JOINT COMMISSIONER OF INCOME TAX (OSD), CORPORATE CIRCLE-1, COIMBATORE, COIMBATORE vs. ZF WIND POWER COIMBATORE PRIVATE LIMITED, COIMBATORE
आयकर अपीलȣय अͬधकरण, ‘डी’ Ûयायपीठ, चेÛनई
IN THE INCOME TAX APPELLATE TRIBUNAL
‘D’ BENCH, CHENNAI
Įी जॉज[ जॉज[ के, उपाÚय¢ एवं Įी एस.आर.रघुनाथा, लेखा सदèय के सम¢
BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENTAND
SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER
आयकर अपील सं./ITA Nos.: 245 & 246/CHNY/2025
िनधाᭅरण वषᭅ/Assessment Years:2012-13 & 2013-14
&
C.O No.21/CHNY/2025
[in I.T.A. No.245/CHNY/2025]
Coimbatore – 641 659. PAN: AABCH 8089G
(अपीलाथᱮ/Appellant)
(ᮧ᭜यथᱮ/Respondent/Cross Objector)
राज᭭व कᳱ ओर से /Revenue by : Shri P.K. Senthil Kumar, Addl.CIT
िनधाᭅᳯरती कᳱ ओर से/Assessee by : Shri Ashik Shah, CA &
Ms. Soundariya, CA
सुनवाई कᳱ तारीख/Date of Hearing : 15.07.2025
घोषणा कᳱ तारीख/Date of Pronouncement : 01.08.2025
आदेश /O R D E R
PER GEORGE GEORGE K, VICE PRESIDENT:
These appeals filed by the Revenue are directed against two orders of the Commissioner of Income Tax (Appeals), Chennai-16
both dated 28.11.2024 passed u/s.250 of the Income Tax Act
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(hereinafter the ‘Act’). The relevant assessment years are 2012-13
& 2013-14. The assessee has also filed cross objection for assessment year 2012-13. 2. Common issues are raised in these appeals, hence they were heard together and are disposed off by this consolidated order. We shall first adjudicate appeal and cross objection concerning assessment year 2012-13. ITA No.245/CHNY/2025 & CO No.21/CHNY/2025 (AY 2012-13)
3. Brief facts are as follows: The assessee is a private limited company engaged in the manufacture and assembly of gear box for wind turbine generators. The assessee also imports gear box from overseas and supplies to the end customers acting as intermediary between entrepreneur and customers. For the assessment year
2012-13, original return of income was filed on 29.11.2012 and subsequently, revised return was filed on 31.10.2013 declaring loss of Rs.22,25,56,267/-. The assessment was selected for scrutiny and notice u/s.143(2) of the Act was issued on 04.09.2013. During the course of assessment proceedings, the case was referred to the Transfer Pricing Officer (TPO) to determine the arm’s length price of the International transactions undertaken by the assessee with its AEs. The TPO passed an order u/s. 92CA(3) of the Act on - 3 - ITA No.245 & 246/CHNY/2025
& CO No.21/CHNY/2025
01.2016 proposing TP adjustment of Rs.6,07,18,138/-. The TPO in the manufacturing section had taken sale of scrap (others) as non-operating in nature. With regard to interest payment on Fully Compulsory Convertible Debentures (“FCCD”), the TPO rejected the TP analysis of the assessee company wherein assessee had adopted Comparable Uncontrolled Price (‘CUP’) method as most appropriate method. The assessee in its TP analysis had stated that its interest rate on debentures at 13.50% was lower than the average PLR of 14.46% prevailing as on the year ending 31.03.2012. The TPO by rejecting assessee’s TP study conducted a fresh search and picked up public limited companies and arrived at ALP of 10.42%. In this context, one of the comparable picked up by the assessee company during the TP proceedings namely Jay Pee Sports International was disregarded by the TPO stating SBI base rate is a variable factor and therefore, could not be considered in the bench marking analysis. By adopting the arm’s length interest rate of 10.42%, the TPO proposed adjustment of Rs.2,03,36,437/- with regard to interest payment of FCCDs.
