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Facts
The Assessee, Goldman Sachs Group Company, is challenging the final assessment orders concerning transfer pricing adjustments on interest paid on External Commercial Borrowings (ECBs) for Assessment Year 2021-2022. The Assessing Officer made additions based on the Transfer Pricing Officer's (TPO) report, which the Assessee objected to before the Dispute Resolution Panel (DRP). The DRP granted partial relief, and the Assessee appealed to the Tribunal.
Held
The Tribunal found merit in the Assessee's contention that the TPO incorrectly handled the benchmarking for ECB1, particularly concerning the change in lender jurisdiction and other economic conditions. The Tribunal restored the issue of determining the Arm's Length Price (ALP) for ECB1 to the TPO/Assessing Officer for fresh adjudication. For ECB2, the Tribunal agreed that the TPO incorrectly used floating interest rates and the wrong financial year for benchmarking, directing the Assessing Officer/TPO to conduct a revised analysis.
Key Issues
The primary issues revolve around the correct benchmarking of interest rates on External Commercial Borrowings (ECBs) to determine the Arm's Length Price (ALP) and the appropriateness of the TPO's adjustments and methodology. Other issues include the initiation of penalty proceedings and levy of interest.
Sections Cited
143(3), 144C(13), 144C(5), 92CA(3), 270A, 234A, 234B, 234C, 92C(1), 92C(2), 92C, 10D
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, BANGALORE
order : 23.02.2026 O R D E R [ Per Rahul Chaudhary, Judicial Member: 1. The present appeal preferred by the Assessee is pertaining to Assessment Year 2021-2022 challenging Final Assessment Orders, dated 24/10/2024, passed by the Assessing Officer under Section 143(3) read with Section 144C(13) of the Income Tax Act, 1961[hereinafter referred to as ‘the Act’], as per the directions issued by [Dispute Resolution Panel (1)], Bengaluru [for short ‘DRP’], on 25/09/2024 under Section 144C(5) of the Act.
The Assessee has raised following grounds of appeal :
1. 1. 1. 1. 1. Ground No. 1: In re-computing the arm's length price ("ALP") for the international transaction relating to payment of interest on External Commercial Borrowings IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 ("ECBs") and making an upward adjustment of INR.62,88,86,271/- 1.1. The learned TPO/ AO has erred in determining a transfer pricing adjustment on account of the interest on ECB amounting to INR 62,88,86,271. 1.2. The learned TPO/ AO has erred in disregarding the benchmarking conducted by the Appellant without providing any cogent reasons for rejecting the same 1.3. The learned TPO/AO erred in undertaking a fresh search on Bloomberg database by applying incorrect filters and not considering appropriate adjustments. 1.4. The learned TPO/ AO erred in determining the ALP without verifying the nature of search results and by not undertaking the requisite steps to complete the benchmarking process. 1.5. The learned TPO/AO has erred in disregarding the corroborative analysis conducted by the Appellant without providing any cogent reasons for rejecting the same. 1.6. The learned TPO/AO has erred in disregarding the rule of consistency in the Appellant's case. 1.7. Without prejudice to the above, the learned TPO/ AO has erred in disregarding that the interest rate adopted by the Appellant should be benchmarked taking into consideration the all-in-cost ceiling rates prescribed by Reserve Bank of India ("RBI"). The Appellant's transaction is at arm's length considering the all-in- cost ceiling rate prescribed by RBI 2. Ground No. 2: Initiation of penalty proceedings under section 270A of the Act On the facts and circumstances of the case and in law, the learned AO has erred in proposing to initiate penalty proceedings under section 270A of the Act for under-reporting of income.
3. Ground No. 3: Incorrect levy of interest under section 234A, 234B and 234C of the Act The learned AO, erred in law and facts, on levying consequential interest under section 234A, 2348 and 234C of the Act.
IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 Each of the above grounds is independent and without prejudice to the other grounds of appeal preferred by the Appellant.”
3. The relevant facts in brief are that the Assessee, Goldman Sachs Group Company, was engaged in providing information technology enabled services in the nature of administrative and support services to the group companies. For the Assessment Year 2021-2022, the Assessee filed return of income on 23/02/2022 which was revised on 09/05/2024. Thereafter, the case of the Assessee was selected for scrutiny. During the assessment proceedings reference was made to the Transfer Pricing Officer (for short ‘the TPO’) for determination of Arm’s Length Price (ALP) of the international transactions entered into by the Assessee with its Associated Enterprises (AEs) during the relevant previous year. The TPO passed Order, dated 26/10/2023, under Section 92CA(3) of the Act. The TPO proposed Transfer Pricing Addition of INR.1,45,50,79,730/- and INR.1,20,90,19,438/- pertaining to IT Segment and ITeS segment, respectively. Further, TPO also proposed Transfer Pricing Addition in respect of interest on External Commercial Borrowings (ECB) and interest on delayed receivable amounting to INR.75,39,13,371/- and INR.29,837/-, respectively.
4. The Assessing Officer passed a Draft Assessment Order, dated 20/12/2023, under the provisions of section 143(3) read with section 144C read with section 144B of the Act incorporating the aggregate Transfer Pricing Addition of INR.3,41,80,42,376/-.
