BRIGADE PROPERTIES PRIVATE LIMITED ,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2(3), BANGALORE

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ITTPA 1838/BANG/2024Status: DisposedITAT Bangalore19 November 2024AY 2020-217 pages

In favour of the Revenue: the assessee's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the assessment proceedings are not fatal despite the mention of a wrong name in the assessment order, as the notice under section 143(2) and the demand notice were issued in the name of the correct entity, and the correct PAN number was also mentioned. Grounds 2, 4, and 5 were not pressed by the assessee. On the merits of the addition (Ground 6), the Tribunal noted the assessee's 'A' (Negative) credit rating. It referred to a Supreme Court decision in Dharampal & Ors for the principle that interest rates depend on prevailing bank rates. The Tribunal observed that the assessee's auditors reported 16% for 'A' rating companies in 2015 and 12% for NCDs in 2019. Considering the assessment year (FY 2019-20), the Tribunal found that RBI guidelines mention rates for AAA and 'A' categories but not 'A-'. Therefore, it concluded that a 12% interest rate, equivalent to SBI + 100 basis points, was justifiable for the year under consideration, not the 2015 rate relied upon by the assessee. The Tribunal distinguished the case laws relied upon by the assessee, stating they pertained to 'issue of interest on receivables' or older assessment years with higher interest rates. Consequently, the Tribunal found no error in the orders of the TPO and AO and dismissed the appeal.

What were the facts?

The assessee, Brigade Properties Private Limited, engaged in real estate, filed its return for AY 2020-21 declaring nil income. The case was selected for scrutiny. During assessment, the Assessing Officer (AO) referred the matter to the Transfer Pricing Officer (TPO) due to international transactions with Associated Enterprises (AEs). The TPO observed the assessee paid interest at rates of 16%, 14.10%, and 13.27% on non-convertible debentures (NCDs) issued to its AE for loans. The TPO made an adjustment of Rs. 1,54,52,000/-. The AO made additions based on the TPO's adjustment. The assessee's objections before the Dispute Resolution Panel (DRP) were dismissed. The AO passed the final order, which the assessee has appealed to the ITAT.

What were the issues?

1. Whether the assessment proceedings are legally valid when the assessment order was passed in the name of a non-existing entity (amalgamated/merged entity)? (Mixed law and fact, relying on Section 143(2) and general principles of assessment). 2. Whether the application of the most appropriate method by the TPO is correct? (Mixed law and fact, relying on transfer pricing regulations). 3. Whether the Dispute Resolution Panel (DRP) erred in not adjudicating certain grounds raised by the assessee? (Mixed law and fact, relying on DRP procedures). 4. Whether the addition made by the TPO and affirmed by the AO and DRP on account of interest paid on NCDs to AEs is justified on merits? (Mixed law and fact, relying on Section 92C and principles of arm's length pricing). Assessee's arguments: The assessment order was passed in the name of a non-existing entity. The TPO's application of the most appropriate method was incorrect. The DRP failed to adjudicate certain grounds. On merits, the interest paid on NCDs was at arm's length, citing the company's 'A' (Negative) credit rating and SBI+300 PLR as the correct rate. The assessee relied on various judgments of coordinate benches. Revenue's arguments: The 'A' rating is not present in RBI guidelines. SBI+100 PLR should be applied considering the totality of facts.

Which sections of the Income-tax Act were involved?

Section 143(1),Section 143(2),Section 144C(5),Section 92C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B’’ BENCH: BANGALORE

Before: SHRI LAXMI PRASAD SAHU & SHRI PRAKASH CHAND YADAV

For Respondent: Shri Sridhar E., D.R
Hearing: 30.10.2024Pronounced: 19.11.2024

PER PRAKASH CHAND YADAV, JUDICIAL MEMBER:

Present appeal of the assessee is arising from the order of ld. AO dated 27.7.2024 having DIN & Order No.ITBA/AST/S/14393)/2024-25/1066952786(1) for the AY 2020- 21.

2.

