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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 ..... his addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed. Disallowance u/s 14 A - sufficiency of own funds - HELD THAT:- 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 - No 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. - Shri Pawan Singh, JM And Dr. A. L. Saini, AM For the Assessee : Shri Hardik Nirmal, C.A And Shri Dhanesh For the Revenue : Ms. Jayshree Thakur, Sr-DR ORDER PER DR. A. L. SAINI, AM: Captioned appeal fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rating to assessee-company. Crisil A rating means (Highly Safely). This rating is considered to have high degree of safety regarding timely servicing of financial obligations to investors are willing to accept a lower interest rate for purchasing of FCCD. (vii) On the facts and circumstances of case and in law, the Ld CIT(A) has erred in law and fact in not considering the facts of the case of that fully Compulsorily Convertible Debenture (FCDD) will be converted into the company's equity after a set period of time. That convertibility is a perceived advantage so investors are willing to accept a lower interest rate for purchasing fully compulsorily convertible debentures. Hence, the TPO has rightly justifying the issued by calculating rate of interest at the rate of 12.58% instead of 15 percent. (viii) On the facts and circumstances of case and in law, the Ld. CIT(A) has erred in deleting addition made on account of disallowance under section 14 A of the Act amounting to Rs. 11,54,002/-. (ix) On the basis of the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. (x) It is therefore prayed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act on 30.10.2018 which has been duly served on the assessee. The TPO, had vide his order dated 30.10.2018 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. 5. Since an upward adjustment was made by TPO/assessing officer, to the income shown by the assessee of 2,81,77,794/-, therefore, aggrieved by the order of Assessing Officer/TPO, the assessee carried the matter in appeal before the Ld. CIT(A), who has deleted the addition made by the Assessing Officer. The ld CIT(A) observed that the list of 46 comparables based on which the TPO has arrived at a lower interest rate for such debentures, it is evident that he had selected many companies that are primarily in the field of financing (NBFCs) like Janlakshmi Finance Ltd., Karvi Fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot acceptable because the Ld. CIT(A) has made discussion about applicability of rate of interest only by giving reference of some entities such as Nirmal Lifestyle Limited, Lodha Buildcon Pvt. Limited and SBI Prime rather than mentioning/quoting financial year (i.e. financial year of data extract for comparison i.e. whether the data as discussed is related to FY 2011-12 or FY 2014-15). The ld DR relied on the decision of the Special Bench of Bangalore Tribunal in the case of Aztee Software Technology Service Ltd. (2007) 294 ITR(AT) 32 and the decision of the Delhi Bench of Income-tax Appellate Tribunal in the case of Mentor Graphics Private Limited (2007) 109 ITR 101 wherein it was held that the comparability analysis is to be conducted on the basis of current year data . Besides, Fully Compulsory Convertible Debenture (FCDD) will be converted into the company's equity after a set period of time. That convertibility is a perceived advantage, so investors are willing to accept a lower interest rate for purchasing fully compulsorily convertible debentures. For investors, it offers a return in interest and, later ownership of shares in the company. Hence, the TPO has rightly ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Thus, it was argued by ld Counsel that there is no change in the terms and conditions of the debenture s agreement since its issuance (i.e. FY. 2011-12). The ld Counsel, therefore relied on the findings of ld CIT(A) and prayed the Bench that order of ld CIT(A) may be upheld. 9. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. Though facts have been discussed in detail in the foregoing paragraphs, however in the succinct manner, the relevant facts and background are reiterated in order to appreciate the controversy and the issue for adjudication. The assessee under consideration, 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. Thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. It also brought to notice, although this was not a TP matter for the balance period, as 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 price nature of the interest payment and in compliance with Section 92D of the Act, r/w Rule 10D of the Income-tax Rules, 1962 ( the Rules ), an external benchmark was claimed to have been undertaken by the company on data available on national Security Depository Limited (NSDL) website. In the said benchmarking exercise, the mean interest rate of comparable transactions was arrived at 16.83% p.a against 15% p.a. paid by the Company. This exercise was done for data related to FY 2011-12. Based on the same, the report concluded the international transaction of interest payment is consistent with arm s length standard as required u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee, during the appellate proceedings, with respect to the selection of comparables by the TPO, submitted as follows: (i) The TPO had taken incomparable industries namely Banking NBFCs and finance companies in its