The Assessee filed objections before DRP. Vide letter, 14/08/2024, the Assessee placed on record the Advance Pricing Agreement (APA). Since, the Transfer Pricing Addition in relation to IT Segment, ITeS Segment and interest on receivables were coved by the APA, no directions were issued by the DRP in this regard. Thus, the DRP, in effect, only issued directions in relation to TP Adjustments made in respect of interest on ECB. After considering the submissions advanced by the Assessee in this regard, the DRP granted partial relief IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 while disposing the objections vide Order, dated 25/09/2025, passed under Section 144C(5) of the Act. The TPO revised the TP Addition in respect of ECB from INR.75,39,13,371 to INR.62,88,86,271/- vide order dated 22/01/2024. Thereafter, the Assessing Officer passed final Assessment Order, dated 24/10/2024, making Transfer Pricing Addition of INR.62,88,86,271/- in respect of interest on ECB.
Being /aggrieved, the Assessee has preferred the present appeal before the /Tribunal on the grounds reproduced in Paragraph 2 above which are taken up hereinafter in seriatim.
Ground No.1.1 to 1.7 7. Ground No.1.1 to 1.7 relates to re-computing the arm's length price ("ALP") for the international transaction relating to payment of interest on External Commercial Borrowings ("ECBs") and making an upward adjustment of INR.62,88,86,271/-.
The relevant facts in brief are that during the relevant previous year the Assessee paid interest aggregating to INR.100,94,61,840/- on the following ECB facilities availed from its AEs: A. Finance Facility of USD 75,000,000 [referred to as ‘ECB1’] Amount (INR) From 01/04/2020 to 16/03/2021 Floating 31,93,19,997/- LIBOR-6months + 490 bps per annum Payable biannually From 17/03/2021 to 31/03/2021 Fixed 79,81,576/- 3.3% per annum B. Finance Facility of USD 200,000,000 [referred to as ‘ECB2’] Amount (INR) From 01/04/2020 to 31/03/2021 Fixed 94,49,90,054/- 7% per annum IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 9. ECB1 was raised during the Financial Year 2014-15. The Assessee had entered into a Loan Agreement, dated 01/12/2014, with Goldman Sachs (Mauritius) LLC (GSML), the parent company of the Assessee at the relevant time, for obtaining a loan facility of USD 75,000,000. The Assessee was required to pay interest biannually at the rate of LIBOR- 6 months plus 490 bps. The loan was taken for general corporate purposes including for working capital.
On 01/12/2018, the ECB was transferred to Goldman Sachs International Service Entities Holdings Limited (GSISEHL), the current holding company, for cash consideration by means of an assignment agreement.
Thereafter, with effect from 17/03/2021, the rate of interest charged on ECB1 was changed from floating rate to fixed rate of 3.3% per annum and the term of the ECB was extended upto 1st April 2032. Thus, during the relevant previous year, for the period 01/04/2020 to 16/03/2021, the Assessee paid interest of INR.31,93,19,997/- at the floating rate of LIBOR-6months + 490 bps per annum (payable biannually). Whereas, for the period 17/03/2021 to 31/03/2021, the Assessee paid interest of INR.79,81,576/- at the floating rate of 3.3% per annum.
In the Transfer Pricing Study Report the Assessee benchmarked the interest paid on ECB1 for the above said 2 periods separately in the following manner:
7.2.1 Interest on ECB availed from Goldman Sachs International Service Entities Holdings Limited (from 01/04/2020 to 16/03/2021) During the above-mentioned period, GSSPL has made interest payment on ECB at 6 months LIBOR plus 4.9% amounting to INR.31,93,19,997/- where the LIBOR is fixed every six months on April 01 and October 01 and the interest is paid semi-annually. The economic analysis for the interest paid during the period 01/04/2020 to 16/03/2021 is discussed IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 below: 7.2.1.1 Choice of tested party For the international transaction under consideration, GSSPL has been chosen as the tested party due to the fact that it does not own any significant intangible and its profitability can also be reliably ascertained. 7.2.1.2 Applicability of the prescribed methods Please refer para 4.2.2 above. The international transaction under examination involves interest paid for ECB. 7.2.1.3 Relevant Data In addition to other factors such as nature of transaction, degree of comparability, etc. one of the key criteria for determination of the most appropriate method is the availability, coverage and reliability of data necessary for application of the method. Accordingly, to determine whether any one of the transfer pricing methods can be applied, the availability, coverage and reliability of data necessary for application of the method is important. Accordingly, comparable data was identified. The details of the same have been provided below: The CUP method refers to comparing the price charged or paid for