Facts of the case are that assessee is a company and engaged in the business of real estate. It has filed its return of income for the impugned year on 31.12.2020 declaring nil income. The same was processed u/s 143(1) of the Income Tax Act, 1961 (in short “The Act”) and thereafter the case of the assessee was selected for scrutiny vide notice dated 26.9.2021 issued u/s 143(2) of the Act. Here it is pertinent to mention that admittedly this notice has been issued in

IT(TP)A No.1838/Bang/2024 Brigade Properties Private Limited, Bangalore Page 2 of 7 the name of correct entity, with which we are dealing. This fact has repercussion in our observations made in the later part of the order.

2.1 During the course of assessment proceedings, the ld. AO observed that the assessee had undertaken certain international transactions with its Associated Enterprises (AEs) and hence for determining the arm’s length price, the AO has referred the matter to the TPO. During the course of transfer pricing study, the TPO observed that the assessee has issued non-convertible debentures (NCD) of four types to its AE for the purpose of obtaining loan. The TPO further observed that in these four types of debentures, the assessee has paid interest at different rates such as 16%, 14.10% & 13.27%. After considering the submissions of the assessee, auditor’s report and the TP report, the ld. TPO made an adjustment of Rs.1,54,52,000/- and sent the matter back to the file of AO. Thereafter, the AO passed the draft assessment order and made the additions as per the adjustments made by the ld. TPO.

2.2 Aggrieved with the order of TPO, the assessee preferred its objections before the DRP in terms of the provisions of section 144C(5) of the Act. The ld. DRP after considering the objections of the assessee, vide its order dated 26.6.2024 affirmed the findings of AO given in the draft order and dismissed the objections of the assessee. Accordingly, the AO passed the final order vide order dated 23.7.2024.

2.3 Aggrieved with the order of AO, assessee preferred appeal before us.

3.

The assessee has raised six grounds of appeal, which grounds are divided into sub-grounds.

IT(TP)A No.1838/Bang/2024 Brigade Properties Private Limited, Bangalore Page 3 of 7 3.1 The ground No.1 is general in nature, which do not require any adjudication.

3.2 In ground No.2, the assessee has challenged the legality of the present proceedings on the ground that the assessment order has been passed in the name of non-existing entity i.e. amalgamating or merged entity.

3.3 In ground No.3, the assessee has challenged the impugned order on the ground that the impugned order is barred by limitation as held by Hon’ble Madras High court in the case of Roca Bathroom, pending before the Hon’ble Supreme Court.

3.4 In ground No.4, the assessee has challenged the application of the most appropriate method by the TPO.

3.5 In ground No.5 and its subgrounds, the assessee contended that the ld. DRP has erred in not adjudicating certain grounds raised by the assessee before us.

3.6 In ground No.6 and its sub-ground, the assessee has challenged the merits of the additions made by the TPO and affirmed by the DRP & AO.

4.

At the outset, ld. Counsel for the assessee pointed out that he is not pressing ground No.3 i.e. the impugned order is barred by limitation, hence, this ground is dismissed as not pressed in the open court.

4.1 So far as contention of the assessee in ground No.2 and its sub ground is concerned i.e. framing of assessment in the name of non- existing entity, we observe that the assessing officer has issued notice

IT(TP)A No.1838/Bang/2024 Brigade Properties Private Limited, Bangalore Page 4 of 7 u/s 143(2) of the Act in the name of correct entity i.e. Brigade Properties (amalgamated Company) and the demand notice has also been raised in the name of correct entity. Further the AO has correctly mentioned the PAN number of correct entity. Therefore, we are of the view that mere mentioning of wrong name in the assessment order is not fatal to the present proceedings, more particularly when the PAN number of the correct entity is there in the impugned order.

4.2 Now coming to the ground Nos.4 & 5, the ld. Counsel for the assessee has not pressed these grounds and straightaway argued the matter on merits.

4.3 Challenging the addition on the merits, the counsel for the assessee has argued that the impugned transaction of repayment of interest on loan borrowed after issuing NCDs is at arm’s length because the credit rating of the company was ‘A’ (Negative). Further, Counsel for the assessee has argued that SBI+300 PLR is the correct rate for the case and hence no adjustment is called for. Ld Counsel for the assessee has relied upon so many judgments of the Coordinate Benches of the ITAT.

5.

