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Facts
M/s. Sanchore Renewable Pvt. Ltd. issued Compulsorily Convertible Debentures (CCDs) at 10% interest, benchmarking it against SBI PLR. The Assessing Officer (AO) and Transfer Pricing Officer (TPO) rejected this benchmarking and instead used LIBOR, leading to a transfer pricing adjustment for the A.Y. 2021-22.
Held
The Income Tax Appellate Tribunal (ITAT) followed a Special Bench decision in *Hyderabad Infratech Pvt. Ltd. and Others*. This precedent established that for Indian Rupee-denominated CCDs, the interest should be benchmarked using the domestic Prime Lending Rate (PLR) like SBI PLR, not LIBOR. Accordingly, the ITAT directed the AO/TPO to delete the transfer pricing adjustment.
Key Issues
Whether the interest on Indian Rupee-denominated Compulsorily Convertible Debentures (CCDs) should be benchmarked using SBI Prime Lending Rate (PLR) or London Inter-Bank Offered Rate (LIBOR) for transfer pricing purposes.
Sections Cited
92CA(3), 143(3), 144B, 144C, 144C(5), 144C(13)
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Income Tax Appellate Tribunal, Hyderabad ‘A’ Bench, Hyderabad
Before: SHRI VIJAY PAL RAO & SHRI MADHUSUDAN SAWDIA
(निर्धारण वर्ा/Assessment Year:2021-22) M/s. Sanchore Renewable Pvt. Ltd., Dy. Commissioner of Income Tax, Vs. Circle 3(1), Hyderabad. Hyderabad. PAN:AAYCS1517M (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri S.P. Chidambaram, Advocate रधजस् व द्वधरध/Revenue by:: Shri B. Bala Krishna, CIT-DR सुिवधई की तधरीख/Date of hearing: 11/03/2025 घोर्णध की तधरीख/Pronouncement: 18/03/2025 आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M. : This appeal is filed by M/s. Sanchore Renewable Pvt. Ltd. (“the assessee”), feeling aggrieved by the order passed by the Learned Assessing Officer (“Ld. AO”) u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (“the Act”) as per the direction of Learned Dispute Resolution Panel (“Ld. DRP”) on 11.09.2024 for the A.Y. 2021-22.
The assessee has raised the following grounds : “
1. That on the facts and circumstances of the case, the final assessment order dated
11. September 2024 (and received by the Appellant on 11. September 2024) passed by the Assessment Unit, Income Tax Department u's 143(3) r.w.s 144(13) read with section 1445 of the Income-tax Act, 1961 (the Act) pursuant to the directions dated 26 August 2024 issued by the Dispute Resolution Panel, Bangalore (DRP) u/s 1440(5) of the Act and read with order dated 3 September 2024 issued by Transfer Pricing Officer (TPO) u/s 92CA(3) of the Act, is bad in law and void ab- initio so far as it is prejudicial to the Appellant. Transfer Pricing Adjustment 2. That on the facts and circumstances of the case and in law, the Learned AO ('Ld. AO) Learned TPO ('Ld TPO) erred in making transfer pricing adjustment of Rs. 6,27,75,433 on account of interest on Compulsorily Convertible Debentures (CCDs").
3. That on the facts and circumstances of the case and in law, the Ld. AO! Ld. TPO erred in rejecting the Transfer Pricing ("TP") documentation prepared and maintained by the Appellant.
4. That on the facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO has erred by not appreciating the fact that CCDs were denominated in INR and therefore, interest on CCDs should be benchmarked using State Bank of India (SBI) Prime Lending Rate ("PLR") instead of London Inter-Bank Offered Rate ("LIBOR").
5. That on the facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO erred in by not appreciating the fact that CCDs were issued in India and also consumed in India and therefore, interest on CCDs should be benclimarked using SBI PLR instead of LIBOR.
6. That on the facts and circumstances of the case and in law, the Ld.AO/Ld. TPO erred in holding that the CCDs are debt without appreciating that the CCDs are a hybrid instruments recognized by various regulations.
7. That on the facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO erred in considering currency of denomination of CCDs as irrelevant as there is no outflow of funds to the CCD holders on maturity of the instrument, without appreciating that the CCDs are converted into equity in Indian Rupee, on maturity.
8. That on the facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO erred by not appreciating that foreign currency loans CCDs needs to be reinstated in the books of Indian company as per applicable accounting standards.
