Aditya Birla Global Trading (India) Pvt. Ltd. (Earlier known as Swiss Singapore India Pvt. Ltd.), Gandhidham V. The CIT (IT & TP), Ahmedabad at Rajkot, Ahmedabad

ITA 158/RJT/2023

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 7120 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2024
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 21-02-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 17-05-2023
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: YOGESH A.THAR
• Keywords: Business income; Revision of order; Transfer pricing; Opportunity of being heard; International transaction; Rule of consistency; Additional evidence; Date of conversion; Fair market value; Valuation report; Competent authority; Right to appeal; Revenue expenditure; Set aside
• Section: 147; 263; 143(3); 119; 22; 92CA

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, राजकोट राजकोटराजकोट राजकोट यायपीठ, यायपीठ, यायपीठ, यायपीठ, राजकोट राजकोटराजकोट राजकोट IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (Conducted Through Virtual Court) ] ] BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No.158 & 159/RJT/2023 Assessment Year :2018-19 and 2019-2020 Swiss Singapore India P.Ltd. Unit-204-205, 1 st Floor Rayson Arcade, Plot No.139 Sector 8, Gandhidham S.O. Kachchh. PAN : AATCS 0544 F Vs CIT(IT & TP), Ahmedabad at RKT (Applicant) (Responent) Assessee by : Shri Yogesh A. Thar, ld.AR Ms.Sukanya Jayaram and Shri Urvish Shah, ld.AR Revenue by : Shri Shramdeep Sinha, ld.CIT(DR) सुनवाई क तारीख/D a t e o f He a r in g : 22 /0 2 / 2 0 2 4 घोषणा क तारीख /D a t e o f P r o no u nc e me nt : 2 1 / 0 5 / 2 0 2 4 आदेश आदेशआदेश आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER These two appeals have been filed by the assessee against the orders passed by the ld.Commissioner of Income Tax (IT-TP), Ahmedabad at Rajkot (in short referred to as ld.CIT) of even date i.e. 22.3.2023 pertaining to Assessment Year 2018-19 and 2019-20 in exercise of revisionary jurisdiction under section 263 of the Income Tax Act, 1961 ("the Act" for short). 2. It was common ground that the order passed by the Ld.CIT was on the same issue , which arose in the backdrop of identical facts and ITA No.158 & 159/Rjt/2023 2 circumstances in both the years. Both the appeals were therefore, taken up together for hearing and are being adjudicated by way of this common consolidated order. 3. For the sake of convenience, the appeal for Asst.Year 2018-19 in ITA No.158/RJT/2023 was taken as a lead case, and arguments made based on the facts and circumstances relating to the order passed by the ld.CIT in the said year. We shall, therefore, be dealing with the appeal of the assessee in ITA No.158/RJT/2023 and our decision rendered therein will apply mutatis mutandis to other appeal of the assessee in ITA No.159/RJT/2023 also. ITA No.158/RJT/2023 – Asst.Year : 2018-19 4. A perusal of the order of the ld.CIT(IT-TP) reveals that the revisionary jurisdiction was exercised on the order passed under section 92CA of the Act by the Transfer Pricing Officer (TPO) for the impugned year, finding it erroneous and prejudicial to the interest of the Revenue for not having made necessary inquiries with respect to the determination of Arm’s Length Price (ALP) of the international transaction of interest paid by the assessee on Compulsorily Convertible Debentures (CCD) issued to its AE which as per the ld.CIT required an upward adjustment, basis the facts on record. 5. The ld.CIT noted from the records that the assessee had issued CCDs ( 5,99,924 in number, of face value Rs.1000/-) to its AE, and as per the terms of the agreement for issue of the same, these CCDs were to be compulsorily converted into equity at the end of a specified period, at a pre-determined rate, the rate being determined on the date of issue of CCDs itself. On the basis of the said facts, he inferred that the CCDs were not pure debt instruments, but were hybrid instruments. He noted that interest at the rate of 9% was agreed to ITA No.158 & 159/Rjt/2023 3 be paid on CCDs till the date of conversion into equity. The records further revealed that the assessee had justified the ALP of interest paid on these CCDs by comparing with pure debt instruments, which was accepted by the TPO.The Ld.CIT accordingly found that the TPO had not examined the justification of the ALP of this transaction in the light of the correct facts relating to the CCDs and the acceptance therefore by the TPO of interest paid by the assessee on these CCDs, to be an Arm’s Length Price (ALP) was found by him to be in error. He noted that in the preceding four years, i.e Asst.Year 2014-15 to 2017-18 the TPO had made an upward adjustment to the said transaction of interest paid on these CCDs. In the light of the same, he found the order passed by the TPO under section 92CA to be erroneous causing prejudice to the Revenue. 