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Facts
The assessee, SGD Pharma India Private Limited, filed appeals against assessment orders for AY 2017-18 and 2018-19. The appeals primarily concerned the benchmarking of interest on External Commercial Borrowings (ECB) and a disallowance under Section 43B. The assessee benchmarked interest on ECB loans at LIBOR + 500/450 basis points, while the TPO proposed an adjustment, which was enhanced by the DRP. A disallowance of Rs. 20,32,596 under Section 43B was also disputed.
Held
The Tribunal held that the assessee's benchmarking of interest on ECB loans at LIBOR + 500/450 basis points was at arm's length, considering the loan tenure of seven years. The addition of Rs. 2,28,23,848 on this account was directed to be deleted. Regarding the disallowance under Section 43B, the Tribunal restored the issue to the AO for verification, as the direction from the DRP for verification was not complied with.
Key Issues
1. Whether the benchmarking of interest on ECB loans at LIBOR + 500/450 basis points is at arm's length. 2. Whether the disallowance under Section 43B for gratuity provision was justified given potential double disallowance.
Sections Cited
143(3), 144C(13), 92CA(3), 43B, 40A(7), 270A, 144C(5), 153
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘ A ‘ Bench, Hyderabad
Before: Shri Ravish SoodShri Madhusudan Sawdia
आयकर अपील�य अ�धकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A ‘ Bench, Hyderabad �ी रिवश सूद,�ाियक सद� एवं �ी मधुसूदन साविड़या लेखा सद� सम� | Before Shri Ravish Sood, Judicial Member A N D Shri Madhusudan Sawdia, Accountant Member आ.अपी.सं /ITA-TP Nos.130 & 447/Hyd/2022 (िनधा�रण वष�/Assessment Years: 2017-18 & 2018-19) M/s. SGD Pharma India Vs. Dy.CIT/I.T.O Private Limited, Ward/Circle 3 (1) Mahabubnagar Hyderabad PAN:AADCC7815K (Appellant) (Respondent) िनधा��रती �ारा/Assessee by: Shri Aliasgar Rampurwala, CA राज� व �ारा/Revenue by:: Smt. K. Haritha, CIT(DR) सुनवाई की तारीख/Date of hearing: 17/12/2025 घोषणा की तारीख/Pronouncement: 21/01/2026 आदेश/ORDER Per Madhusudan Sawdia, A.M.:
Both these appeals are filed by M/s. SGD Pharma India Private Limited (“the assessee”), feeling aggrieved by the separate final assessment orders passed by the Learned Assessing Officer (“Ld. AO”) under section 143(3) read with sections 144C(13) of the Income Tax Act, 1961 (“the Act”) dated 25.02.2022 and 27.07.2022 for A.Y 2017-18 & 2018-19 respectively in pursuance of the directions issued by the Learned Dispute Resolution Panel
Page 1 of 14 (“Ld. DRP”). Since identical issues are involved in these two appeals, for the sake of convenience, these were heard together and are being disposed of by this common consolidated order. ITA-TP No. 130/Hyd/2022 (A.Y. 2017-18): 2. The assessee has raised the following grounds of appeal:
3. The assessee has raised the following additional grounds:
Page 2 of 14 “8. On the facts and in the circumstances of the case and in law, the Ld. Panel erred in not quoting a valid computer generated DIN on the body of DRP directions dated 28 January 2022 under section l44C(5) of the Act, in contravention to the Circular No. 19 of 2019 by the CBDT, thus rendering such an order/direction to be invalid and never to have been issued as per para 4 of the said circular.
On the facts and in the circumstances of the case and in law, the final assessment order dated 25 February 2022 passed by the Ld. AO under section 143(3) read with section 144C(13) of the Act pursuant to invalid and non-est directions passed by the Ld. Panel, is bad in law, null and void and liable to be quashed.
10. Without prejudice to ground no. 8 and 9, on the facts and in the circumstances of the case and in law, the final assessment order dated 25 February 2022 passed by the Ld. AO under section 143(3) read with section 144C(13) of the Act, is bad in law as it is not passed in conformity with the directions issued by the Ld. Panel, as per the provisions of section 144C(1) r.w.s. 144C(13) of the Aet and hence liable to be quashed.