Ld DR appearing for revenue interalia argued the A- rating is not there in the RBI guidelines. He further contended that SBI+100 PLR shall be applied considering the totality of the facts.

5.

We have considered the rival submissions and perused the material on record. We observe that in this case, as admitted by the assessee itself that the credit rating of the company was ‘A’ (Negative). It is to be determined, as to what would be the correct PLR for benchmarking transaction of interest paid by the assessee to its AE. In these type of cases, where lending of money is involved, time plays

IT(TP)A No.1838/Bang/2024 Brigade Properties Private Limited, Bangalore Page 5 of 7 a crucial role in deciding the appropriate rate of interest to be charged. A reference can be made to the decision of Hon’ble Apex Court in the case of Dharampal & Ors Civil Appeal of 2008 arising from SLP (Civil) No-12917 of 2007 dated 12.05.2008- wherein the Hon’ble Apex Court observed as under: - “Rate at which the interest is to be awarded would normally depend upon the bank rate prevailing at the relevant time. Since in the case of State of Tamil Nadu State Transport Corpn. Ltd. (supra) decided in the month of April, 2005, the prevailing rate of interest on bank deposits was found and held to be 7.5% per annum, we consider it appropriate to award the same rate of interest, as the same was the prevailing rate of interest on the date of the passing of the award i.e. 18.05.2005 in the present case. Consequently, we hold that the appellants would be entitled to be paid interest at the rate of 7.5% from the date of application till the date of payment.” Though the above judgment is not rendered with respect to the provisions of Income Tax Act, yet the principle of law laid down is squarely applicable in the cases where courts have to decide the correct rate of interest to be charged. It is the rule of interpretation that when internal aids are not adequate for deciding a lis then external aid help can always be adopted for resolving the dispute. Here in the present case, the auditors of the assessee have certified that in the year 2015, the rate of interest for ‘A’ rating companies was 16%( Page Number 128 of the Paper Book). In the same report, the auditors have categorically mentioned that in 2019, the rate of interest for same bonds i.e. NCD was 12%. Here it is pertinent to note that we are examining a case in which the transactions are pertaining to the period of financial year 1st April, 2019 to 31st March, 2020 relevant to the impugned assessment year. Further perusal of the

IT(TP)A No.1838/Bang/2024 Brigade Properties Private Limited, Bangalore Page 6 of 7 RBI guidelines with respect to the applicable rate of interest on the basis of credit rating, we observe that RBI Guidelines are containing the rate of interest applicable for AAA and A category and there is no mention of A-. Therefore, we are of the firm opinion that 12% rate of interest is justifiable as prevalent in year 2019 and hence SBI + 100 points is the correct PLR for the year under consideration and not the PLR of 2015 as relied upon by the assessee. So far as the decisions relied upon by the assessee. So far as the case laws relied upon by the assessee is concerned we have gone through them meticulously most of the case laws are with respect to the “issue of interest on receivables”, not on payment of interest. So far as decision of Tejas Networks Ltd, (2022) 139 Taxman.com 430 is concerned it is not coming out from the order as to whether it was a case of CCDs or not, even if we presume that the decision of Tejas is related to issuance of CCDs then also it is of no use because that matter relates to AY 2010-11 and 2011-12, in which years the rate of interest was substantial higher on loans by the Indian Banks. Similarly the decision of Delhi Bench in the case of Granite Gate Properties, ( 2019) 101 Taxman.com 38(Del), wherein the Delhi Bench has laid down SBI+300 basis point as the correct rate, is a decision related to AY 2012-13, in which year also the rate of interest was substantial higher on loans by the Indian Banks. Therefore, the case relied are of no use. Hence, we do not find any error in the orders of TPO as well as AO and hence we dismiss the appeal of the assessee.

6.

In the result, appeal of the assessee is dismissed. Order pronounced in the open court on 19th Nov, 2024

Sd/- Sd/- (Laxmi Prasad Sahu) (Prakash Chand Yadav) Accountant Member Judicial Member

Bangalore, Dated 19th Nov, 2024. VG/SPS

IT(TP)A No.1838/Bang/2024 Brigade Properties Private Limited, Bangalore Page 7 of 7

Copy to:

1.

The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order

Asst. Registrar, ITAT, Bangalore.

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