Subsequent to TPO’s order, a draft assessment order was passed on 24.03.2016 and the final assessment order u/s.144C(4) r.w.s. 144C(3) r.w.s. 143(3) of the Act was passed on 29.04.2016. - 4 - ITA No.245 & 246/CHNY/2025 & CO No.21/CHNY/2025
Aggrieved by the final assessment order dated 29.04.2016, assessee filed appeal before the First Appellate Authority. As regards scrap sales (others) whether it is operating in nature while computing the PLI of manufacturing segment of the assessee, the CIT(A) directed the AO to consider the receipts on account of sale of scrap as operating in nature for both assessee and comparable. The relevant finding of the CIT(A) reads as follows:-
“The contention of the appellant is that the TPO had wrongly excluded the sale of scrap amounting to Rs.26,18,539/- by treating it as non-operating income. It was held by the Hon’ble Pune Tribunal in the case of Cummins
India Limited [2020] 118 taxmann.com 613 (Pune - Trib.) that while computing operating margin of assessee in export to the AE segment, export incentives and scrap sales are to be included as operating income of assessee, while benchmarking international transactions of assessee.
Accordingly, as the scrap sales form part and parcel of the operating income of the appellant, the TPO/AO is directed to include the same while working out the PLI of the manufacturing segment of the appellant as well as the comparables. Accordingly, Ground No.3 is allowed.”
As regards the interest on FCCDs, the CIT(A) directed the AO/TPO to adopt the average SBI PLR for the relevant financial year as the ALP of the transaction. The relevant finding of the CIT(A) reads as follows:- “7.10.3 In respect of CCDs in Indian Rupee, the adoption of SBI PLR has been upheld in a plethora of decisions such as Praxair India (P.) Ltd. [2023] 147 taxmann.com 205 (Bangalore - Trib.) and Hyderabad Infratech (P.) Ltd. [2018] 95 taxmann.com 405 (Hyderabad - Trib.), provided the FCCDs were issued in INR. The TPO/AO is directed to verify the terms of the FCCDs as to whether the transactions were denominated in INR and - 5 - ITA No.245 & 246/CHNY/2025 & CO No.21/CHNY/2025
thereafter adopt the average SBI PLR for FY 2011-12 as the ALP of the transaction involving interest payments on FCCDs. Accordingly, Ground
No.8 & 9 are partly allowed.”
Aggrieved by the order of the CIT(A), the Revenue has filed the present appeal before the Tribunal. The grounds raised by the Revenue read as follows:- 1. The order of Ld. CIT(A) is against the facts and circumstances of the case.
Whether on the facts and circumstances of the case the Ld. CIT(A) was correct in disregarding the PLI computed by the TPO and directing him to adopt the average SBI Prime Lending Rate (PLR) for FY 2011-12 as the Arm's Length Price (ALP) of the transaction involving interest payments on FCCDs?
Whether on the facts and circumstances of the case the Ld. CIT(A) was correct in directing the TPO to treat the income from 'sale of scrap' as operating income by ignoring the fact that the TPO had already included the 'scrap sales' associated with the operations as 'operating income' while computing the assessee's margin and excluded only that scrap sale which was not connected to the operations?
For these and any other grounds that may be adduced at the time of hearing, the order of the CIT(A) may be quashed and that of the AO restored.
The Ld.DR strongly supported the order of the TPO with regard to the two issues raised in ground 2 and 3 (supra).
The Ld.AR on the other hand has filed two sets of paper-book. In one set of paper-book, the assessee has enclosed the case laws
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relied on. In the other paper-book, the assessee has enclosed details submitted during the course of assessment proceedings and appellate proceedings. The Ld.AR with regard to Ground No.2, namely TP adjustment made on account of interest paid on FCCDs submitted that it is covered in favour of assessee by the order of the Hyderabad Special Bench of the Tribunal in the case of Hyderabad
Infratech (P.) Ltd., vs. DCIT reported in [2025] 171 taxmann.com
385 (Hyderabad-Trib.). As regards the issue, whether receipts on account of sale of scrap whether it is operating income or not, the Ld.AR reiterated the submissions made before the AO and the CIT(A).