6. The above finds mention at para 2 to 6 of his order is as under: “2. Thereafter, on perusal of the records, it is observed that, the assessee had issued 5,99,924 unsecured, unrated, unlisted, fully paid-up, non- marketable, non-redeemable and fully and compulsory convertible debentures of face value of Rs.1,000/- each amounting to Rs.59,99,24,000/- to its foreign Associated Enterprises. The assessee had paid interest of Rs.5,39,93,160/- on the said debentures during the year under consideration. 3. It was further found on perusal of data/information available with case records that, as per agreement dated 03.10.2013, CCDs\were issued for a period of 120 months (10 years) and the interest rate payable was 9% p.a. As per agreement, the CCDs would be compulsorily converted into equity at Rs.556/- for each Equity Shares. The CCDs are unsecured and can be converged prior to the conversion date on mutual agreement. The CCDs after conversion into equity would be equal to the shares of the company. It is significant to mention here that, on the basis of above characteristics of CCDs, it can be inferred that these are not pure debt instruments but hybrid instrument rather almost akin to equity having salient features i.e. the so called debt instrument will be compulsorily converted into equity shares after 10 years., of its issue and that too at a price determined on the date of issue of CCD itself by completely ignoring the inherent value of equity shares on the date of conversion. Apart from the above, it is further important to highlight here that for A.Y.2014-15 to A.Y. 2017-18, the TPO has proposed upward adjustment on identical issue. ITA No.158 & 159/Rjt/2023 4 4. In view of the above facts, prima-facie it appeared that an upward adjustment with respect to the interest paid on Compulsorily Convertible Debenture (CCD) was required to be made, but the then Transfer Pricing Officer (TPO ) has failed to do so and hence the order dated 26.07.2021 passed u/s. 92CA(3) of the Income-tax Act for AY 2018-19 is considered as / erroneous and prejudicial to the interests of Revenue. As per provision of section 263 of the I.T. Act, the competent authority may call for and examine the record of any proceedings under this Act, and if he considers that any order passed therein by the Assessing Officer or the Transfer Pricing Officer, as the case may be, is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon. 5. Reliance is placed on explanation 2 to section 263 of the Act, in which it is clearly mentioned that any order passed by the TPO shall be deemed to be erroneous in so far as it is prejudiced to the interests of the revenue, if the order is passed without making inquiries or verification which should have been made or if the order is passed allowing any relief without inquiring into the claim. For clarity sake explanation 2 to section 263 is produced as under: "Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer or the Transfer Pricing Officer, as the case may be, shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119 ; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.]" 6. In this case, the order u/s.92CA(3) of the IT. Act passed by the TPO was not only erroneous but also prejudicial to the interests of Revenue because the TPO had accepted the Arm's Length Price (ALP) of international transactions, without making enquires or verification. Therefore, the undersigned has considered it fit case to issue notice u/s. 263 of the Act. Accordingly, notice u/s.263 of the IT. Act dated 27.02.2023, fixing date of hearing on or 07.03.2023 was issued and served to the assessee to show cause as to why appropriate order u/s. 263 of the Act should not be passed. In response, the assessee has submitted its reply on 07.03.2023 and 17.03.2023.” ITA No.158 & 159/Rjt/2023 5 7. Accordingly the Ld.CIT assumed jurisdiction for revision of the order of the TPO u/s 263 of the Act , issuing a show cause notice to the assessee. The assessee furnished its reply in response, making several contentions, i.e on the legal aspect of absence of jurisdiction to revise order of TPO ;of there being no error in the order of the TPO having examined the issue thoroughly and on the merits of the issue that the transaction was rightly found to be at arms length and required no upward adjustment. The ld.CIT found no merit in the contentions of the assessee rejecting all of them and held the order passed by the TPO under section 92CA(3) of the Act to be erroneous causing prejudice to the Revenue for having accepted the ALP of international transaction of interest paid on CCDS without making inquiries or verification necessary in this regard. The ld.CIT, as a result, set aside the order of the TPO for de novo assessment directing him to determine ALP of the interest paid on CCDs afresh, after considering his finding, and after giving due opportunity of hearing to the assessee, keeping in mind, the issue raised by him in his order. 