services provided in a comparable uncontrolled transaction with that charged to an AE. Hence, the similarity of products or services will generally be the most important factor under this method. When assessing the factors in determining comparability between controlled and uncontrolled transactions, the Rules provide that the specific characteristics of the property transferred or services provided would also be a relevant factor. For the Financial Year 2020-2021, GSSPL has access to data for the rate of interest paid / payable by third parties for an ECB agreement entered during the year in which GSSPL has entered into the ECB agreement. Since the ECB agreement was entered into by GSSPL during Financial Year 2014-15, the data for Financial Year 2014-15 in relation to interest paid/payable by third parties for an ECB has been analysed. Further, the terms of the agreement entered on 01/12/2018 being the same as the terms of the agreement dated 1 December 2014, fresh benchmarking is not required for this transaction. Considering that there is no change in the terms of respect of floating interest rate (6 months LIBOR plus 4.9%) has already been conducted in the previous assessment year, the same has not been benchmarked again in the current year. Thus, CUP method can be applied to the international transaction subject IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 to availability of data. Even though the Indian transfer pricing legislation does provide commentary/ guidance for reliable determination of an ALP, reference in this respect can also be drawn from Para 2.15 of the OECD Guidelines, which states that, Where it is possible to locate comparable uncontrolled transactions, the CUP Method is the most direct and reliable way to apply the arm's length principle. Consequently, in such cases the CUP Method is preferable over all other methods.” The other transfer pricing methods that can be used for determination of the ALP in respect of an international transaction are based on comparison of margins/profits earned from an uncontrolled based on a direct comparison profits ice (transaction value) from an uncontrolled transaction with price transaction with margins/ profits earned from a controlled transaction. Since the CUP method is (transaction value) in a controlled transaction, the use of CUP method (over other methods) would provide a more accurate result of ALP. Based on the above discussion, the CUP method was considered as most appropriate method to benchmark the above transaction. 7.2.1.4 Selection of comparable period xx xx Accordingly, all the loan transactions entered during the financial year 1 April 2015 to 31 March 2016 were considered for the purpose of analysis. 7.2.1.5 Search process xx xx 7.2.1.6 Selection of comparables xx xx The above stated transactions were analyzed for data such as amount of loan, period of loan, rate of interest etc. Thereafter, out of 6,133 borrowings analyzed 6,126 borrowings were rejected on one of the following reasons: Insufficient information specially pertaining to rate of interest; Only approximate rate of interest provided; Fixed interest rate; Interest rate not denominated in USD LIBOR; Duplicates; Controlled transaction; Planning/ Proposal; and Transactions undertaken in years other than financial year 2014-15, i.e. Non-comparable year.
IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 7.2.1.7 Conclusion Based on the amended Rules for determination of ALP in transfer pricing analysis, given that the number of comparable borrowings identified is more than 6, the arm’s length range shall be beginning from the 35th percentile of the dataset and ending on the 65th percentile of the dataset as computed below: S. Company name Amount (in Interest rate No. millions) 1 Indoco Remedies USD 1.10 million LIBOR + 1.00% Limited 2 Shilpa Medicare Ltd. USD 5 million LIBOR + 2.50% 3 Jharsuguda Aluminium USD 44.55 million LIBOR + 3.600% 4 Jharsuguda Aluminium USD 500 million LIBOR + 4.00% 5 Gitanjali Gems Ltd. USD 47 million 6m Libor + 4.90% 6 Gitanjali Gems Ltd. USD 50 million 6m Libor + 4.90% 7 Gitanjali Gems Ltd. USD 10 million 6m Libor + 4.90% 35th Percentile Libor + 3.60% Median Libor + 4.00% 65th Percentile Libor + 4.90% Arithmetic mean Libor + 3.69% Result Based on the above analysis, the result of the comparable borrowings are as under: the arm’s length range of interest rate in comparable borrowings is LIBOR plus 3.60% to LIBOR plus 4.90%; and the median of the interest rates is LIBOR plus 4.00% During the FY 2020-21, GSSPL has made payment for interest on ECB at the rate of 6 months LIBOR plus 490 basis points annually which is within the arm’s length price range as computed above. Further, since the terms of the agreement entered on 1 December 2018 being the same as the terms of the agreement dated 1 December 2014, fresh benchmarking is not required for this transaction. Accordingly, the interest paid by GSSPL meets the arm’s length test.