We have heard rival submissions and perused the material on record. As regards issue raised in Ground No.3 namely treatment of scrap sales as operating income while computing operating margin earned by the assessee in the manufacturing segment, we find that the assessee had earned income from sale of scrap of packing materials. The receipts were classified as ‘Other Income’ in the financial statements of the assessee. Before the TPO, the assessee submitted that the income from sale of scrap represents sale of leftover/used packing materials which related to the core business activity of the assessee and accordingly, claimed that the same must
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be treated as ‘operating income’ while computing the margins of the manufacturing segment. The TPO without appreciating that ‘Other income’ is directly related to the core business operations of the assessee, made an adjustment to the margin considering the revenue from sale of scrap to be non-operating in nature. The sole reason for treating sale of scrap as non-operating was that assessee had classified the receipts as ‘other income’.
The CIT(A) after considering submissions of the assessee directed the TPO to consider the income from scrap sales as ‘operating income’ while computing the margin from the manufacturing segment. The Pune Bench of the Tribunal in the case of Cummins India Limited reported in 101 taxmann.com 325 and Behr India Ltd. reported in 81 taxmann.com 46 held that that scrap sales are to be considered as part of the operating income for computing the margin earned by the Company. Relying on the decision of the Pune Bench of the Tribunal, the CIT(A) has concluded that the scrap sales are to be treated as operating income.
The Revenue before us has challenged the above order of the CIT(A) on the basis that TPO had already included the ‘scrap sales’ associated with the operations as ‘operating income’ while
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computing the assessee’s margin and had excluded only that scrap sale which is not connected to the operations. It is pertinent to note that the assessee company has classified scrap sale generated from Manufacturing activity i.e. scrap generated in the process of manufacture of the output, under the head “Other operating revenue” and the scrap generated in unpacking of the imported raw materials purchased i.e. scrap of packing material used to bring and off-load the input (Raw material) under the head “Other income”. In this connection, we note that the scrap sales, classified under the head ‘Other Income’ of the financial statements constitutes sale of leftover packing materials, which relates to the operating activity of the assessee and the details of the same was also submitted before the CIT(A) in the submission dated September 27, 2024 Hence, merely because this has been classified under the head ‘Other
Income’ in the financial statements, the TPO ought not to have treated this as non-operating income without appreciating the nature of income and that the same is linked to the main manufacturing activity of the assessee. In light of above reasoning, we hold that the CIT(A) is justified in treating the income from sale of scrap as operating income. It is ordered accordingly.
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In the result, Ground No.3 raised by the Revenue in ITA No.245/CHNY/2025 is dismissed. 14. As regards to Ground No.2 namely adoption of average SBI PLR for determining ALP of the transaction involving interest payment on FCCDs, we find that the assessee company had issued Fully Compulsorily Convertible Debentures (FCCD) (1,00,00,000) @ Rs.100 each bearing interest at the rate of 13.5% during the AY 2012-13. It this context, we note that the debentures are issued in Indian Currency (Refer note 5 to the Balance sheet in Page. 10 of the Paperbook). As per the TP guidelines issued by the organization for Economic Cooperation and Development (“OECD”), the ALP of interest payments must be computed based on the market determined interest applicable to the currency in which the loan is denominated, issued and has to be repaid. This position has also been upheld by the following judicial pronouncments:- 1) Hon’ble Delhi High Court in the case of Cotton Naturals (I) (P) Ltd., reported in 55 taxmann.com 523 2) Hon’ble Bombay High Court in the case of India Debit Management (P.) Ltd., reported in 417 ITR 103
The above position has also been recognized in Section 92CB of the Act and Rule 10TD, wherein the ‘Safe-harbour Rules’
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recognize the above position that loans denominated in different currencies cannot be benchmarked against the same interest rate and provide separate criteria/benchmark rates for loans denominated in INR as against those denominated in a foreign currency.
The FCCDs, denominated in Indian Rupees and being in the nature of a loan/debt instrument until conversion, are akin to a loan taken from a domestic lender in India. Further, the interest on the said FCCDs is not subject to the foreign-currency fluctuation and is determined and paid based on the face-value of the said FCCDs in Indian Rupees. The FCCDs are compulsorily convertible into equity shares at the end of the defined term and are not repayable to the lender. Hence, such conversion is akin to repayment in the case of traditional loan. At the time of conversion, the same amount received in INR towards the said FCCDs, i.e., 100 Crores, is converted into equity shares. In other words, foreign exchange has no role / influence on the conversion amount. Therefore, the said FCCDs are therefore akin to a domestic term-loan and are required to be benchmarked with reference to domestic PLR, i.e., interest rates in the domestic market. For the Impugned AY, the domestic PLR was approx. 14.46% p.a. for AY 2012-13 while the assessee
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company paid interest on FCCDs at the rate of 13.50% p.a. Hence, the said interest is at arms’ length, by applying the domestic PLR as the benchmark rate.
