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TMI Blog2020 (8) TMI 759X X X X Extracts X X X X X X X X Extracts X X X X ..... th section 144C of the Income Tax Act, 1961 ('The Act") dated December 30, 2016 for the Assessment Year ("AY") 2012-13, passed by the Deputy Commissioner of Income Tax, Circle-3(2), New Delhi. 1. That on the facts and in the circumstances of the case and in law, the order passed under section 143(3) r.w.s. 144C of the Act by the Learned Assessing Officer ("Ld. AO") is erroneous and bad in law as well as in facts. 2. That on facts and circumstances of the case and in law, the reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO did not record any reasons in the assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. Transfer Pricing Officer ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of penalty proceedings u/s 271 (1) (c) of the Act. 5. That on the facts and in the circumstances of the case and in law, the Ld. AO erred in charging and computing interest under section 234A, 234B, 234C and 234D of the Act. 2. The assessee company was incorporated in India on 2/3/2012 and is engaged in the business of development sale and advisory of realistic related activities. The return of income declaring income at Rs. 13,40,080/- and business loss of Rs. 3,83,98,509/- was filed on 24/11/2012 by the assessee. A reference was made to the TPO u/s 92CA of the Income Tax Act, 1961 and the Transfer Pricing Officer (TPO) on 6/1/2016 passed an order wherein adjustment of Rs. 1,86,06,021/-attributed to the difference in Arms Length ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia in the capital of the Indian Company. Further, 'Capital' means equity shares; fully, compulsorily & mandatorily convertible preference shares; fully, compulsorily & mandatorily convertible debentures. Schedule 1 to the FEMA Regulations Notification No. FEMA 20/2000-RB dated May 3, 2000 permits FDI by a person resident outside India into convertible debentures issued by an Indian Company. Further, as per RBI Circular No. 74 dated June 8, 2007, the position on issue of capital by an Indian Company by way of issue of FCCDs has been clarified to be in the nature of FDI. The Ld. AR submitted that the TPO has considered the FCCDs as optionally or partially convertible without any basis, which is contrary to the terms of the Investment agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of CIT(A) Vs. Cotton Natural (I) Pvt. Ltd. [ITA No. 233/2014] held that -the interest rate should be market determined interest rate applicable to the currency concerned in which the loan has to be repaid. The Hon'ble Bombay High Court in the case of Pr. CIT vs India Debt Management (P.) Ltd. [ITA No. 266 of 2017] relying on the above mentioned Hon'ble Delhi High Court judgment, held that the interest rate should be market determined interest rate applicable to the currency concerned in which the loan has to be repaid. It has been similarly held in the following decisions by various coordinate benches of the Tribunal:_ ADAMA India Pvt. Ltd. Vs. DCIT (ITA No. 497/Hyd/2016) Hyderabad Infratech Pvt. Ltd. Vs. DCIT (ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erted by the Indian assessee in its domestic currency and even the fact that the FCCDs are claim to be denominated in Indian Rupees and are convertible into shares is not sufficient to support the assessee's claim. The Ld. DR further submitted that the interest is to be bench marked against the interest in Indian rupees and not the comparable interest in foreign currency. The FCCDs represent investment by the foreign A.E and the assessee stated in the reply that this investment was made in US dollars. Therefore, the comparable rate of interest is the rate prevailing for loans in foreign currency. The DRP categorically mentioned that the decision of the TPO is in accordance with the decision of the Hon'ble Delhi High Court in case of Cotton ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be SBI Prime lending rate + 300 basis by point, which at the time of investment was 14.75%. In-fact, the decision of the Hon'ble Delhi High Court in case of Cotton Naturals (supra) categorically held in para 43 that normally there would be a difference between the lending rate and borrowing rate in each country. However, the economic purpose and substance of the debt claim or debt for which the grant of credit goes for the lending rate would be determining. Thus, in case of capital investment the borrowing rate will apply where as in case of credit allow to a customer, the lending rate would apply. Thus, the decision of the Hon'ble Delhi High Court supports the case of the assessee. It is pertinent to note that it is an undisputed fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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