7.2.2 Interest on ECB availed from Goldman Sachs International Service Entities Holdings Limited (for the period 17 March 2021 to 31 March 2021) An amendment agreement was executed w.e.f.17 March 2021, wherein IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 the interest rate was changed from floating rate to fixed rate of 3.3% p.a. and the term of the ECB was extended upto 1 April 2032. Accordingly, for the above-mentioned period, GSSPL made interest payment at 3.3% p.a. amounting to INR 79,81,576. The economic analysis for the interest paid during the period 17 March 2021 to 31 March 2021 is discussed below: 7.2.2.1 Choice of tested party xx xx 7.2.2.6 Selection of comparables The CUP analysis involved searching for comparable loans. A search was conducted using data available in Loan Connector and Eikon (Loan and Bond data) to find comparable debt issues. The search conducted resulted in identification of a total of 27,572 issuances as explained above. The following screening criteria in Loan Connector and Eikon database was used to arrive at appropriate comparables: Time Period: Issuances between 1st April 2020 and 31 March 2021 were selected. Currency - Since the loan under consideration was a USD denominated loan, we have considered issuances that were issued in USD currency After applying the above-mentioned quantitative screening criteria, the database produced 13.065 Issuances. Further analysis involved application of the following search criteria: Dissimilar borrower country: Considering that the borrower for the transaction under Consideration is situated in India, we have selected issuances which had borrowers in Asia or more specifically India, where such data was available. Maturity date: Tranches which did not report a maturity date were rejected. Unavailability of margins/ interest rate: Tranches which did not report margins were rejected. Security status: Since the loan under consideration was unsecured, we have considered only secured issuances for the purpose of our analysis. Guarantee: Since the loan under consideration was not guaranteed, we have considered only non-guaranteed issuances for the purpose of our analysis. Credit rating: The credit rating derived for GSSPL from the RiskCalc IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 database was Moody's Baa3. Accordingly, we accepted issuances that had credit rating available of Moody's Baal or Baa2 or Baa3/S&P's or Fitch's BBB+ or BBB or BBB. Duplicate issuances: We rejected issuances common to the issuances already reviewed in Loan Connector. Post the above screening measures, we were left with a set of 8 comparable issuances. Additional adjustments: Interest rate Swap adjustment Based on the above criteria, 8 issuances were finally selected. Majority of these issuances had a floating rate interest payment which were pegged to USD LIBOR, however, considering that the issuance under consideration has a fixed interest payment, these issuances were converted into fixed rates. Tenor adjustment Pursuant to the above adjustment, it was noted that these issuances had various tenors. However, considering the tenor for the issuance under consideration was 11 years, for the purpose of comparability we undertook a tenor adjustment. The adjustment was undertaken considering the corporate bond curve rate for the tenor of 10 years (corporate bond curve available nearest to the tenor of the issuance under consideration). A summary of the 27,572 issuances and analysis of the issuances, along with reasons for acceptance /rejection is enclosed as an Annexure 11. xx xx 7.2.2.7 Conclusion Based on the amended rules for determination of ALP in transfer pricing analysis, given that the number of comparable borrowings identified is more than six, the arm’s length range shall be beginning from the 35th percentile of the dataset and ending on the 65th percentile of the dataset as computed below: S. Company name Amount (in Interest rate No. millions) 1 Reliance Industries Ltd. 1100 1.70% 2 Hindustan Petroleum 300 2.08% Corp Ltd. 3 Oil India Ltd. 225 2.16% 4 State Bank of India 600 3.20% 5 Export-Import Bank of 500 3.27% India (Eximbank India)
IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 6 ONGC Videsh Ltd. 700 3.78% 7 REC Ltd. 425 4.31% 8 UPL LIMITED 500 4.63% 35th Percentile 2.16% Median 3.23% 65th Percentile 3.78% Results Based on the above analysis, the results of the comparable borrowings are as under: the arm's length range of interest rate in comparable borrowings is 2.16% to 3.78%; and the median of the interest rates is 3.23%. During the FY 2020-21, GSSPL has made payment for interest on ECB at the rate of 3.3 percent p.a. which is within the arm's length price range as computed above.”
ECB 2 was raised vide Agreement, dated 30/05/2019 between the Assessee and Goldman Sachs Funding LLC (for short ‘GSFL’) for obtaining a loan facility of USD 200,000,000 towards working capital requirements and refinancing of Indian Rupee loans. As per the terms of the said Agreement, the interest rate was fixed at 7% per annum.
In relation of ECB 2 Transfer Pricing Study Report of the Assessee stated as under:
“7.2.3 Interest on ECB availed from Goldman Sachs Funding LLC (GSFL)
7.2.3.1 Choice of tested party For the international transaction under consideration, GSSPL has been chosen as the tested party due to the fact that it does not own any significant intangible and its profitability can also be reliably ascertained. 7.2.3.2 Applicability of the prescribed methods Please refer para 4.2.2.1 above. The international transaction under examination involves interest paid for ECB.
IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 7.2.3.3 Relevant Data xx xx Based on the above discussion, the CUP method was considered as most appropriate method to benchmark the above transaction. 7.2.3.4. Benchmarking analysis & conclusion For the purpose of benchmarking, we have relied on the analysis conducted by an independent third-party consultant. The afore mentioned benchmarking analysis is attached as Annexure 12. Based on the given analysis, any coupon rate charged in the range of 6.82% to 7.97%, with a median of 7.22% can be concluded to be consistent with the arm's length principle. Accordingly, the interest paid by GSSPL can be concluded to be consistent with the arm's length principle.”
We find that the DRP has recorded [at page 109 & 110 of 162] that the independent third party consultant has selected CUP as the most appropriate method and has used following criteria for the search of comparables – (a) tenor of the loan, (b) the security involved; and (c) the credit standing of the borrower etc. Since the Assessee was not credit rated, a Synthetic credit rating of Moody’s Ba2 (S&P equivalent to BB) was adopted for conducting the search. Based upon the said search it was concluded that since a range of interest from 6.82% to 7.97%, with a median of 7.22%, would be the arm's length range of interest rate for loan having a tenor of 8 years.
The TPO rejected the above approach adopted by the Assessee making the following observations:
(a) The TPO noted that while benchmarking interest on ECB1 for the period 01/04/2021 to 16/03/2021, the Assessee had not used country of lender in its search criteria. According to the TPO, the lenders country in case of ECB1 was Mauritius and the same should have been taking into consideration while benchmarking interest payable for the period 01/04/2020 to 16/12/2021 on ECB1. 12 IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 In relation to benchmarking interest on ECB1 for the period 17/03/2021 to 31/03/2021, the TPO rejected the benchmarking analysis carried out by the third party consultant observing that the same was based upon ‘synthetic rating’. TPO noted that while benchmarking the aforesaid interest payment, the Assessee had used tenor adjustments on the ground that the lender term extended over 8 years. However, according to TPO the same was not required since the LIBOR - 6 month rate did not get impacted by the loan tenor. Thus, the TPO rejected the benchmarking analysis of the Assessee.