The approach adopted by the assessee company in its TP Study by applying SBI PLR for benchmarking the interest paid on FCCDs issued to its foreign holding company on the basis that the FCCDs were denominated in Indian currency, was also upheld by the Hyderabad Special Bench of the Tribunal in the case of Hyderabad Infratech Pvt. Ltd., reported in 171 taxmann.com 385. The relevant finding reads as under:- 16. We have heard both the parties and perused relevant material available on record in light of the question which arises for consideration before this Special Bench on the issue of benchmarking interest paid/ payable on FCCDs/NCDs/other debentures, which are denominated in Indian currency. We have also carefully considered various case laws referred to by both the sides in support of their arguments. The question, which arises for consideration before the Special Bench is whether as regards TP adjustment made in respect of interest paid / payable on FCCDs/NCDs/other debentures, which are denominated in Indian currency, the benchmarking is to be made by applying PLR as against LIBOR? In order to answer the question, it is necessary for us to refer to relevant facts of the case. The facts borne out from the record indicates that the appellant in the present cases is a wholly owned subsidiary of foreign holding company and engaged in the business of development, operation and maintenance of information technology parks in special economic zones and incidental and associated activities. During the previous year, relevant to the assessment year 2015-16, one of the international transactions that took place between the appellant and its AE was payment of interest on FCCDs. The appellant company issued FCCDs in the - 12 - ITA No.245 & 246/CHNY/2025 & CO No.21/CHNY/2025
financial year 2011-12. The appellant has benchmarked the transaction of interest paid on FCCDs by applying the CUP method and selected comparable companies which are in similar line of business and paid interest on FCCDs. The TPO determined the TP adjustment by holding the transaction to be a loan transaction and benchmarked interest paid /
payable on FCCDs by applying LIBOR plus 200 basis points.
In this factual background, it is necessary for us to understand the nature of transaction to answer the question referred to for the Special Bench. Admittedly, the appellant has issued FCCDs. Debenture has been defined u/s 2(30) of the Companies Act, 2013, which includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not. The debenture is a type of debt instrument issued by companies to raise capital. Debentures are not ordinarily secured by physical assets or collateral securities. Debentures promise to pay interest and principal to the debenture holders. They are a way of companies to raise capital without issuance of shares and diluting their equity. Debenture is a common method for companies to raise long term financing. There are two types of debentures, one is convertible debentures and another is non convertible debentures. Under convertible debentures, there are two categories, one is optionally convertible debentures and the other category is fully and compulsorily convertible debentures. Fully and compulsorily convertible debentures are hybrid instruments and are a type of debenture, in which the whole value of the debenture must be converted into equity at specified time. Till such conversion takes place, the instrument is a debt instrument. Only upon conversion of FCCDs into equity, the authorised capital of the company would be increased and the debenture holders will receive shares in lieu of debenture certificates. The conversion ratio of FCCDs is decided by issuer of such FCCDs, either at the time of issue or at the time the actual conversion takes place and upon conversion, the investors become the shareholders of the company. Until the conversion of such FCCDs, the instrument becomes debt instrument and in the nature of a loan or borrowing for the company which issues debentures. Therefore, from the definition of debentures, as per section 2(30) of the Companies Act, 2013 and the nature of instrument, there is no dispute of whatsoever with regard to fact that, the nature of the transaction is a loan / borrowing or a liability. Even in the present cases, the appellant companies have treated the debentures as a long term borrowing and classified under the head
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liabilities in their financial statements. In fact, the TPO/A Ssessing Officer has also considered debentures as a loan and benchmarked the interest as a long term borrowing. Therefore, the first and preliminary argument advanced by the Sr. Standing Counsel for the Revenue in light of Clause
2.1.5 of the FDI Policy and Rule 2(k) of the Foreign Exchange
Management (Non-debt Instruments) Rules, 2019 that debentures are equity instruments and it is not a loan cannot be accepted. Although the Hon'ble Supreme Court in the case of IFCI Ltd. v. Sutanu Sinha & Ors