9. That on the facts and circumstances of the case and in law, the Ld. TPQ/ Hon'ble DRP erred in rejecting the benchmarking analysis dated 13th November 2018 undertaken by the Appellant for determining the ALP for interest on OCDs.
10. That on the facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO erred in considering LIBOR plus 200 basis points i.e., 2.371%, as an arm's length interest on CCD on ad hoc basis without undertaking any benchmarking analysis which is complete violation of transfer pricing provisions and against the principles of law.
That on the facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO ered in disregarding the jurisdictional judicial precedent of the Hon'ble Income Tax Appellate Tribunal ("ITAT"), Hyderabad in the case of Adama India Private Limited (ITA No.497/HYD/2016) and Hyderabad Infratech Private Electronics Limited (TS- 54-ITAT-2018(HYD)-TP). The above grounds are without prejudice to each other. The Appellant craves leave to add, alter, amend or withdraw all or any of the above Grounds of Appeal
at or before the time of hearing of the appeal. The Appellant prays for appropriate relief based on the aforesaid grounds of appeal and the facts and circumstances of the case.”
3. The brief facts of the case are that the assessee had issued 82,85,271 Compulsory Convertible Debentures (“CCDs”) to Korys Renewable Energy BV and provided the interest thereon @ 10% per annum. For benchmarking the interest on CCDs, the assessee adopted ‘other method’ as the most appropriate method and compared its interest rate of 10% with the average SBI PLR of 12.5%. Accordingly, the assessee claimed before the Ld. AO/ Learned Transfer Pricing Officer (“Ld. TPO”) that the interest provided at the rate of 10% is at Arm’s Length Price (“ALP”). However, the Ld. AO/TPO rejected the bench marking of assessee and bench marked the same at LIBOR rate. Against such bench marking of Ld. AO, the assessee is in appeal before the Tribunal.
We have heard the rival contentions and also gone through the record in the light of the submissions made on either side. The only issue involved in this appeal is regarding bench marking of interest on CCDs. The assessee has bench marked the interest on CCDs at 10% and compared the same with the average SBI PLR of 12.5%. Accordingly, the assessee claimed before the Ld. AO/TPO that the iinterest provided at the rate of 10% is at ALP. However, the Ld. AO/TPO has bench marked the interest on CCDs at LIBOR. As submitted by the Ld. AR, this issue is fully covered by the decision of Special Bench of ITAT in the case of Hyderabad Infratech Pvt. Ltd. and Others in IT(TP)A nos.1856 & 1771/Hyd/2019 and 111, 506 & 663/Hyd/2022 dated 29.01.2025, wherein the ITAT has held that the bench marking in the case of CCDs is to be done by applying SBI PLR rate.We have gone through the decision of Special Bench of ITAT in the case of Hyderabad Infratech Pvt. Ltd. and Others (supra), wherein in para no.23 the ITAT has held as under : “23. In view of this matter and considering the facts of the present cases, and also by considering ratios of various High Courts, we are of the considered view, that once the CCDs issued by the appellant are denominated in Indian currency, the interest payment on the said CCDs is to be benchmarked with reference to the rate of interest applicable to the loans extended in currency concerned. Since the CCDs issued by the appellant are in the nature of rupee denominated loan, in our considered view, FCCD/CCD cannot be construed on par with the foreign currency loan for the purpose of benchmarking. Further, LIBOR plus 200 basis points being the interest rate prevalent in the international market and applicable to foreign curreny loans cannot be applied to benchmark interest on the appellants CCDs. Further, the said interest has to be benchmarked against the interest rates prevailing in the domestic market and similar debt instrument, such as the domestic prime lending rate (PLR). Therefore, we are of the considered view that as regards TP adjustment made in respect of interest paid / payable on CCD/NCD/other debentures, which are denominated in Indian currency, the benchmark is to be by applying PLR against LIBOR. Accordingly, we answer the question referred to for the Special Bench as under : 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?” (i) Yes, in favour of the assessees. (ii) Interest paid / payable on FCCDs / NCDs / other debentures, which are denominated in Indian currency to be bench marked by applying PLR rates.” 5.1 On perusal of above, we found that, the ITAT has held that the bench marking in the case of CCDs is to be done by applying SBI PLR rate. Respectfully following the decision of Special Bench of ITAT in the case of Hyderabad Infratech Pvt. Ltd. and Others (supra), we hold that, the bench marking in the case of CCDs is to be done by applying SBI PLR rate. Accordingly, we direct the Ld. AO/TPO to delete the addition made on account of bench marking of interest on CCDs.