The TPO finally rejected Assessee’s benchmarking and proceeded to benchmark the transactions using Bloomberg Database the following manner.
(a) With respect to the ECB1 the TPO adopted the below-mentioned filters to arrive at a final set of five loan tranches allegedly comparable to the international transaction undertaken by the Assessee: Filter Name Boundaries Selected criteria by TPO Status of the security Include Loans : Funged or Matured or Refinanced or Restructured or Restructured – Exchange or restructured – Full or Restructured – Settlement or Retired or Withdrawn or Relaunched or Cancelled Loan spread at close Has data - Loan base index at close Has data - Currency Include US Dollars Country/Region of Include Mauritius incorporation 1st April 2014 to 31st March 2015 Date of issuance In the range The TPO determined arm's length rate to be 6 month LIBOR plus 294.80 Bps (i.e. 3.63%) for ECB1
(b) With respect to the ECB2, the TPO adopted the below-mentioned IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 filters to arrive at a final set of 38 loan tranches allegedly comparable to the international transaction undertaken by the Assessee Filter Name Boundaries Selected criteria by TPO Status of the security Include Loans : Active Loan spread at close Has data - Loan base index at Has data - close Currency Include US Dollars Country/Region of Include United States of America incorporation 1st April 2020 to 31st March Date of issuance In the range 2021 In respect of ECB2, the TPO noted that the 35th percentile of the comparable set was LIBOR + 160 bp (i.e. 2.29%) and the 65th percentile was LIBOR + 200 bp (i.e. 2.686%). The Median interest rate was 6 month LIBOR + 175 bp (i.e. 2.44%).
(c) The TPO determined arm's length rate to be 6 month LIBOR plus 294.80 Bps (i.e. 3.63%) for ECB1 and 6 month LIBOR plus 294.80 Bps (i.e. 2.44%) for ECB2 and computed the transfer pricing addition as under: Particulars For Loan amount For loan amount pertaining to USD pertaining to USD 75,000,000 200,000,000 (in INR) (in INR) Loan amount outstanding as 565,54,00,000 1281,89,00,000 on 31st March 2020 Loan amount outstanding as 548,78,00,000 1243,91,00,000 on 31st March 2021 Average outstanding Loan 557,16,00,000 1262,90,00,000 amount for the F.Y.2020-21 Arm’s Length Interest rate 3.63% 2.44% Arm’s Length Interest amount 20,22,49,080 30,81,47,600 to be paid Actual Interest paid 31,93,19,997 94,49,90,054 Excess Interest amount 11,70,70,917 63,68,42,454 paid with respect to Arm’s Length rate 13. Thus, the TPO proposed TP additions of INR.11,70,70,917/- in respect of ECB1 and INR.63,68,45,454/- in respect of ECB2. IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 14. Against the above aggregated TP additions of INR.75,39,13,371/- the Assessee filed objections before DRP. The Assessee contended that:
(a) TPO erred in disregarding the analysis conducted by the Assessee without providing any cogent reasons.
(b) The TPO erred in undertaking a fresh search on Bloomberg database by applying incorrect filters and not considering appropriate adjustments. Due to the non-application and incorrect application of key filters like loan tenor, loan tranche size, issue date etc, the analysis undertaken TPO gave incorrect results.
(c) The TPO adopted incorrect interest base where rate of interest was fixed (and not floating). TPO incorrectly considered floating rates (i.e., the portion of interest spread over applicable base rate as the comparable interest rates) and did not convert the floating rates into fixed rates by referring the relevant base rate of 6 Month LIBOR. This is an essential step as the interest rate of the Assessee is denominated in terms of fixed rate.
(d) TPO failed to follow the rule of consistency. The interest payments on ECB1 have been made since the past several years and such payments were accepted by the TPO. Further, for ECB2 also no transfer pricing addition was made in the Assessment Year 2020-2021. Since there was no change in facts in the Assessment Year 2021-2022, the principle of consistency should have been followed while passing the order.
(e) Without prejudice to the above, the interest rate adopted by the Assessee was at arm’s length since the same was within all-in- cost ceiling provided by RBI for interest on ECBs.