(supra) held them to be equity, while giving effect to contractual classification of such instruments as equity, but fact remains that the question before us is not the nature of debentures, whether it is capital or liability, but it is only on the benchmarking of interest paid / payable on the FCCDs and therefore, the arguments of the counsel for the revenue becomes purely academic. Since the TPO himself has accepted the transaction to be a loan and also benchmarked the interest payable on FCCDs by applying LIBOR plus 200 basis points, in our considered view, the argument advanced by the Ld. Standing Counsel in light of certain regulatory frameworks and the decision of the Hon'ble Supreme Court in the case of IFCI Ltd. v. Sutanu Sinha & Ors (supra) that debentures is an equity and interest paid on Such FCCDSs is not allowable expenditure, cannot be accepted and rejected. Further, the scope and powers of the Tribunal in deciding the question is limited to the extent of question referred to by the parties for the consideration of the Bench, but not beyond. Since the question before the Bench is on the issue of benchmarking of interest paid on FCCDs, in our considered view, the arguments of the Ld. Counsel on the nature of instrument is irrelevant and therefore. is rejected.
Having said so, let us come back to the real question before the Special Bench. Admittedly. the appellant companies have issued FCCDS to foreign holding companies in Indian Currency and also denominated debentures in the books of accounts in Indian rupees. The terms and conditions for issuing FCCDs has been regulated in the agreement between the parties and as per the said agreement, the appellant company has received amount towards debentures issue in Indian rupees. The parties have also agreed for interest, which varies from period to period. The appellant companies in the present cases have paid interest ranging from 9.5% to 13.5% and benchmarked interest by applying SBI PLR, because the debentures issued
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by the appellant companies to its foreign subscribers is in the nature of loans extended in Indian currency. (Since debentures are issued is INR and denominated as such in books of account, in our considered view, white deciding the rate of interest, among the many factors which would influence coupon / interest rates, such as credit rating of the borrower, tenor of the loan, currency would be one of the most important factors, which influence the rate of interest. The currency and the risk associated with it are directly linked to the rate of interest applicable on such loan / debt. Further, when the loan is borrowed in Indian currency, there would be no risk of foreign exchange fluctuation on the borrower, but the lender is exposed to the risk of under realization of principal, against which the lender must hedge with appropriate forward cover, which would be an additional cost. At the same time, when the loan is denominated foreign currency, the lender does not bear any foreign exchange risk, whereas the borrower does for this and in the situation, the borrower has to hedge and may have to enter into appropriate forward contracts which would cost additionally. The economic condition between these two situations i.e. issuance of NR denominated loan and foreign currency denominated loan is radically different and cannot be compensated on the same basis of LIBOR plus. This is a fundamental percept of transfer pricing, one has to delineate the differences in transactions undertaken and apply the benchmarking based on the functions. risks and assets. If this difference is effaced, as has been done in the rulings against the taxpayer, it would be fundamentally erroneous application of TP principles. Another key influencer of the rate of interest on a cross-border loan is the economic output, market maturity and the country credit risk of the borrower's country vis-a-vis the lender's country. From the above, it is undisputedly clear that the currency of the borrowing is a critical factor influencing the interest of a loan / debt instrument and that an appropriate benchmark in respect of a loan issued in the currency of the borrower's country would be the rates prevailing in the said country, i.e. of the borrower and this principle has been supported by the decision of Hon'ble Delhi High court in the case of CIT v. Naturals
India Pvt. Lid. (supra), where, the Hon'ble High Court has dealt with the similar issue of benchmarking of interest received by an assessee, being a resident of India on loan extended to its foreign subsidiaries. The Hon'ble
High Court in para 39 of their order clearly held that the "question, whether the interest rate prevailing in India should be applied, for the lender was an Indian company / assessee, or the lending rate prevalent in the United States should be applied, for the borrower was a resident and an - 15 - ITA No.245 & 246/CHNY/2025
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assessee of the said country, in our considered opinion, must be answered by adopting and applying a commonsensical and pragmatic reasoning.".
