HCY INDUSTRIAL PARKS PRIVATE LIMITED,MUMBAI vs. ASSESSMENT UNIT, INCOME TAX DEPARTMENT, MUMBAI

ITA 1899/MUM/2026Status: DisposedITAT Mumbai01 October 2026AY 2022-2326 pages
AI SummaryPartly Allowed

What were the facts?

The assessee, HCY Industrial Parks Private Limited, engaged in developing industrial parks, filed its return of income for Assessment Year 2022-23 declaring nil total income. The case was selected for scrutiny. The Transfer Pricing Officer (TPO) treated Compulsorily Convertible Debentures (CCDs) issued to an associated enterprise (AE) as equity, determined the arm's length price (ALP) of the interest payment at nil, and proposed an adjustment of Rs. 3,40,27,280. The Dispute Resolution Panel (DRP) upheld this adjustment. The Assessing Officer (AO) incorporated the adjustment, assessing total income at Rs. 23,97,730. The assessee appealed this final assessment order dated 26.12.2025, passed under section 143(3) read with sections 144C(13) and 144B of the Income-tax Act, 1961.

What did the Tribunal hold?

The Tribunal held that the determination of the ALP of interest at nil could not be sustained. The reasoning was that the current interest obligation was displaced by a conclusion about eventual equity ownership, material terms of conversion were inaccurately stated, and a nil price was not established through an asserted method. The Tribunal directed the deletion of the transfer pricing adjustment of Rs. 3,40,27,280. It clarified that it was not determining a universally applicable arm's length rate for CCDs. Grounds 1 to 3 and 8 were allowed to this extent. The DRP's alternative disallowance under sections 36(1)(iii) and 37(1) was also set aside as it rested on the same proposition that CCDs represented issued equity. The consequential direction to reduce the capital asset or work-in-progress base was also vacated. The Tribunal directed the AO to verify the amount actually capitalized and apply governing provisions. Regarding Ground 7, the AO was directed to verify the disallowance made under section 94B and give effect to it, ensuring no double disallowance. The Tribunal expressed no view on the merits of the disallowance itself, only on the procedural error of double disallowance. Any statutory interest or fee affected by the recomputation was to be recalculated. The issue concerning initiation of proceedings under section 270A was deemed premature. The operative direction was to delete the transfer pricing adjustment, set aside the alternative disallowance, and give consequential effect to directions concerning capitalization, section 94B, and statutory levies.

What were the issues?

1. Whether the Tribunal has erred in law and on facts by re-characterizing Compulsorily Convertible Debentures (CCDs) as 'Equity' and thereby re-determining the Arm's Length Price (ALP) of interest on CCDs at Nil, contrary to contractual terms and judicial precedents (Grounds 1, 2, 8)? The assessee argued that CCDs are debt instruments until conversion, their conversion ratio was not decided in advance but at Fair Market Value at conversion, they are non-appreciating until conversion, and the absence of redemption does not render them equity. The revenue, through the TPO and DRP, treated them as equity, leading to a nil ALP for interest. 2. Whether the Tribunal has erred in failing to record satisfaction under section 92C(3) and incorrectly rejecting the assessee's benchmarking analysis (Ground 3)? The assessee contended that the conditions for disregarding its Transfer Pricing Study Report were not met. 3. Whether the Tribunal has erred in creating double taxation by making an adjustment when the interest income was offered to tax in India by the AE (Ground 4)? The assessee argued there was no motive for profit shifting. 4. Whether the Tribunal has erred in relying on Indian Accounting Standard (Ind AS) and 'Self-Recognition' of an equity component, which the assessee disputes (Grounds 5, 6)? The assessee stated Ind AS was not applicable and no equity component was recognized in its audited financials. 5. Whether the Tribunal has erred in disregarding the disallowance already made by the assessee under section 94B, leading to double disallowance (Ground 7)? The assessee had already disallowed Rs. 41,33,106 under section 94B.

Which sections of the Income-tax Act were involved?

Section 94B,Section 143(3),Section 144B,Section 144C(5),Section 144C(13),Section 92CA(3),Section 36(1)(iii),Section 37(1),Section 92C(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES, MUMBAI

For Appellant: Shri Vijay Mehta, Ld. A.R
For Respondent: Shri Pravin Salunkhe, Ld. Sr. D.R
Hearing: 21.07.2026Pronounced: 01.10.2026

PER: MAKARAND VASANT MAHADEOKAR, AM This appeal by the assessee is directed against the final assessment order dated 26.12.2025 passed under section 143(3) read with sections 144C(13) and 144B of the Income-tax Act, 1961[hereinafter referred to as “the Act”], pursuant to the directions dated 20.11.2025 issued by the Dispute Resolution Panel-1, Mumbai (“DRP”) under section 144C(5) of the Act.

2.

The assessee is engaged in the business of developing and operating industrial and logistics parks. For the assessment year under consideration, it filed its return of inc

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 144B

All 10,344 judgments and leading authorities on Section 144B →

Latest GST High Court judgments

Search GST case law →