Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, Hyderabad ‘ A ‘ Bench, Hyderabad
Before: Smt. P. Madhavi Devi & Shri S. Rifaur Rahman
Per Smt. P. Madhavi Devi, J.M.
This is assessee’s appeal for the A.Y 2014-15 against the assessment order passed u/s 143(3) r.w.s. 92CA and 144C of the Act dated 16.7.2018.
Brief facts of the case are that the assessee, a private limited company, furnished its return of income for the A.Y 2014- 15 on 28.11.2014 electronically u/s 139(1) of the I.T Act declaring a loss of Rs.4,46,72,742/-. The return of the assessee was selected for scrutiny under CASS to examine various issues. The AO also observed that the assessee has paid interest to AEs on CCDs. He, therefore, treated it as an international transaction and made a reference to the TPO for determining the ALP u/s 92CA of the Act. The TPO, vide orders dated 29.9.2017, held the CCDs to
Page 1 of 6
ITA No 1891 Hyderabad Infratech P Ltd Hyderabad.
be a loan and further proposed to levy the interest at LIBOR plus 200 basis points. Accordingly, he determined the excess interest paid at Rs.15,21,21,649/- and proposed the adjustment. In accordance with the TPOs order, a draft assessment order was passed, against which, the assessee preferred its objections before the DRP. The DRP observed that similar issue had arisen in the assessee’s own case for the earlier A.Y 2013-14, wherein the DRP had upheld the findings of the TPO. Following its earlier order for the A.Y 2013-14, the DRP confirmed the draft assessment order and in accordance therewith the final assessment order is passed, against which the assessee is in second appeal before us by raising the following grounds of appeal: “The grounds mentioned hereinafter are without prejudice to one another. 1. The learned Assessing Officer ("learned AO"), learned Transfer Pricing Officer ("learned TPO") and the Honourable Dispute Resolution Panel ("Hon'ble DRP") grossly erred in determining an adjustment of INR 15,21,27,699/- with respect to the international transactions entered by the taxpayer under section 92CA of the Income-tax Act, 1961 ("the Act"). 2. The learned AO/ learned TPO/ Hon'ble DRP erred in rejecting the transfer pricing documentation maintained by the Appellant by invoking provisions of sub-section (3) of 92CA of the Act. 3. The learned AO/ learned TPO/ Hon'ble DRP erred in re- characterizing the Fully & V Compulsory Convertible Debentures ("FCCDs") issued by the Appellant to its Associated Enterprise ("AE") as a loan. 4. The learned AO/learned TPO/Hon'ble DRP erred in not considering the benchmarking analysis carried out by the Appellant in support of the arm's length nature of the interest paid on the FCCDs issued to its AE 5. The learned AO/ learned TPO/ Hon'ble DRP erred in considering ad hoc interest rate of LIBOR + 200 basis points for computing the interest paid by the Appellant on FCCDs issued to its AE. 6. The learned AO/ learned TPO/ Hon'ble DRP erred in computing the arm's length rate of interest on INR Page 2 of 6
ITA No 1891 Hyderabad Infratech P Ltd Hyderabad.
denominated FCCDs by considering the rate of interest prevailing in the lender country's instead of the rate that is prevailing in the borrower's country. 7. The learned AO has erred in law and on fact in levying interest under section 234 B of the Act amounting to INR 87,56,856/-. The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided”.
The learned Counsel for the assessee submitted that similar issue had arisen in the assessee’s own case in the earlier A.Y i.e. 2013-14 and the Coordinate Bench of this Tribunal in ITA No.1781/Hyd/2017, dated 25.01.2018, has held that the decision in the case of Adama India Pvt Ltd in ITA No.497/Hyd/2016 is applicable to the assessee’s case and following the same, has granted relief to the assessee. A copy of the said order is filed before us.
The learned DR, on the other hand, relied upon the order of the DRP and also relied upon the following case law:
i) Hon'ble Delhi High Court in the case of Zaheer Mauritius v. DIT (IT)-II reported in (2014) 47 taxmann.com 247 (Del.)
Having regard to the rival contentions and the material on record, we find that the Coordinate Bench of the Tribunal in the case of Adama India Pvt Ltd (Supra) has considered the decision of the Hon'ble Supreme Court of India in the case of Sahara Real Estate Corporation Ltd and Sahara Housing
Page 3 of 6
ITA No 1891 Hyderabad Infratech P Ltd Hyderabad.