The Court further observed that "interest rate should be market determined interest rate applicable to the currency concerned in which the loan has to be repaid. Interest rates should not be computed on the basis of interest payable on the currency or legal tender of the place or the country of residence of either party. Interest rates applicable to loans and deposits in the national currency of the borrowers or the lender would vary and are dependent upon the fiscal policy of the Central Bank, mandate of the Government and several other parameters. Interest rates payable on currency specific loans deposits are significantly universal and globally applicable. The currency in which the loan is to be repaid normally determines the rate of return on the money lent, i.e. the rate of interest. The Hon'ble Delhi High Court discussed this issue at length in light of the theory of Klaus Vogel on Double Taxation Conventions (Third Edition) under Article 11 and after considering the relevant U.N. Transfer Pricing
Manual, clearly held that in order to determine the rate of interest, the currency in which the loan is to be repaid normally determines the rate of return on the money lend i.e. the rate of interest. A similar view has been taken by the Hon'ble High Court of Bombay in the case of PCIT v. India
Debt Management (P) Lid., wherein, it has been clearly held that once the tested transaction is an INR denominated debt. interest rate must necessarily be based on the economic and market factors affecting Indian currency and data available for debt issuance in India rather than foreign currency rate or external data. This principle has been reiterated in the case of CIT v. Tata Autocomp Systems Ltd [2015 56 taxmann.com 206/230
Taxman 649/374 ITR 516 (Bombay). From the ratios laid down by the Hon'ble High Court of Delhi and Hon'ble High Court of Bombay, it is undisputedly clear that while deciding the rate of interest for the purpose of benchmarking interest payment, it is the currency concerned in which the loan is borrowed and to be repaid is alone relevant, but not the basis of interest payable on the currency or legal tender of the place or country of resident of either party. Since the appellant in the present case has issued
FCCDs to its foreign subsidiaries and denominated in Indian rupees, in our considered view, while benchmarking the rate of interest paid / payable on FCCDs, it is only the PLR rate is appropriate. but not the LIBOR plus spread as considered by the TPO.
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Having said so, let us come back to the Regulatory framework in India for foreign investments in CCDs. Any cross border financing into India is subject to foreign exchange regulations provided under Exchange Control regulations under which every form of investment is classified as equity or debt. Such classification under FEMA is made based on several factors by the RBI. The foreign investments through equity investments are governed by the Foreign Direct Investment regulations, while the foreign debt financing / loans are governed by the External Commercial Borrowings regulations which lay down a framework for raising funds through loans debt instruments from non-resident parties. In the above background, FEMA regulations classify CCDs as equity for the limited purpose of regulating foreign investments, given the hybrid nature of CCDs. Unlike a traditional loan / debenture, CCDs must be mandatorily converted into equity based on the terms of the agreement. Hence, said regulations also provide for the manner and timing of determination of the conversion ratio of CCDs, i.e. the same shall be determined upfront based on the fair market value at the time of issuance of such CCDs. Therefore, liability on CCDs is extinguished by allotment of equity shares which is obviously a rupee based settlement. In other words, there is no obligation on the part of the Indian company to bear any forex fluctuations and it is left to the lender or investor to hedge the forex risks. From the regulatory treatment of CCDs issued by an Indian company to a nonresident, as equity instruments under the FDI regulations, the same can be determined only in the domestic currency, i.e. INR. It is not the case of the appellant that any loan issued to nonresident investors by an Indian Company shall be denominated in INR and shall therefore be benchmarked against the interest rates in domestic markets. Therefore, once FEMA Regulations permit foreign investments in various types of debt instruments, which may be denominated in Indian Rupees or in Foreign Currency and these instruments are governed by the ECB regulations and therefore, in our considered view when the regulatory framework is allowed to issue debentures in Indian denominated currency, the obvious nature of such instrument becomes a loan or debt extended in Indian currency and rate applicable for benchmarking such interest is PLR based rates, but not LIBOR plus spread as considered by the TPO. Further, from the above discussion, it is undisputedly clear that the currency of a loan has a significant impact on the corresponding interest, and therefore, interest on loans denominated in different currencies cannot be benchmarked against the same rate of interest which is considered for foreign currency loans/debt. In other words, the benchmark interest rate is - 17 - ITA No.245 & 246/CHNY/2025 & CO No.21/CHNY/2025
