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TMI Blog2023 (8) TMI 631X X X X Extracts X X X X X X X X Extracts X X X X ..... 81,77,494/- proposed by the TPO on account of interest payment on FCCDs. (ii) On the facts and circumstances of case and in law, the Ld. CIT(A) has erred in law and facts in not appreciating the findings of the TPO that the list of comparable companies selected by the assessee were different industries and not specific to real estate industry. (iii) On the facts and circumstances of case and in law, the Ld. CIT(A) has erred in law and facts is not appreciating the findings of the case that the assessee has done search on NDSL website and not considered BSE/NSE data and hence on this count the assessee's search is liable to be rejected. (iv) On the facts and circumstances of case and in law, the Ld. CIT(A) has erred in law and facts in not considering the facts of the case that the assessee-company has not brought on record any cogent, relevant and reliable evidence to prove that the data for FY 2011-12 revealed facts, which could have an influence on the determination of ALP. (v) On the facts and circumstances of case and in law, the Ld. CIT(A) has erred in law and facts in not considering the truth of the case that the assessee has only given general statements to subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled its return of income electronically for the captioned assessment year, on 30 November, 2015, declaring a total income of Rs. 11,55,04,045/-. The case was referred to the TPO and after due consideration, the TPO made transfer pricing adjustment amounting to Rs. 2,81,77,494 vide order dated 31.03.2018. The TPO in his order re-computed Arm's Length Price of payment of interest on FCCDs at Rs. 14,65,07,780/- i.e. 12.58% p.a instead of Rs. 17,46,85,274/- i.e. 15% p.a as determined by the assessee. The facts of the case are that assessee had issued FCCDs of Rs. 188.5 crore in the financial year (FY) 2011-12, for business expansion purpose to a group entity, M/s Vassam Ltd or Cyprus. These debentures were later transferred in in financial year (FY).2013-14, on 28/03/2014, to another group entity M/s Virtuous Retail Pte Ltd., Singapore (AE) and held by this company for part period during the relevant FY 2014-15. A copy of the board resolution in the form of MoM dated 14/03/2014, approving such transfer of FCCDs was filed. The coupon rate on such FCCDs was determined at 15% p.a for financial year 2011-12, which was continued to be paid by the assessee, till its redemption (for that mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % interest used by the assessee is for single quarter only. This is evidenced by the internal rating rational by Brickwork Ratings which clearly shows the coupon rate as 3.5% per quarter. Based on these arguments, the assessee`s calculation of estimated mean coupon rate of 16.95% on the remaining six comparables, chosen from BSE/NSE appears to be closure. It was also noted by ld CIT(A) that the 15% coupon rate paid by the assessee on the FCCDs is close to the prevalent SBI prime lending rate of 14.75% as well. Based on this factual position, the ld CIT(A) deleted the upward adjustment of Rs. 2,81,77,794/-, made by TPO/assessing officer. 6. Aggrieved by the order of Ld. CIT(A), the Revenue is in appeal before us and assessee also filed cross objection before us. 7. The Learned Departmental Representative (Ld. DR) for the Revenue argued that during the course of transfer pricing assessment proceedings, the TPO after carefully examining the facts of the case had issued show cause notice to the assessee on 18.10.2018 incorporating that on perusal of transfer pricing documentation provided by the assessee-company for the purpose of benchmarking coupon interest rate of 15% on FCCDs iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hasis on rule of consistency stating that the rate at 15% was accepted in assessment year (AY) 2013-14 in it's own case and as there was no change in facts especially in the pricing mechanism for the interest paid on FCCDs other than the same debentures changing hands, the rate adopted in AY 2013-14 should be adopted for current year i.e. AY.2015-16 as well. It was argued that during FY 2014-15 (i.e. in November 2014), the Singapore AE had transferred all of these FCCDs to another concern, viz. J M Financial Institutional Securities Limited (a third party). A copy of Board resolution ratifying such transfer of FCCDs was also filed. It was pointed out that the coupon rate on such FCCDs remained unchanged at 15% p.a in the case of this third party. The new debenture holder was not an AE, the interest rate payment @ 15% to this third party was accepted by the assessing officer/TPO and for the corresponding part period no reduction of interest was made while assessing the case. Thus, it emphasized on the Internal CUP data available and application in this case. To substantiate the arm's length nature of the interest payment and in compliance with Section 92D of the Act, r/w Rule 10D of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference u/s 92CA(1) of the Act for the computation of Arm's length price in relation to International Transactions was made and the TPO passed an order under section 92CA(3) of the Act on 30.10.2018, and quantified an upward adjustment at Rs. 2,81,77,494/- on the international transactions entered into by the assessee. That is, an upward adjustment was made by TPO/assessing officer to the income shown by the assessee of Rs. 2,81,77,794/- by reducing the interest rate shown @ 15% being paid to AE in Singapore for fully and compulsory convertible debentures (FCCDs) to 12.58% by rejecting the explanation by the assessee and doing his own analysis based on different set of data for finding the comparable. 