Investment Corpn. Ltd in Civil Appeal No.9813/2011 dated 31/08/2012, wherein the CCD has been held to be an hybrid instrument in nature of equity and cannot be thus considered as a loan particularly where the CCDs are compulsorily convertible debentures. We also find that the Tribunal has followed the decision of the Coordinate Benches and the Hon'ble High Court of Delhi in the case of CIT vs. Cotton Naturals (I) Ltd in ITA No.233/2014 to grant relief to the assessee. As in the assessee’s own case, the Tribunal has followed the said decision to grant relief to the assessee, and since the DRP has also relied upon its own order for the A.Y 2013-14, we are of the opinion that the issue is covered in favour of the assessee by the decision of the Coordinate Bench of this Tribunal. Further, we also find that the DRP in the last paragraph of its order has observed that the Department has filed an appeal against the order of the ITAT before the Hon'ble High Court and therefore, confirmed the order of the TPO. Thus, it is evident that the DRP wanted the issue to be kept alive and therefore, has upheld the order of the TPO. Respectfully following the decision of the Coordinate Bench in the assessee’s own case for the A.Y 2013-14, we allow the assessee’s appeal. For the sake of ready reference, the relevant paras of ITAT order are reproduced below:
“4. Having regard to the rival contentions and the material on record, we find that the issue before this Tribunal is the rate of interest whether it is to be calculated under PLR as claimed by the assessee or at LIBOR+ as computed by the TPO/DRP. We find that the Coordinate Bench of this Tribunal in the case of Adama India Pvt. Ltd (cited Supra) at paras 8 & 9 of its order has held as under: "8. We have considered the issue and examined the rival contentions. There is no dispute with reference to the fact that the CCDs were issued in Indian Rupees. Accordingly, following the principles laid down by the Co-ordinate Benches and the Hon'ble High Court as relied on by the assessee in the submissions, we have to hold that TPO has wrongly treated the issuance of CCDs as a loan, by treating it as an external Page 4 of 6
ITA No 1891 Hyderabad Infratech P Ltd Hyderabad.
commercial borrowing, ignoring the fact that loan is a debt, whereas CCD is hybrid instrument in nature basically categorised as equity in nature. It was accepted by the Hon'ble Supreme Court in the case of Sahara India Real Estate Corporation Limited and Sahara Housing Investment Corporation Limited & Ors. Vs. Securities and Exchange Board of India & Anr. in Civil Appeal No. 9813 of 2011 dt. 31-08-2012 (supra) while assigning the jurisdiction to SEBI as an 'equity instrument'. Further, the policy of Govt. of India and also RBI effective from 01- 04-2010 also indicate that issuance of CCD is part of FDI being quasi-equity in nature and considering the same as a loan would be completely against regulations laid by DIPB, RBI and FEMA. It is to be reiterated that issuance of CCDs was denominated in Indian Rupees and not foreign currency. Therefore, TPO has erred in considering LIBOR as benchmark rate which is in complete contradiction to the principles on the issue. The following judicial precedents supports that the rate interest has to be considered in the currency in which loan has originated: i. India Debt Management Pvt. Ltd., IT(TP)A No. 7518/Mum/2014; ii. CIT Vs. Cotton Naturals (I) Ltd., ITA No. 233/2014 (Del.HC); iii. M/s. Brahma Center Development Pvt. Ltd., Vs. ITO, ITA No. 373/Del/2016 (ITAT Del). By respectfully following the Co-ordinate Bench and Hon'ble High Court decisions, we agree with the assessee's contentions that the CCDs cannot be categorised as a loan and LIBOR plus two hundred basis points benchmark cannot be accepted on the facts of the case. 9. Coming to the issue of adopting the benchmark rate in Indian context, assessee has justified the ALP not only on the basis of SBI PLR, which was at 12.26% for the year under consideration, but also from the data from NSDL website in which average coupon rate ranged from 0.50% to 16.50% with an arithmetic mean of 12.50%. These rates were already before the TPO. Therefore, we are of the opinion that there is no need to restore the matter to the file of the AO for re- examination, when assessee has justified the issuance of CCDs at 12%. In view of that we are of the opinion that the rate at which the CCDs were given are within the range, therefore, no further addition can be considered under the TP provisions. In view of that, the addition so made is deleted and grounds of the assessee from 4 to 6 are accordingly considered allowed. Since the addition is deleted, we do not wish to consider Ground Nos. 1 & 2 as has already been indicated above." 5. Since the facts and circumstances in the case before us are similar, respectfully following the decision of the Coordinate Bench of this Tribunal (cited Supra), we allow the assessee's appeal”.
Page 5 of 6
ITA No 1891 Hyderabad Infratech P Ltd Hyderabad.
In the result, assessee’s appeal is allowed.
Order pronounced in the Open Court on 18th October, 2019.
Sd/- Sd/- (S.RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, dated 18th October, 2019. Vinodan/sps
Copy to:
1 Hyderabad Infratech Ltd, Admin Block, Mariner, The V Plot No.17 Software Units Layouot, Madhapur, Hyderabad 500081 2 ACIT, Circle 2(2) Signature Towers, Opp: Botanical Garden, Kondapur, Serilingampalli (M) Hyderabad 500090 3 DRP-1 Kendriya Sadan, 4th Floor, B&C Wing, Bengaluru 560034 4 Director of Income Tax (IT&TP) Hyderabad 5 The DR, ITAT Hyderabad 6 Guard File
By Order
Page 6 of 6