On the facts and in the circumstances of the case and in law, the final assessment order dated 25th February 2022 passed by the Ld. A.O under section 143(3) r.w.s. 144C(13) of the Act having been passed beyond the limitation period provided in terms of section 153 of the Act, is void-ab-initio, illegal and bad in law and is therefore liable to be quashed”.
The brief facts of the case are that the assessee is a company engaged in the manufacture and sale of borosilicate type-I glass moulded vials, glass tubular vials and ampoules for pharmaceuticals and biological companies. The assessee filed its return of income for Assessment Year 2017–18 on 30.11.2017, declaring a loss of Rs.2,21,78,327/-. The case of the assessee was selected for complete scrutiny, and accordingly, a notice under section 143(2) of the Act was issued to the assessee. In view of the involvement of international transactions with the Associated
Page 3 of 14 Enterprises (“AEs”), the case of the assessee was thereafter referred to the Learned Transfer Pricing Officer (“Ld. TPO”) under section 92CA(1) of the Act. The Ld. TPO, vide order dated 28.01.2021, proposed an upward adjustment of Rs.2,28,23,848/- in respect of the international transaction relating to interest on External Commercial Borrowings (“ECB”). Based on the said order, the Ld. AO passed a draft assessment order dated 13.04.2021.
Aggrieved by the order of the Ld. AO, the assessee filed objections before the Ld. DRP. The Ld. DRP disposed of the objections of the assessee vide directions dated 28.01.2022. Pursuant thereto, the Ld. AO finalized the assessment under section 143(3) read with sections 144C(13) and 144B of the Act on 25.02.2022, making, inter alia, the following additions/disallowances: a. Addition of Rs.2,28,23,848/- towards adjustment in respect of interest on ECB loans; and b. Disallowance of Rs.20,32,596/- under section 43B of the Act.
Aggrieved with the order of the Ld. AO, the assessee is in appeal before this Tribunal. We noted that the assessee has filed request letter dated 17.12.2025 for withdrawal of additional grounds, which is to the following effect:
As the assessee has already withdrawn the additional grounds of the appeal, no separate adjudication is required on the same. Hence, the additional grounds of appeal
of the assessee are dismissed as withdrawn.
8. At the outset, the Learned Authorised Representative (“Ld. AR”) submitted that after withdrawal of additional grounds, two issues alone survive for adjudication i.e. (a) Benchmarking of Interest on ECB Loans and (b) Disallowance under Section 43B of the Act. With regard to Benchmarking of Interest on ECB Loans, the Ld. AR submitted that the assessee had availed three ECB loans, namely ECB-I, ECB-II and ECB-III. It was submitted that the assessee benchmarked the rate of interest on ECB-I and ECB- II at LIBOR + 500 basis points, and on ECB-III at LIBOR + 450 basis points. It was submitted that the Ld. TPO benchmarked the interest at LIBOR + 200 basis points, which was enhanced by the Ld. DRP to LIBOR + 250 basis points. In this regard, reliance was placed on para no. 2.4.6 of the DRP’s order, wherein the Ld. DRP benchmarked the interest on the assumption that the tenure of the ECB loans was less than five years. The Ld. AR submitted that the assumption of the Ld. DRP that the tenure of ECB Loans are for less than five years is factually incorrect. In this regard, the Ld. AR invited our attention to the loan agreement dated 09.04.2014 placed at Page no. 210, the loan agreement dated 24.11.2014 placed at Page no. 231 and the loan agreement dated 23.06.2016 placed at Page no. 252 and it was demonstrated that the ECB loans were for a tenure of seven years, and not for a period of less than five years. It was further submitted that this Tribunal, under Page 6 of 14 identical facts, for the same assessment year, in the case of Shakti Hormann Pvt. Ltd. vs. ACIT [174 taxmann.com 427], has held that benchmarking of interest on ECB loans at LIBOR + 500 basis points is justified. The Ld. AR argued that the Benchmarking of interest on ECB loans by the assessee is not more than LIBOR + 500 basis points. Accordingly, it was prayed that the adjustment made by the Ld. TPO/Ld. AO be deleted.