search. (ii) Further, the assessee has pointed out that the TPO has compared the maturity limit of the loan taken having maturity of 15 years in comparison to loan taken for maturity for 1 to 3 years. It is specifically stated that in the search criteria of the TPO had selected Nobility Estate Private Limited which cannot be selected as comparable as the tenure of this security is for short term, i.e 3 years (date of issuance: 17/07/2014, date of maturity: 14/08/2017) against 15 years security issued by the assessee. (iii) The TPO also selected securities which are secured as compared to those which are unsecured. (iv) It also pointed out that the TPO compared securities with higher credit rating like A with the security issued by the assessee by relying on Thomos Reuter s website. (v) Further it also objected to selection of Lodha Buildcon P Ltd, stating that the TPO considered coupon rate of per quarter, i.e. 3.5 percent instead of per annum ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etails regarding International Transactions, produced by the assessee and are kept on record. After discussion and based on record produced, no adjustment being made to the Arm s Length Price of the above a specified International Transactions. 14. Therefore, we note that for AY.2013-14, the Assessing Officer had accepted the coupon rate of the same FCCDs. Only factual difference was in that year the same debentures were held by another AE located in Cyprus. It is a well settled legal position that factual matters which permeate through more than one assessment year, if the Revenue has accepted a particular's view or proposition in the past, it is not open for the Revenue to take a entirely contrary or different stand in a later year on the same issue, involving identical facts unless and until a cogent case is made out by the Assessing Officer on the basis of change in facts. For that we rely on the order of the Hon ble Supreme Court in Radhasoami Satsang vs. CIT 193 ITR 321 (SC), wherein it was held as follows: We are aware of the fact that, strictly speaking, res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re secured in nature. In the case of the assessee the debenture issued was unsecured. Hence, ld CIT(A) noted merit in the argument of the assessee to reject at least 39 of the 46 comparables selected. Furthermore, the contention of the assessee in the case of Nirmal Lifestyle Ltd, that the same is for a period of three years only and that the interest paid for the same is 20.04% is acceptable. Also, in the case of Lodha Buildcon P. Ltd., it is seen that the 3.5% interest used by the assessee is for single quarter only. This is evidences 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 observed 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. Considering these facts, ld CIT(A) held that the upward adjustment made by the TPO/assessing officer the total income of the assessee amounting to Rs. 2,81,77,794/- by reducing the interest rate paid @ 15% to 12.58% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with it in form of share capital and reserve and surplus. In this regard, it is pertinent to mention here that against the interest free funds available with it there was application of money was also there. Further, in this regard, it is pertinent to mention here that if the assessee would not have made investment in mutual fund, income from which is exempt than it would not have incurred such huge interest expenses. 21. On the other hand, ld Counsel for the assessee, defended the order passed by ld CIT(A). 22. We have heard both the parties. The ld Counsel submitted before us that assessee-company had sufficient amount of owned capital and the same was used for making the investments. We note that during the appellate proceedings, the assessee submitted that the issue is covered in favour of the assessee in it s own case by the predecessor CIT(A) for AY 2012-13, AYs 2013-14 and 2014-15 deleted the disallowance u/s 14A of the Act in the hands of the company on the ground that sufficient non-interest funds were available with the company to meet the amount of investment. Further, as per the decision of jurisdictional High Court no disallowance under section 14A of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Objection (in CO No.16/SRT/2022), wherein grounds of appeal raised by the assessee are as follows: Reversal of suo-motu disallowance made under section 14A of the Act i. On the facts and in circumstances of the case and in law, the Learned Assessing Officer (Ld. assessing officer)/Ld. CIT(A) has erred in not considering the submissions made by the Assessee with regard to the reversal of suo-motu disallowance made by the assessee under section 14A of the Act amounting to Rs. 33,26,922 in the return of income. In doing so, Ld. assessing officer/Ld. CIT(A) erred in not considering that: a) The assessee has sufficient interest free funds amounting to Rs. 1,51,39,39,468 as compared to the investment in mutual funds (yielding exempt income) amounting to Rs. 10,33,09,324; b) The assessee has not incurred any expenditure in relation to earning of exempt income and thus provisions of section 14A of the Act are not applicable; c) The Ld. assessing officer failed to tax correct income in the hands of the Assessee as per the instruction of Central Board of Direct Taxes ('CBDT1) vide Circular No. 14 (XL-35) dated 11-04-1995. The Respondent prays that such r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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