observation of ld DRP that adoption of fixed rate or floating rate of interest is of no relevance, is, in our considered opinion, contradicting its own stand. It is pertinent to note that SGPL had issued masala bonds to Sembcorp Utilities Pte Ltd in AYs 2017-18 and 2018-19 at a fixed rate of interest of 10 % or 12 %, as the case may be. SGPL also had borrowings in the form of secured loans from banks and others. Those borrowings were made in assessment years 2017-18 and 2018-19 at an interest rate of 12.75 % to 14.40 % per annum. Hence, in consonance with strict comparability to be adopted for CUP, the SGPL had benchmarked the interest rate on masala bonds with the bank borrowing rate in the year of borrowing which is same as the year of issuance of bonds. It is pertinent to note that SGPL had amalgamated with assessee on 31-10-2018. Hence application of Internal CUP method by the assessee is correct when data pertaining to Internal CUP is available, the same should be preferred. Reliance in this regard has been rightly placed on the Third Member decision in the case of Tecnimont ICB Pvt Ltd Vs. Additional CIT in ITA No. 4608/Mum/2010 for AY 2005-06.; ITA No. 5085/Mum/2010 and CO No. 78/Mum/2011 for AY 2005-06 dated 17-07- 2012. The relevant operative portion of the decision of Third Member is reproduced below:- “10. Clause (i) of Rule 10B(e) stipulates that net profit margin from an international transaction with an AE is computed in relation to cost incurred or sales effected or assets employed etc. Clause (ii) is material for the present purpose. It provides that the net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base. The 'base' of this provision takes one back to clause (i) which refers to cost incurred or sales effected or assets employed or to be employed. On splitting clause (ii) into two parts, it divulges that the reference is made to internal and external comparables. One part of clause (ii) refers to 'the net profit margin realised by the enterprise ... from a comparable uncontrolled transaction' and the other part talks of 'the net profit margin realised ....by an uncontrolled enterprise from a comparable uncontrolled transaction'. It transpires that whereas the first part refers to the profit margin from internal comparable uncontrolled transactions, the second part refers to profit margin from an external comparable uncontrolled transaction. Thus it is discernible that what is to be compared under this method is profit from a comparable uncontrolled transaction. The word 'comparable' may encompass internal comparable or external comparable. There is cue in the rule itself as to preference to be given to internal comparable uncontrolled transactions vis-à-vis externally comparable uncontrolled transactions. It is because the delegated legislature has firstly referred to the net profit margin realized by the enterprise (internal) from a comparable uncontrolled transaction and, thereafter, it points towards net profit margin realized by an unrelated enterprise (external) from a comparable uncontrolled transaction. Thus where potential comparable is available in the shape of an uncontrolled transaction of the same assessee, it is likely to have higher degree of comparability vis-à-vis comparables identified amongst the uncontrolled transactions of third parties. The underlying object behind computing ALP of an international transaction is to find out the profits which such enterprise would have earned if the transaction had been with some third party instead of related party. When the data is available showing profit margin of that enterprise itself from a third party, it is always safe and advisable to have recourse to such internal comparable case. The reason is patent that the various factors having bearing on the quality of output. assets employed, input cost etc. continue to remain by and large same in case of an internal comparable. The effect of difference due to such inherent factors on comparison made with the third parties, gets neutralized when comparison is made with internal comparable. Ex consequenti, it follows that an internal comparable uncontrolled transaction is more noteworthy vis-à-vis its counterpart i.e. external comparable.”

Respectfully following the aforesaid decision, we hold that Internal CUP should be adopted for External CUP when data pertaining to Internal CUP is available for comparability and benchmarking. Accordingly, the transfer pricing adjustment made in respect of interest on masala bonds is hereby deleted. Ground Nos. 3.1 to 3.5 are allowed. 8

In view of our aforesaid decision for Ground Nos. 3.1 to 3.5, the adjudication of Ground No. 3.6 becomes academic. 23. Ground Nos. 4 to 4.7 raised by the assessee are challenging the transfer pricing adjustment on account of technical consultancy services of Rs. 14,07,11,768/- 24. We have heard the rival submissions and perused the material available on record. The assessee availed technical consultancy services i.e. advice and assistance with respect to operation of SEIL India's power plants from its AE. The AE has charged cost plus markup of 9.21 %. It was submitted that these services are highly specialized and knowledge driven, leveraging the AE's global expertise in power generation and plant operations and are critical for efficient business functioning. The assessee has engaged AE as the technical advisor to render technical services and provide advice and assistance in relation to assessee’s power plant. The technical services agreement dated 06.12.2021, effective from September 2021 and Group Shared Services Agreement dated 01-01-2021 were placed before the lower authorities. On perusal of the same, it is noted that the AE possesses relevant technical knowledge pertaining to thermal power plants and is capable of being a technical advisor for assessee. The breakup of cost and markup details of the AE with respect to the above services are tabulated here under:-