9. Per contra, the Learned Departmental Representative (“Ld. DR”) relied upon the orders of the lower authorities.
We have heard the rival submissions and perused the material available on record including the case law relied upon. In this regard, we have also gone through para no. 2.4.6 of the order of the Ld. DRP, which is to the following effect:
11. On perusal of the above, we find that the Ld. DRP benchmarked the interest on ECB loans at LIBOR + 250 basis
Page 7 of 14 points on the premise that the loans were for a tenure of less than five years. However, on perusal of the loan agreements placed at page nos. 210, 231 and 252 of the paper book, it is evident that the tenure of the ECB loans is seven years. Thus, the factual basis adopted by the Ld. DRP is incorrect. We have also gone through para nos. 8 to 11 of the order of this Tribunal, in the case of Shakti Hormann Pvt. Ltd. vs. ACIT (supra), which is to the following effect:
Page 8 of 14 Page 9 of 14 Page 10 of 14
On perusal of the above, we find that this Tribunal for the same assessment year and for ECB loans having a tenure of seven years, has held that benchmarking of interest at LIBOR + 500 basis points is justified. In the present case, the assessee has Page 11 of 14 benchmarked the ECB loans at LIBOR + 500 / 450 basis points, which is not higher than the rate approved by the Tribunal. Therefore, respectfully following the said decision, we hold that the benchmarking adopted by the assessee is at arm’s length. Accordingly, the addition of Rs.2,28,23,848/- made on account of interest on ECB loans is directed to be deleted.
With regard to the disallowance of Rs.20,32,596/- under section 43B of the Act, the Ld. AR submitted that the said amount pertains to provision for gratuity, which was already disallowed by the assessee itself while computing the total income in the return of income. However, due to incorrect reporting in the tax audit report, the said amount was once again disallowed by the Ld. AO, resulting in double disallowance. In this regard, the Ld. AR invited our attention to para nos. 2.8.1 and 2.8.2 of the directions of the Ld. DRP, wherein the Ld. DRP had directed the Ld. AO to verify the factual position and decide the issue as per law. It was prayed that the matter be restored to the file of the Ld. AO for verification in accordance with the DRP’s directions.
Per contra, the Ld. DR did not object to such a remand.
We have considered the rival submissions and gone through the directions of the Ld. DRP. We find that the Ld. DRP had specifically directed the Ld. AO to verify the claim of the assessee regarding disallowance under section 43B of the Act. Since the said verification has not been carried out, we deem it appropriate, in the interest of justice, to restore this issue to the Page 12 of 14 file of the Ld. AO. The Ld. AO is directed to verify from the records whether the amount of Rs.20,32,596/- towards provision for gratuity has already been disallowed by the assessee in the return of income and to decide the issue in accordance with law, after giving due effect to the directions of the Ld. DRP and after providing adequate opportunity of being heard to the assessee.
In the result, the appeal of the assessee in Hyd/2022 is allowed for statistical purposes. ITA-TP No. 477/Hyd/2022 (A.Y. 2018-19): 17. At the outset, the Ld. AR submitted that the solitary issue involved in the present appeal relates to the benchmarking of the rate of interest on ECB loans. It was further submitted that the issue involved in this appeal is identical to the issue involved in for Assessment Year 2017-18. Accordingly, he submitted that the findings of the Tribunal in on this issue may be mutatis mutandis apply to this appeal also.
Per contra, the Ld. DR did not dispute the factual position that the issue involved in the present appeal is identical to the issue involved in ITA No. 130/Hyd/2022.
As there is no dispute about the facts that the issue involved in this appeal is identical to the issue involved in therefore, we hold that our observations and findings in for Assessment Year 2017-18 apply mutatis mutandis to this appeal also. Accordingly, we hold
Page 13 of 14 that the benchmarking adopted by the assessee is at arm’s length and direct the Ld. TPO / Ld. AO to delete the addition made on account of benchmarking of interest on ECB loans.