10. During the appellate proceedings, the assessee submitted before ld CIT(A) that the said international transaction of interest payment on FCCDs at the rate of 15% p.a to the Cyprus company was accepted by the TPO in the TP Assessment for the AY.2013-14 to be at arm's length and it adduced copy of the TPO order for reference. No similar adjustment was made. It laid emphasis on rule of consistency stating that the rate at 15% was accepted in AY.2013-14 in it's own case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest rate of 12.58% p.a. instead of actual claimed of 15% and accordingly made downward adjustment of Rs. 2,81,77,494/- to the value of international transaction for payment of interest. During the appellate proceedings, the assessee argued that as per Rule 10D(4) of the Rules it is provided that where an international transaction continues to have effect over more than one previous year, fresh documentation need not be maintained separately in respect of each previous year, unless there is any significant change in the nature of terms of the international transactions or in any other factor which could influence the transfer price. It was also submitted that there is no change in the terms and conditions of the debenture's agreement since its issuance (i.e. FY. 2011-12). Hence, it insisted that the payment of interest by it @ 15% to Singapore AE should be considered to be at arm's length and said the TPOs rejection of it's TP report based on FY 2011-12 data was not justified. With respect to the issue of the TPO conducting fresh study and using 46 comparables data from BSE/NSE website, the assessee claimed to have conducted search on NSDL website which is a larger database compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidering the correct coupon rates for further details please refer table 2 below) 16.95% 13. The ld CIT(A) observed that the assessee had issued FCCDs in two tranches viz. (1) 75,000 Unsecured Fully Compulsory Convertible Debenture (FCCD) on 01.04.2011 and (2) 1,81,00,000/- on 30.06.2011 to an associate enterprise - viz. Vassam Ltd of Cyprus for a coupons rate of 15%. Copy of the MOM of Board of directors is part of record. The assessee company paid interest to the Cyprus Company on these debentures @ 15% for AY 2012-13 and assessment year (AY) 2013-14. It was noted that the case for AY. 2013-14 was selected for scrutiny and referred to the TPO-1, Ahmedabad, who vide order dated 30.09.2016, vide Para 3, stated as below: "3. The assessee company was incorporated on November 13, 2006, and is engaged in the business of construction and development of Real Estate project. As per 3CEB audit report, the assessee had entered into the following International Transactions with the associated enterprise - Vassam Limited, Cyprus: Nature of Transactions Value of Transactions (in Rs. ) Payment of interest on FCCDs 28,27,50,000 Relevant details regarding International Tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .03.2014 without changing the coupon rates and the assessee company accepting such transfer was found to be mentioned in the extracts of the MOM of Board of Directors. This is also verified that M/s Virtuous Retail Pte Limited, Singapore transferred the same FCCDs to a third party viz. J M Finance Institutional Securities Limited during this FY only and rate of interest remained unchanged @ 15%. In fact total interest paid on account of these debentures for the entire FY was Rs. 20.57 crore out of which Rs. 17.47 crore was paid to the AE and Rs. 3.10 crore was paid to the third party for their respective holding periods. The assessing officer has not made any disallowance with respect to such payment of interest @ 15% to the third party. The ld CIT(A) also examined the list of 46 comparables based on which the TPO has arrived at a lower interest rate for such debentures, it was noted that TPO had selected many companies that are primarily in the field of financing (NCFCs) like Janlakshmi Finance Ltd., Manappuram Finance Ltd., Midland Micro Finance Ltd. & Muthoottu Mini Finance Ltd. Further, there are many cases where debentures issued were secured in nature. In the case of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Assessing Officer made further disallowance of Rs. 11,54,002/- (Rs.44,80,924- Rs. 33,26,922) to the total income and made adjustment of whole amount of Rs. 44,80,924/- in MAT computation u/s 115JB of the Act as well. On appeal by assessee, the ld CIT(A) deleted the addition, therefore Revenue is in appeal before us. 20. Learned DR for the revenue submitted that during assessment proceedings, the assessee was specifically requested to furnish evidence explaining why computation of disallowance should not be made u/s 14A r.w.r. 8D. As such, the onus was on the assessee to prove that the expenses claimed by the assessee had no attributability to investments on which income not includible in total income was earned. Despite adequate opportunity, the assessee failed to discharge its onus and as such with reference to the accounts of the assessee the correctness of the claims of the assessee in respect of expenses incurred by it in relation to income which does not form part of the total income under this Act cannot be satisfactorily arrived at. Further, the contention of the assessee that it has sufficient interest free funds available with it in form of share capital and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is exempt from tax. Accordingly, the disallowance under section 14A of the Act is warranted in the case of the assessee for the Assessment Year under consideration." [Emphasis Supplied]" 23. We note that during the appellate proceedings, the ld CIT(A) noted that assessee has sufficient tax-free funds available with it, which is verifiable from the copy of balance sheet attached with the financial statements filed. Investments that were brought forward at the beginning of the year (01.04.2014) were reduced to Nil at the end of the year (31.03.2015). Therefore, ld CIT(A) observed that since the assessee had sufficient interest free funds at its command as against the investments that resulted in earning of exempt income, hence ld CIT(A) deleted addition amounting to Rs. 11,54,002/-. We do not find any infirmity in the findings of ld CIT(A). The conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A) and dismiss the ground raised by the Revenue. 24. In the result, ground No.8 raised by the Revenue, is dismissed. 25. Now, we shall take assessee's Cross Objection (in CO No.16/SRT/2022), wherein grou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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