The need for receipt of services from AE was explained by the assessee as under:- “ The AE, is a Singapore based company engaged in developing, owning and operating of energy and water assets. It was incorporated in 1973 and is headquartered in Singapore. It has operations in UK, UAE, Oman, China, India, Bangladesh, Myanmar and Vietnam. The AE owns and operates power generation plants, and provides electricity for industrial. commercial, and domestic customers, amongst many other activities. The AE along with its Group Companies offers services in the fields of water resource management, potable and industrial water supply, and municipal and industrial wastewater treatment and recycling, as well as build-own- operate/build-own-transfer potable and industrial water, and wastewater treatment plants for community, industry, and government applications. The Sembcorp Singapore Group also owns and operates power generation plants; and provides electricity for industrial, commercial, and domestic customers. In addition, it operates as an importer, transporter, and retailer of natural gas in Singapore, as well as provides chemical feedstock for chemical, pharmaceutical, and petrochemical industries. The following aspects pertaining to the Sembcorp Singapore Group are relevant to note:  The Sembcorp Singapore Group is responsible for Singapore's first privately developed independent power plant, which is also the country's largest cogeneration facility at 815 megawatts. In July 2014, the Sembcorp Singapore Group completed its second combined-cycle gas turbine cogeneration plant in Singapore. It has a power capacity of 400 megawatts and a steam production capacity of 200 tons per hour,  In China, the Sembcorp Singapore Group co-owns the largest co- generation plant in Shanghai, the Shanghai Cao Jing Cogeneration Plant, located in the Shanghai Chemical Industrial Park;  In Vietnam, the Sembcorp Singapore Group co-owns the 746 megawatt combined-cycle gas turbine power plant, Phu My 3;  In the UAE. the Sembcorp Singapore Group co-owns and operates an 893-megawatt power and desalination facility in Fujairah. The plant is one of the world's largest operating hybrid desalination plants,  In Oman, the Sembcorp Singapore Group co-owns and operate a 490- megawatt power and desalination facility in Salalah, the largest and most energy efficient power and water plant in the Dhofar Region in southern Oman; and  The Sembcorp Singapore Group leads the way in sustainable power generation. The Sembcorp Singapore Group's green facilities include a biomass station and an energy-from-waste facility in the UK, energy- from-waste operations in Singapore and wind power assets in China. The Sembcorp Singapore Group also co-owns and operates wind and solar power assets in India with a total power capacity of more than 1700 megawatts in operation and under development. With this addition, the Sembcorp Singapore Group's renewable energy capacity accounts for approximately 20 percent of the Group's total power capacity. It is hereby stated that the AF possesses significant amount of technical knowledge pertaining to operation of thermal project. With this technical expertise, the AF performed technical services which benefitted the Assessee.

The documentary evidences submitted by the assessee for proving the actual rendition of services by the AE are as under:-  Email dated Nov 21 indicating SCU Group Centre of Excellence ("GCoE")'s requesting for monthly operational performance data from SEIL as part of monthly review of asset performance  Email dated Sep 21 indicating SCU GCOE and SEIL discussing operational performance and summary of incidents for SEIL in Aug 21 as part of monthly review of asset performance (slides of performance summary attached in email  Email dated Dec 21 received as minutes from SCU GCoE team 's participation in SEIL's operations and maintenance meetings to discuss plant maintenance activities  Emails dated Jun to Jul 21 indicating GCoE's participation and review of vendor and method for chemical cleaning to address equipment (stator) clogging issues with third party specialists (SvoBatech & Tri-State) to improve performance of assets and resolve issues  Email dated Jul 21 indicating SCU GCoE team hosted a technical forum on operations and maintenance highlights and technical knowledge sharing pertaining to plant related issues with SEIL  Email dated Jul 21 providing project status updates on support delivered from SCU GCOE team to SEIL for implementation of Gensuite project, root cause analysis system to prevent recurrence of incidents through use of system  Please note that the employees of SCU made visit to India in past various year wherein similar services were rendered by SCU to SEIL. However, during the relevant financial year INDIA Le., FY 2021-22, largely visits were through video calls since this was a covid year.