8. Aggrieved by this order of the ld.CIT, the assessee has come up in appeal before us raising several grounds. Oral arguments at length were made before us and a brief synopsis of arguments made was filed in writing by both the parties along with copies of judgements referred. A factual and legal paper book was filed by the Ld.Counsel for the assessee. Taking into consideration all of the above we shall now proceed to deal with the various grounds raised by the assessee before us. 9. Ground No.1 reads as under: “1. GROUND NO. 1; ORDER PASSED UNDER SECTION 263 OF THE ACT IS WITHOUT JURISDICTION: ITA No.158 & 159/Rjt/2023 6 1.1. On the facts and in the circumstances of the case and in law, the Id. CIT was not justified and grossly erred in revising the order passed by the Deputy Commissioner of Income Tax, Transfer Pricing DC/ACIT TP 2, Ahmedabad ("the TPO") dated July 26, 2021. 1.2. In doing so, the Id. CIT has erred, inter alia, in not appreciating that the amendment in section 263 with respect to revision of order passed by transfer pricing officer was brought about by Finance Act, 2022 and accordingly, only those orders passed by the transfer pricing officer post April 1,2022 could be revised u/s. 263 of the Act. 1.3. The Appellant prays that since the impugned order passed u/s. 263 by the Id. CIT has revised the order passed by the TPO for the captioned assessment year being AY 2018-19, the same has been passed without jurisdiction and therefore, is liable to be quashed.” 10. In the above ground, the challenge to the order of the ld.CIT passed under section 263 of the Act is on the ground that it has been passed without jurisdiction. 11. The contention of the ld.counsel for the assessee in this regard before us was that, orders passed under section 92CA of the Act were included in section 263 of the Act for revision by Finance Act, 2022 w.e.f. 1-4-2022. His contention was that this amendment to section 263 of the Act was substantive in nature, affecting the right vested in the assessee to finality of orders of the TPO, being unaffected by any revision prior to the amendment; that therefore, this amendment was prospective in nature. That therefore only orders passed by the TPO under section 92CA of the Act after 1-4-2022 could be subjected to revision in terms of section 263 of the Act; that in the facts of the present case order under section 92CA of the Act, which was subject matter of revision, was passed on 26.7.2021, and therefore, could not be subjected to revision under section 263 of the Act. 12. In this regard, reliance was placed on the decision of Hon’ble Apex Court in the case of Hitendra Vishnu Thakur Vs. State of Maharashtra, TS-5034-SC-1994-O for the proposition that a statute ITA No.158 & 159/Rjt/2023 7 which affects substantive rights is presumed to be prospective in operation unless specifically made retrospective . Copy of the order was placed before us, and our attention was drawn particularly to para-26 of the order laying down the aforesaid proposition as under: “6. The Designated Court has held that the amendment would operate retrospectively and would apply to the pending cases in which investigation was not complete on the date on which the Amendment Act came into force and the challan had not till then been filed in the court. From the law settled by this Court in various cases the illustrative though not exhaustive principles which emerge with regard to the ambit and scope of an Amending Act and its retrospective operation may be culled out as follows: (i) A statute which affects substantive rights is presumed to be prospective in operation unless made retrospective, either expressly or by necessary intendment, whereas a statute which merely affects procedure, unless such a construction is textually impossible, is presumed to be retrospective in its application, should not be given an extended meaning and should be strictly confined to its clearly defined limits. (ii) Law relating to forum and limitation is procedural in nature, whereas law relating to right of action and right of appeal even though remedial is substantive in nature. (iii) Every litigant has a vested right in substantive law but no such right exists in procedural law. (iv) A procedural statute should not generally speaking be applied retrospectively where the result would be to create new disabilities or obligations or to impose new duties in respect of transactions already accomplished. (v) A statute which not only changes the procedure but also creates new rights and liabilities shall be construed to be prospective in operation, unless otherwise provided, either expressly or by necessary implication." 