In addition, before the DRP, the Assessee also relied upon the IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 corroborative benchmarking study carried out by the Assessee using Bloomberg Database. The Assessee contended that the Assessee had undertaken the aforesaid corroborative search using Bloomberg Database and by applying the following correct filters after taking into considering the key terms of ECB1 and ECB2: Nature of ECB1 ECB2 Justification of the filter filter used Tenor filter Loan Loan Tenor of ECB1 and arrangements arrangements ECB 2 is more than having tenor of which have a 5 years and 8 greater than five tenor of 8 to 10 years respectively years. years Issue date 1 December 1 May 2019 to Tenor of ECB1 and filter 2014 to 31 31 May 2019 ECB 2 are obtained December 2014 in December 2014 and May 2019 respectively Loan size 0 to USD 100 USD 100mn to Loan size of ECB1 filter Mn 300mn and ECB 2 is USD 75Mn and USD 200Mn The Assessee applied the above filters in the search analysis and came up with the final list of comparables. The summary of the results is as under: Particulars ECB1 ECB2 No. of comparables 21 4 35th Percentile USD LIBOR + NA 325 bps Median USD LIBOR + NA 475bps 65th Percentile USD LIBOR + NA 525 bps Arithmetic Mean NA USD LIBOR + 718.75 bps (swapped to a fixed rate of 9.50%)
In view of the above benchmarking results, considering that the Assessee has paid interest at the rate of BIOR plus 490 bps and 7% IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 for ECN1 and ECB2 respectively, the Assessee claimed that the interest payments on ECB1 & ECB2 was at arm’s length.
The above contentions did not find any favour with the Learned DRP as the Learned DRP disposed the objections in the following manner: “2.8.2 Having considered the submission, we noted that the TPO has duly examined The TP study and approach of the assessee to benchmark the said transaction using CUP method. The TPOs mainly concerned about whether the information or date weed in the computation of the arm's length price is reliable and correct. It is clear broth the proviso of Sec 92C(3)(c) read with Sec. 92CA of the Act that on The back of material of information or documents in the possession of TPO, if he in of the opinion that the information or data used in computation of the arm's length price is not reliable or correct the TPO may proceed to determine the arm's length price in relation to the international transactions in accordance with Sec 92C(1) and 92C(2) on the basis of such material or information or document available with him. Due to the existence of defects in the TP Study of the assessee, the TPO had rejected the TP Study of the Assessee and proceeded to conduct his own independent search. The TPO has correctly held that the data used in computation of the arm's length price is not reliable or correct. Based on the above considerations, the TP document was proposed to be rejected and the TPO proceeded to determine arm's length price by fresh benchmarking the interest paid on ECB amount. 2.8.3 The Panel on the basis of consideration of the facts and circumstances of the case is in agreement with the approach of TPO. The Assessee's over reliance on Master Circular is misplaced. The RBI guidelines are meant to regulate only The maximum permissible interest rate for ECBs from a regulatory and financial stability perspective. These guidelines do not necessarily reflect the market conditions for arm's length transactions. The fact that the interest rate is below RBF's ceiling does not automatically mean that the transaction is at arm's length price. The RBI rate serves as a cap to prevent the excessive interest outflows but does not determine the market-determined interest rates that independent parties may agree upon Thus, the method used by the assessee has a diminished significance if there is a superior method available with the TPO to benchmark the transaction. The method used by TPO is a more reliable method in this case because it directly compares the price charged in controlled transaction to the We charged in a comparable uncontrolled IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 transaction. In this case the TPO has the Bloomberg database to identify independent ECB transactions, which reflect real world borrowing terms agreed upon by unrelated parties. This is ensured that the comparability analysis is grounded in actual market behavior, rather than regulatory ceilings. The method used by the TPO has taken into account the relevant criteria applicable to the transaction such as currency in which loan was given/borrowed, period in which loan was given and the country of the Loan transaction. In view of the above discussion the Panel finds no infirmity in the order of the TPO and the hence the ground is rejected. 2.8.4 Furthermore, regarding the plea that for ECB-2, the TPO has considered the financial year 2020-21, whereas the loan was availed in May 2019, we direct the TPO to take into account the year in which the loan was actually taken. The taxpayer has also contended that while applying the country/region fitter, the TPΟ did not consider the fact that the lender's jurisdiction changed during FY 2020-21. In our view, it is essential to assess the conditions prevailing at the time the loan was availed, although a change in jurisdiction during the loan tenure may affect the interest rate. As this change occurred on 17th March 2021, a substantial portion of the loan period remains governed by the original terms. Therefore, we do not find merit in this plea. Additionally, if the ‘Country/Region of incorporation’ filter is applied to the above results, based on tested party’s location, in the case of ECBs, only one comparable is identified whose interest rate in LIBOR plus 495 Bps. Accordingly, the transaction meets the arm’s length price. Further, applying the borrower’s country filter does not leave any comparables in ECB2, and hence the said filter has been relaxed. The benchmarking analysis and loan comparable identified is shown in the attached enclosed as Annexure 8.”
During the appellate proceedings both sides reiterated the stands taken before the authorities below. We have given thoughtful consideration to the rival submission and have perused the material on record.
