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Income Tax Appellate Tribunal, DELHI ‘I-1’ BENCH,
Before: SHRI N.K. BILLAIYA, & MS. SUCHITRA KAMBLE
PER N.K. BILLAIYA, ACCOUNTANT MEMBER,
The above three separate appeals are preferred by the assessee
against the assessment order dated 23.10.2017 framed u/s 144C r.w.s
153C of the Income tax Act, 1961 [hereinafter referred to as 'The Act'
for short] pertaining to A.Ys 2012-13, 2013-14 and 2014-15.
Since common issue is involved in all the above three appeals,
they are taken up together and are disposed of by this common order
for the sake of convenience and brevity.
The solitary dispute in the above three appeals is in respect of
Transfer Pricing adjustment made by the Assessing Officer out of
interest paid by the assessee to its Associated Enterprise [AE] M/s
Twilzon Limited on Fully and Compulsorily Convertible Debentures
[FCCDs] issued by the assessee to such AE. The FCCDs were issued on
26.07.2011 i.e. in F.Y. 2011-12 relevant to A.Y 2012-13 and no FCCDs
were issued in A.Y 2013-14 and 2014-15. Therefore, A.Y 2012-13 is
taken as the lead year.
At the very outset, the ld. counsel for the assessee stated that
the entire quarrel has been decided by the Tribunal in a group
company, namely, Granite Gate Properties Ltd for A.Ys 2009-10, 2010-
11 and 2011-12. The ld. counsel for the assessee supplied copy of the
order of the Tribunal.
Briefly stated, the facts of the case are that during the previous
year 2011-12, the appellant company paid interest of Rs. 3,17,54,311/-
on FCCDs availed from Twilzon Ltd as per investment agreement. In
terms of this agreement, the appellant was required to pay interest @
17.25%. During the Transfer Pricing assessment proceedings, it was
explained that FCCDs issued to AE are rupee denominated and interest
payments are also paid in Indian Rupees, therefore, LIBOR is not
applicable in the case of the assessee and hence SBI PLR rate + 300
basis points has been taken and the same is at arm’s length. It was
explained that 300 basis points have been taken to cover risk, cost of
funds and administrative costs which all depend upon the credit rating
of the issuer of the CCDs.
The reply of the assessee did not find any favour with the TPO
who made the following observations while dismissing the contention
of the assessee:
a) The assessee has not given any documentary evidence in
support of its credit rating.
b) Assessor's various projects are in progress which gives
a good credibility to the assessee and that is why,
assessee is getting funds from its AE.
c) With regard to risks which form basis for providing
spread on PLR also minimizes as assessee is receiving investments in own currency & paying in rupee only.
Therefore, exchange risk becomes ineffective.
d) Risk to cost of funds also minimizes because assessee
is paying taking SBI PLR as arm’s length interest rate
because no one would lend at less than this rate.
e) And for administering the costs assessee has not
explained and justified that it has incurred tiny extra
cost or made any extraordinary effort.
f) The main thing to be noted is that AE is making such
huge investment in assessee’s business and
undertaking big risk, which again substantiates that
the assessee has very good credibility.
The aforementioned observations of the TPO were also heavily
relied upon by the ld. DR during the course of his submissions. On the
basis of the aforementioned observations, 300 basis points over and
above base rate PLR was disallowed and differential interest amount
was added in the captioned A.Ys and the same can be understood from
the following chart:
S. Interest Amount of Rate of Different Amount of Differential Assessment Year No. rate as per interest payable Interest ial rate of Interest amount of 2012- 13 1 FCCDs of 17.25% 31,754,611.00 14.25% 3.00% 26,232,069.96 5,522,541.04 Rs.269,500,000 as issued during the 31,754,611.00 26,232,069.96 5,522,541.04 year on 26.07.2011 Total 2013- 14 17.25% 46,488,750.00 14.25% 3.00% 38,4C3,753.00 8,085,000.00 2 FCCDs of Rs.269,500,000 as 46,488,750.00 38,403,750.00 8,085,000.00 issued during AY 2012-13 3 Total 2014- 15 FCCDs of 17.25% 46,488,750.00 14.25% 3.00% 38,403,750.00 8,085,000.00 Rs.269,500,000 as Total 46,488,750.00 8,085,000.00 38,403,750.00
The assessee raised objections before the DRP but the same were
dismissed.
As mentioned elsewhere, on similar circumstances, in group
company, namely, Granite Gate Properties Ltd, the Tribunal in ITA No.
7025/DEL/2017 for A.Y 2012-13 has considered similar quarrel where
FCCDs were issued to same AE and there also SBI PLR rate + 300 basis
points were taken into consideration for payment of interest. The
relevant findings in ITA No. 7025/DEL/2017 read as under:
“13. On a careful perusal of the record more particularly the order relied upon by the assessee, we find that vide para 27, a coordinate bench of this Tribunal has recorded its finding to the following effect:
"27. On merit also, the AO/TPO made the addition on account of differential rate of interest on FCCDs. The assessee applied the interest rate on the basis of SBI PLR rate plus 300 basis points for the reasons that the FCCDs being unsecured and hybrid/quasi equity instrument as compared to plain vanilla loan instrument. Therefore, the SBI PLR plus 300 basis points over it was reasonable and on the arm's length, particularly when the same was permissible under Foreign Exchange Control Regulations. The AO/TPO, however, restricted the interest rate to 12.25%. The variance in the rate of interest as per TPO/AO to be adjusted and added was 3.75% which was within the permissible range of 5% as permitted by second proviso to Section 92C(2) of the Act. It is also relevant to point out that the percentage of 3% in the aforesaid proviso has been inserted by the Finance Act, 2012 w.e.f. 01.04.2013 and prior to that amendment, this percentage was at 5%. In the present case, since the difference is less than 5%, therefore, no addition on account of arm's length price could have
been made by the AO/TPO. As such on merit also, no addition could have been made. "
Therefore, in view of the above finding of a coordinate bench of this Tribunal in assessee's own case for the immediately preceding years, we are of the considered opinion that the issue is no longer res integra and this bench is required to follow the same in the absence of any change of circumstances. No change of circumstances is pleaded before us. We, therefore, while respectfully following the above decision, reach a conclusion that it is reasonable on facts and also permissible under law to include 300 points basis while calculating the interest rate. Further, in view of the fact that the variance does not exceed 5% for the FCCDs issued during the FYs 2008-09 and 3% for the FCCDs issued subsequently interference by the Ld. TPO with the value of the international transaction. The addition, therefore, cannot be sustained and shall be directed to be deleted. We accordingly direct the learned AO/TPO to delete the same.