different for loans with different currency denominations. The above position is well recognized even under the TP provisions of the Act and the related Rules. In this regard, the appellant refers to section 92CB of the Act and Rule 10TD, providing for Sate Harbour Rules. Safe Harbour Rules provide for certain circumstances, where the transfer price declared by an eligible assessee in respect of the specified international transactions, shall be accepted to be at arm's length by the tax authorities. The said rules recognizes above position that loans denominated in different currencies cannot be benchmarked against the same interest rate and provide separate criteria / benchmark rates for loans denominated in INR as against those denominated in a foreign currency. On this point it is relevant to refer Sub Rule (2A), which deals with loans denominated in INR for which SBI lending rate plus spread is prescribed based on applicable credit rating, whereas Point 5 in the same table deals with loans denominated in foreign currency, where the spread is based on reference rate such as SOFR/EURIBOR/SONIA etc. Although Sate Harbour Rules are applicable for outbound loans from A.Y.202 1-22 and not directly relevant for the issue on hand. it is a statutory recognition of the economic difference between INR denominated and foreign currency denominated loans and therefore, a clue from the Safe Harbour Rules can be taken to strengthen the arguments of the appellant that different category of loans has to be benchmarked at different rate of interest. keeping in View; the economic parameters, currency in which such loan is accepted and repaid etc. We further noted that CBDT has issued a Notification No.58/2013 dated
29.07.2013 u/s 194-LD in the context of tax deduction at source on interest payments, also envisages capping o interest at Base Rate of State Bank of India in the case of denominated bonds. From the above, it is undisputedly clear that where the transaction is undertaken in Indian rupee currency, then the rate of interest has to be benchmarked, by considering the rate of interest prevailing in the country of the currency, and 1 if we go by said analogy, in our considered view, there is an error in the reasons given by the TPO/DRP for applying LIBOR plus spread for the purpose of benchmarking rate of interest paid / payable on FCCDs.
In light of the aforesaid reasoning and relying on the Special Bench order of the Tribunal, we hold that the CIT(A) is correct in directing the TPO to adopt the average SBI PLR as the ALP of the - 18 - ITA No.245 & 246/CHNY/2025 & CO No.21/CHNY/2025
transaction of international payment on FCCDs. It is ordered accordingly.
In the result, the Ground No.2 raised by the Revenue in ITA No.245/CHNY/2025 is dismissed.
Coming to cross objection filed by the assessee in CO No.21/CHNY/2025, no specific arguments were raised by the Ld.AR with regard to the grounds raised in the cross objection. Hence, the cross objection filed by the assessee is dismissed. 21. In the above appeal, Department has raised solitary issues namely the average SBI Prime Lending Rate (PLR) should not be adopted for determining the ALP of the transaction involving interest payment on FCCDs. This issue has been considered and adjudicated by us (Ground No.2) in the Revenue’s appeal for assessment year 2012-13. The facts for assessment year 2012-13 are identical with fact for assessment year 2013-14. Hence our reasoning and adjudication in paras 14 to 19 will apply mutatis mutandis for the assessment year 2013-14 as well.
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Hence, ground No.2 raised by the Revenue in ITA No.246/CHNY/2025 is dismissed. It is ordered accordingly.
In the result, the appeals filed by the Revenue and the cross objection filed by the assessee are dismissed.
Order pronounced in the open court on 1st August, 2025 at Chennai. (एस.आर. रघुनाथा)
(S.R. RAGHUNATHA)
लेखा सदèय/ACCOUNTANT MEMBER
(जॉज[ जॉज[ के)
(GEORGE GEORGE K)
उपाÚय¢ /VICE PRESIDENT
चेÛनई/Chennai,
Ǒदनांक/Dated, the 1st August, 2025
RSR
आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to:
िनधाᭅᳯरती Assessee
राज᭭व /Revenue 3. आयकर आयुᲦ /CIT, Coimbatore 4. िवभागीय ᮧितिनिध/DR 5. गाडᭅ फाईल/GF.