The Assessee has availed ECB from its two different AES: (a) ECB1: USD 75,000,000 (b) ECB 2: USD 200,000,000. Following disclosures were made in the financial statement for the relevant previous year in IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 relation to the same: 13.1 Borrowings As at March As at March 31, 2021 31, 2020 (Unsecured borrowings) From related party External commercial 1,79,269 1,84,743 borrowing 1,79,269 1,84,743 External Commercial Borrowings ("ECB") represents borrowings in foreign currency availed in 2014 and 2019. ECB availed in 2014 ECB amounting to Rs. 54,878 (2020: Rs. 56,554) was availed in 2014 towards the Company's working capital requirements at an interest rate ranging from 3.3% -6.5% (2020: 6.5%-8%) per annum. Due to change in holding company with effect from December 01, 2018; this ECB was assigned to the current holding company - Goldman Sachs International Service Entities Holdings Limited from the erstwhile parent Goldman Sachs (Mauritius) L.L.C w.e.f. December 01, 2018. The interest rate applicable March 16, 2021 was 6 months LIBOR plus 4.9% and the LIBOR was fixed every six months on April 01 and October 01. During the year ended March 31, 2021, the Company amended the ECB agreement primarily to extend the maturity by another 10 years from April 01, 2022 to April 01, 2032 and to change the interest rate from LIBOR plus 4.9% to a fixed rate of interest of 3.3% per annum effective from March 17, 2021. ECB availed in 2019 - During previous year ended March 31, 2020, the Company entered into an agreement to avail an ECB from its group affiliate Goldman Sachs Funding LLC for up to USD 200 million towards working capital requirements and refinancing of INR loans. During the year ended March 31, 2021, the Company reduced drawing limit under this arrangement from USD 200 million to USD 170 million. The ECB amounting to Rs. 124,391 (2020: Rs. 128,189) represents the foreign currency term loan of USD 170 million drawn by the Company in two tranches of USD 120 million and USD 50 million. The interest rate is fixed at 7% per annum. The average maturity of the USD 170 million ECB is 8 years.
IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 18. From the above disclosure it becomes clear that:
(a) ECB1 was availed during the Financial Year 2014-2015. (b) On account of change in holding company, with effect from 01/12/2018. ECB1 was assigned to the current holding company. Thus there was assignment of ECB1 from the original lender (i.e.) Goldman Sachs (Mauritius) LLC. To Goldman Sachs International Service Entities Holdings Limited. ECB1 assigned as aforesaid continued to carry the same interest rate of 6 months LIBOR plus 490 Bps (fixed every six months on April 01 and October 01) till March 16, 2021. (c) With effect from March 17, 2021 the rate of interest was changed from the floating rate of LIBOR plus 490 Bps to fixed rate of 3.3% per annum. Therefore, for the balance financial year starting from March 17, 2021 to March 31, 2021, ECB1 carried fixed interest rate of 3.3% per annum.
(d) During the relevant financial year 2020-2021, ECB1 agreement was amended to extend the maturity by another 10 years from April 01, 2022 to April 01, 2032
In view of the above, we find merit in the contention advanced on behalf of the Assessee that the TPO failed to appreciate that ECB1 was transferred from Goldman Sachs (Mauritius) LLC. to Goldman Sachs International Service Entities Holdings Limited during financial year 2020-21. Therefore, the lender’s jurisdiction had changed from Mauritius to USA. The Learned DRP noted this fact but declined to issue any directions observing that it was essential to assess the conditions prevailing at the time the loan was availed and since a substantial portion of the loan period remains which was governed by the original terms the approach adopted by the TPO could not be flouted. This Tribunal disagrees with the approach adopted by the 20 IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 TPO/DRP. In view of our observations in Paragraph 18 above, the TPO could not have selected Mauritius as jurisdiction for ECB1 On transfer of loan from Mauritius entity to US entity. In our view, the TPO has proceeded to carry out fresh benchmarking study on incorrect understanding of facts. Clearly there was change of lenders, change of lenders jurisdiction, change in rate of interest from floating to fixed interest rate and change of maturity of ECB1 when compared to the terms and conditions on which ECB1 was availed originally in Financial Year 2014. While the Assessee had taken note of change of rate of interest in the TPSR study by benchmarking interest paid on ECB1 for the period March 17, 2021 to March 31, 2021 separately, the other changes pointed hereinabove were not taken into account by the Assessee. When the loan was assigned in December, 2018, ECB1 was to mature on 01/04/2022. It was only during the financial year 2020- 2021, that the ECB1 agreement was amended to extent maturity by another 10 years from April 01, 2022 to April 01, 2032. We find that while carrying out the corroborative benchmarking study the Assessee had not provided adjusted the tenor filter and issued a filter to taken into account the change in the economic conditions arising from assignment of ECB1. We have already accepted the contention of the Assessee recognizing that the lender’s jurisdiction changed from Mauritius to USA on assignment of ECB1. We are of the view that, on account of parity of reasoning and a natural corollary, the other changes in legal and economic conditions require consideration. In our view, the Assessee failed to take the same into account while conducting the original as well as corroborative benchmarking. Therefore, we restore the issue of determination of ALP in respect of interest paid/payable by the Assessee on ECB1 during the relevant previous year back to the file of TPO/Assessing Officer for adjudication afresh after taking into consideration the changes in the legal obligations and economic condition of ECB1 on account of assignment and amendment of the applicable agreement (including but not limited IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 to change of lender, change in lenders jurisdiction, change of tenor and change in the rate of interest). Since we have restored the issue as aforesaid, all the rights and contentions of the Assessee are left open.