Similar view was taken by the Tribunal in ITA No. 7026/DEL/2017
and 7027/DEL/2017. The relevant findings read as under:
“11. We have heard the rival submissions and have given thoughtful consideration to the orders of the authorities below. We have also perused the orders of the co-ordinate bench relied upon by the ld. counsel for the assessee. The undisputed fact is that the FCCDs
were issued during FY 2008-09, 2009-10 and 2011-12, which means
that no fresh FCCDs were issued during the year under
consideration. The year wise details of interest rate, interest
amount payable and interest rate and amount restricted by the
TPO can be understood from the following chart:
Amount of Differential Amount of Differential amount Interest
rate interest Rate of Interest rate of interest of interest as per
S No Type of FCCD's as per payable on as per TPO to payable at
ITPO to be:
Amount of Differential Amount of Differential amount interest rate of interest Interest of interest as per Interest rate Rate of Interest S No Type of FCCD's as per as per TPO to payable at ITPO to be: payable on restricted by TPO Assessee on FCCD's as per be Arm's length adjusted/added to the basis of to be at Arm's adjusted/added as per TPO income SBI PLR rate Assessee length based on plus 300 basis to income points SBI PLR rate
FCCD's @ 16% as 16.00% 210,328,320.00 12.25% 3.75% 161,032,620.00 49,295,700 issued during FY 1. 2008-09 (Note 1)
FCCD's @ 14.75% as 14.75% 166,371,062.00 11.75% 3.00% 132,532,879.90 33,838,182 issued during FY 2009-10
17.75% 141,432,000.00 14.75% 3.00% 117,528,000.00 23,904,000 FCCD's @ 17.75% as issued during FY 2011-12(Note 2)
Total 518,131,382.00 411,093,499.90 107,037,882.
On the basis of the aforesaid facts, the co-ordinate bench in
ITA No. 7022/DEL/2017 and others had considered this issue and
held as under:
"27. On merit also, the AO/TPO made the addition on account of differential rate of interest on FCCDs. The assessee applied the interest rate on the basis of SBI PLR rate plus 300 basis points for the reasons that the FCCDs being unsecured and hybrid/quasi equity instrument as compared to plain vanilla loan instrument.
Therefore, the SBI PLR plus 300 basis points over it was reasonable and on the arm's length, particularly when the same was permissible under Foreign Exchange Control Regulations. The AO/TPO, however, restricted the interest rate to 12.25%. The variance in the rate of interest as per TPO/AO to be adjusted and added was 3.75% which was within the permissible range of 5% as permitted by second proviso to Section 92C(2) of the Act. It is also relevant to point out that the percentage of 3% in the aforesaid proviso has been inserted by the Finance Act, 2012 w.e.f.
01.04.2013 and prior to that amendment, this percentage was at 5%. In the present case, since the difference is less than 5%, therefore, no addition on account of arm's length price could have been made ITA Nos. 7022 to 7024/Del/2017 Granite Gate Properties Pvt. Ltd. 19 by the AO/TPO. As such on merit also, no addition could have been made."
Similarly, in ITA No. 7025/DEL/2017, the findings given by the co-ordinate bench read as under;
"14. Therefore, in view of the above finding of a coordinate bench of this Tribunal in assessee's own case for the
immediately preceding years, we are of the considered opinion that the issue is no longer res integra and this bench is required to follow the same in the absence of any change of circumstances. No change of circumstances is pleaded before us. We, therefore, while respectfully following the above decision, reach a conclusion that it is reasonable on facts and also permissible under law to include 300 points basis while calculating the interest rate. Further, in view of the fact that the variance does not exceed 5% for the FCCDs issued during the FYs 2008-09 and 3% for the FCCDs issued subsequently interference by the Ld. TPO with the value of the international transaction. The addition, therefore, cannot be sustained and shall be directed to be deleted. We accordingly direct the learned AO/TPO to delete the same."
As no distinguishing decision has been brought to our notice, respectfully following the findings of the co-ordinate bench, we direct the Assessing Officer /TPO to delete the impugned adjustments.”
As no new distinguishing decision has been brought to our notice,
respectfully following the findings of the co-ordinate bench in group
case [supra], we direct the Assessing Officer/TPO to delete the
impugned adjustments.
In the result, appeal of the assessee in ITA Nos. 7028/DEL/2017,
7029/DEL/2017 and 7030/DEL/2017 are allowed.
The order is pronounced in the open court in the presence of
both the representatives on 22.02.2021.
Sd/- Sd/-
[SUCHITRA KAMBLE] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 22nd February, 2021
VL/