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TMI Blog2023 (4) TMI 557X X X X Extracts X X X X X X X X Extracts X X X X ..... Y 2015-16. The learned DR contended that the internal comparables cannot be accepted due to difference in geographical region. It is contended that the associated enterprises are outside India and the third party lenders are in India. It is not clear if the NCD issued to associated enterprise is denominated in Indian rupees and whether the interest on these NCD's is paid in Indian rupees. If the loan taken from associated enterprise is denominated in Indian rupees and the loan taken from third parties is also denominated in Indian rupees and the interest on such loans is also paid in Indian rupees, the question of geographical difference does not arise. Therefore, taking internal comparables will also take care of credit rating of borrowers and nature and purpose of the loan. Thus, if both the loans are denominated in same currency, internal comparables can be adopted for computation of ALP. NCD issued to associated enterprise is unsecured and loans taken from third parties are secured loans, hence, adjustment for this difference should be made as directed by the DRP in AY 2015- 16. Therefore, we remand the matter back to the TPO to verify if the currency of the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pre-Section 153C proceedings, the erstwhile TPO had himself accepted the benchmarking analysis of the Assessee and had not drawn any adverse inference on the said transactions. 2.5. That the DRP/TPO grossly erred in not appreciating that in the absence of any incriminating material, no adjustment/contrary view to the DRP's directions rendered in the Assessee's own case for AY 2015-16 could be permitted. 2.6. That the DRP erred in upholding the rejection of the benchmarking analysis undertaken by the Assessee summarily and without any cogent reasoning as done by the TPO. 2.7. That the DRP/TPO have erred in not appreciating that the Assessee had issued debentures through private placement and the comparables chosen by the TPO dealt in other financial instruments, could not be taken to be comparable to the Assessee. 2.8. That the DRP/TPO erred in not appreciating that even though the Filter for nor convertible debentures was allegedly applied, the final companies chosen by the TPO dealt in convertible debentures. 2.9. That the DRP/TPO erred in choosing comparables with a AAA rating, dealing in non-comparable financial products and hence, could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 2018-2019, the assessee chose two different companies, which again issued NCDs during the same period of the assessee and since the debentures issued by the comparable were at the rate of 15% as opposed to 13.93% charged by the assessee, the interest payment to the AE on these NCDs has sought to be at arm s length. Further, the assessee had also benchmarked the transaction using internal CUP while comparing interest rate paid by the assessee to its AE as opposed the interest paid on secured loans availed by the assessee from unrelated parties such as PFC, REC and PNB, which was 13.75%. Since the said loans were secured loans, the assessee in its TP study, made an adjustment of 300 bps and arrived at the interest rate to unrelated parties at 16.75% for assessment year 2017-2018 and 18.39% for assessment year 2018-2019. Since the assessee had paid lower interest to its AE for assessment year 2017-2018 and 2018-2019, the transaction was sought to be justified in its TP study. 5. The TPO for both the assessment years, rejected the benchmarking analysis of the assessee and proceeded to chose 24 comparables for assessment year 2017-2018 conducting a search in Bloomberg database. Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP s directions for the assessment year 2015-2016, which observed that once an internal CUP was available, the same can be applied for benchmarking the interest payment post giving appropriate adjustments. As regards some of the comparables selected by the TPO for assessment years 2017- 2018 and 2018-2019, it was contended by the learned AR that Government companies having credit rating of AAA is selected, which is erroneous, since, the assessee has incurred huge losses year after year. Further, it was stated that the private companies taken as comparable by TPO have issued convertible debentures unlike assessee which had issued NCD s. It was submitted that vis- -vis convertible debentures and NCDs, convertible debentures would be fetching lesser rate of interest unlike NCDs. Therefore, it was submitted that the comparables chosen by the TPO is also faulty and the same needs to be rejected. 9. The learned Departmental Representative, on the other hand, strongly supported the orders of the TPO and the DRP. It was contended that for assessment year 2015-2016, there was no proper benchmarking by the TPO, hence, the DRP for the said assessment year had given directions that intern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to the net profit margin realized by the enterprise (internal) from a comparable uncontrolled transaction and, thereafter, it points towards net profit margin realized by an unrelated enterprise (external) from a comparable uncontrolled transaction. Thus where potential comparable is available in the shape of an uncontrolled transaction of the same assessee, it is likely to have higher degree of comparability vis-a-vis com parables identified amongst the uncontrolled transactions of third parties. The underlying object behind computing ALP of an international transaction is to find out the profits which such enterprise would have earned if the transaction had been with some third party instead of related party. When the data is available showing profit margin of that enterprise itself from a third party, it is always safe and advisable to have recourse to such internal comparable case. The reason is patent that the various factors having bearing on the quality of output, assets employed, input cost etc. continue to remain by and large same in case of an internal comparable. The effect of difference due to such inherent factors on comparison made with the third parties, gets ne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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