During the course of hearing the Assessee had placed reliance upon the Master Circular issued by Reserve Bank of India in relation to ECB and had contended that since the rate at which interest was paid by the Assessee was below all-in-cost ceiling prescribed by the RBI, the interest payments were at arm’s length. The DRP has rejected the aforesaid contention making the observations which have been reproduced in paragraph 15 above. In our view the applicable of all-in- cost ceiling for ECB provided by the RBI is dependent upon fulfillment of the corresponding conditions related to tenor, maturity, end-use etc. applicable in case of automatic or approval route, as the case may be. While the aforesaid all-in-cost ceiling acts as a regulatory upper cap, the actual rate of interest negotiated between unrelated parties can be lower. The transfer pricing provisions do not provide for any exception in this regard and require determination of ALP using the most appropriate method. Therefore, the Assessee is required to demonstrate that interest payment made in respect of ECB during the relevant previous year are at arm’s length. It would be pertinent to note that in case of all ECBs under automatic route, the all-in-cost ceiling fixed by RBI would be same irrespective of the differences in the terms and economic reality so long as the ECBs confirm to the broad guidelines of RBI. However, all-in-cost ceiling provided by the RBI for ECB is a relevant factor to be considered by the TPO as the same may corroborate the primary benchmarking carried out by the Assessee. In the case of The Commissioner of Income Tax/The Deputy Director of Income Tax Circle 11(3) Vs. GE India Technology Centre Pvt. Ltd.[ITA No.282 of 2013, dated 17/12/2020], the Hon’ble Karnataka High Court has held as under:
IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 “9. We have considered the submissions made on both sides and have perused the record. Section 10B deals with determination of Arm’s Length Price under Section 92C of the Act. In the instant case, the assessee had calculated the rate of interest at 7.50% and 8.49%. However, the Assessing Officer has scaled down the same to 5.67%. It is pertinent to mention here that Reserve Bank of India has given the approval in respect of the rate of interest and the approval given by the Reserve Bank of India with regard to rate of interest is a relevant factor while determination of the rate of interest. It is equally well settled that rate of interest should be determined on the basis of rate of interest prevailing at the time of availing the loan. From perusal of the order passed by the tribunal, it is evident that before the tribunal, the assessee had filed the copy of show cause notice issued by Transfer Pricing Officer, the assessee's submission in response to the same and order of the Transfer Pricing Officer for Assessment Year 2008-09. The tribunal has further found that the loans were obtained by the assessee in the year 2000-01 at the rate of 7.5% and 8.49% respectively. The tribunal has further recorded the finding that assessee has obtained the loans in the year 2001 and the issue has been considered by the Transfer Pricing Officer for the Assessment Years 2004-05 and 2005-06 and also for the Assessment Year 2008- 09. It has further been held that Transfer Pricing Officer after considering the assessee's submission has accepted the rate of interest fixed in the loan agreements. It is also pertinent to mention here that the rate of interest has been accepted by the Assessing Officer for the years 2002-03 to Assessment Year 2008-09 except the Assessment Year 2006-07. Therefore, the tribunal has rightly held that the revenue cannot be allowed to make a departure in case of rate of interest for Assessment Year 2006-07.”
In view of the above, the TPO is directed to take into consideration the above judgment of the Hon’ble High Court while determining the ALP afresh.
As regards Assessee’s contention regarding violation of rule of consistency is concerned, we do not find any merit in the same in view of our observations/findings in paragraph 18 above. We have noted the change in facts and circumstances which require consideration. We hold that the findings returned by the TPO/Assessing Officer in the earlier years without considering the same would be of no assistance to the Assessee. Further, it is settled position that the benchmarking IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 analysis is to be carried out for each assessment year. Section 92C of the Act read with Rule 10D of the Income Tax Rules, 1962 mandated maintenance contemporaneous documentation for each year to support determination of ALP for that year. Therefore, keeping in view the facts and circumstances of the present case we hold that the contention of the Assessee that the TPO/Assessing Officer failed to follow rule of consistency is devoid of merit and is, therefore, rejected.
As regards, ECB2 is concerned, we find merit in the contention advanced on behalf of the Assessee that the TPO has incorrectly benchmarked the transaction by using floating interest rate whereas the Assessee was under obligation to pay fixed interest rate. Further, the TPO has also incorrect considered financial year 2020-2021 as the period of issue of ECB whereas, EBC2 was availed in May, 2019 (falling within financial year 2019-2020). We note that the Assessee had carried out corroborative benchmarking study using Bloomberg Database by capturing the relevant filters considering the key terms of ECB. We note that the DRP failed to take the same into consideration while disposing the objections filed by the Assessee. Therefore, we direct the Assessing Officer/TPO to carryout benchmarking analysis considering the corroborative benchmarking analysis carried out by the Assessee using Bloomberg Database. The TPO is directed to verify the adjustments carried out by the Assessee (including the interest swaps and/or interest rate swap adjustment) while carrying out the benchmarking analysis.
In view of the above, the Transfer Pricing addition of INR.62,88,86,271/- is set aside Ground No.1.1 to 1.7 raised by the Assessee are allowed for statistical purposes.
Ground No.2 25. Ground No. 2 raised by the Assessee pertains to initiation of penalty proceedings under Section 270A of the Act is dismissed as premature IT(TP)A No.2525/Bang/2024 Assessment Year 2021-2022 in nature.
Ground No.3 26. Ground No. 3 raised by the Assessee pertains to incorrect levy of interest under Section 234A, 234B and 234C of the Act is dismissed as consequential in nature.
In terms of above, the present appeal preferred by the Assessee is partly allowed.