In order to benchmark the transaction, the assessee identified the companies providing the similar nature of technical services in India and computed the margin over the cost of the companies. Accordingly, the cost plus margin was arrived at 17.17 % being the arithmetic mean margin of two comparables as under:-

The AE had charged cost plus margin of 9 % on cost for rendering of technical support services, which is less than the comparative NCP margin. Accordingly, it was concluded that the charges paid by the assessee towards technical services to its AE was at arm's length. 29. Apart from this, on without prejudice basis, the assessee also undertook a corroborative benchmarking analysis by conducting a search on external database, wherein uncontrolled comparable companies and undertaking having similar services as provided by the AE were selected. After applying various quantitative and qualitative filters, the resultant arm's length (operating profit/ cost) range was arrived at 7.91 % to 10.26 %. Since the margin earned by AE of 9 percent falls within the above arm's length range, the transaction of technical services was concluded to be at arm's length. The cost allocation of general and administration expenses and cost of sales of the AE was duly given by the assessee before the ld TPO, which is enclosed in page 25 of the paper book, which is reproduced below:- Particulars Amount (in S$ Mn.) Direct Labour and Service Costs 5,821,194 Training 30,383 Software/Licence Amortisation 60,820 Particulars Amount (in S$ Mo.) O&M Printing 44 Transport (Public) 125 Subscriptions 729 Grand Total 5,913,294

We find that the services rendered by the AE to the assessee in the instant case are so specialized and they do not fall under the aforesaid list of shareholder activity services. Hence the argument advanced by the ld DRP and the ld DR before us in this regard is hereby dismissed. Accordingly, we hold that the payment for services made by the assessee to its AE do not fall under the ambit of shareholder activity.

It is pertinent to note that the ld TPO had applied CUP and had determined the ALP of the subject mentioned transaction at Rs. Nil. Having applied CUP, it is the duty of the ld TPO to bring on record comparables to justify the determination of ALP at Rs. Nil. This is conspicuously absent in the instant case. Strangely, the ld DRP accepts the fact of rendition of services by the AE to the assessee and receipt of services by the assessee from its AE to the extent of expenses that are subjected to GST and TDS alone. We are unable to comprehend ourselves to accept to this proposition of the ld DRP that to the extent of GST and TDS, the expenses are required to be paid by the assessee to the AE for availing the services and for the remaining expenses, the AE has not rendered any services to the assessee. As stated earlier, this is a very strange scenario adopted by the ld DRP. How can there arise a situation wherein, only to the extent of expenses that are subjected to GST and TDS, AE has rendered services to the assessee and for remaining, they have not rendered the services to the assessee. The assessee on its part had duly furnished the need for such services from AE, rendition of services by the AE and receipt of services by the assessee from AE with evidences. It is trite law that once services have been received, the ALP of the intragroup service and technical consultancy service cannot be determined at Rs. Nil. Reliance in this regard has been rightly placed on the decision of Hon’ble Jurisdictional Delhi High Court in the case of CIT Vs. Benetton India Limited in ITA No. 472, 1318 and 1319 of 2018, dated 06.02.2025. Further, the assessee company is completely dependent on its AE to avail the specialized services. The entire emails evidencing the rendition of services are enclosed in pages 410 to 490 of the paper book. The details of complete computer software services in the form of infrastructure and network services; cyber security services; business application service; SAP services and licenses rendered by AE to the assessee are enclosed in pages 57 to 59 of the paper book. Further, at the behest of the Bench, the ld AR placed on record the copy of income tax return of the AE filed in India for AY 2022-23 on 29-11-2022 wherein the 18 amounts paid by the assessee to the AE had been duly offered as income in the hands of the AE in India. This goes to prove that services were indeed rendered by the AE and the same has been brought to tax in India. The assessee also furnished a reconciliation/mapping demonstrating the income reported by the AE vis-a-vis the corresponding expenditure towards technical consultancy services during the relevant year. On perusal of the said return of income, it is found that AE had reported aggregate income of Rs.18,87,01,983 under the head of technical services in its income tax return filed in India and out of this, an amount of Rs.13,60,01,312 pertains to technical service agreement services rendered by AE to assessee. In view of the above, we hold that the transfer pricing adjustment made in respect of technical services and intragroup services are hereby deleted. Accordingly, the Ground Nos. 4.1 to 4.7 raised by the assessee are allowed. 36. The Ground Nos. 5 to 5.2 raised by the assessee were stated to be not pressed by the ld AR as relief was given by the ld AO in the proceedings u/s 154 of the Act. Accordingly, the said grounds are dismissed as not pressed. 37. The Ground No. 6 is only seeking credit of TDS, which requires factual verification by the ld AO. The same is hereby restored to ld AO to grant TDS credit in accordance with law and the ground is allowed for statistical purposes. 38. With regard to interest u/s 234B of the Act, the same is consequential in nature. With regard to interest u/s 234C of the Act, the law is very well settled that the same shall be charged only on the returned income and not on the assessed income. The Ground No. 7 is disposed of in these terms. 39. Ground No. 8 is challenging the initiation of penalty proceedings u/s 270A of the Act, which is premature for adjudication at this stage and hence, dismissed.

In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 31st -August, 2026.