13. Reliance was also placed on the decision of the Hon’ble Apex Court in the case of Reliance Jute & Industries Ld. Vs. CIT, (1979) 2 Taxmann 417 (SC) for the proposition that it is a cardinal principle of tax laws that law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication. Our attention was drawn to para-6 of the decision, copy of which was placed before us and the said para read as under: ITA No.158 & 159/Rjt/2023 8 “The assessee claims a vested right under section 24(2) (iii), as it, stood before its amendment in 1957, to have the unabsorbed loss of 1950-51 carried forward from year to year until the loss is completely absorbed. The claim is based on a misconception of the fundamental basis underlying every income tax assessment. "It is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication." Commissioner of Income-Tax West Bengal v. Isthmian Steamship Lines and Karimtharuvi Tea Estate Ltd. v. State of Kerala on that principle, it is abundantly clear that when an assessment for the assessment year 1960-61 is to be made and section 24(2) is invoked, it is s.24(2) as in force in that assessment year which has to be applied.' That is the provision as amended by the Finance (No. 2) Act, 1957. There is no question of the assessee possessing any vested right under the law as it stood before the amendment. The assessment for one assessment year cannot, in the absence of a contrary provision, be affected by the law in force in another assessment year. A right claimed by an assessee under the law in force in a particular assessment year is ordinarily available only in relation to a proceeding pertaining to that year. Therefore, inasmuch as the provisions of section 24(2), as amended in 1957, govern the assessment for the assessment year 1960-61, the High Court is right in affirming that the unabsorbed loss of Rs.15,50,189 of the assessment year 1950-Sl cannot be carried forward for more than eight years, and consequently cannot be set off against the business income of the assessment year 1960-61.” 14. Substantiating his argument that the amendment was substantive and hence prospective in operation, the ld.counsel for the assessee contended that prior to the amendment made in section 263 of the Act, judicially accepted position was that orders passed under section 92CA of the Act could not be subjected to revision in terms of section 263 of the Act, and in this regard, our attention was drawn to the following decisions: i) Essar Steel Ltd. Vs. ACIT, (2012) 28 taxmann.com 232 (Mum); ii) Tata Communication Ltd. Vs. DCIT, (2014) 14 taxmann.com 486 (Mum-Trib); iii) Tetra Pak India P.Ltd. Vs. CIT, (2017) 78 taxmann.com 259 (Pune-Trib.) 15. It was therefore stated that clearly prior to amendment made to section 263 of the Act by Finance Act, 2022, the position of law was very clear that orders passed under section 92CA could not be subjected to revision in terms of section 263 of the Act; that therefore the assessee had vested right to finality to orders passed by the TPO ITA No.158 & 159/Rjt/2023 9 under section 92CA of the Act, and the amendment to section 263 of the Act, including orders passed by the TPO under section 92CA of the Act for revision, clearly affected the substantive right of the assessee and therefore, the amendment was intended to have prospective operation only. 16. The ld.DR countered all the arguments of the ld.counsel for the assessee relying on the finding of the ld.CIT that the amendment was clarificatory, hence retrospective in operation. Reference was made to the decision of the Hon’ble apex court in the case of Shree Shankaracharya University of Sanskrit and Others vs Dr Manu and others in C A No.3752 of 2023 dated 16-05-23, for the proposition that clarificatory amendments are retrospective in operation . It was also pointed out that ITAT had held orders passed u/s 92CA of the Act amenable to revision even prior to amendment in section 263 of the Act in the case of Agro Tech Foods Ltd. Vs. DCIT order dated 17- 12-2020. And it was also pointed out that this issue has been categorically dealt with the ITAT, Mumbai Bench in the case of Zenzi Pharmaceuticals Industries. P.Ltd. Vs. CIT(TP), (2023) 157 taxmann.com 210 (Mum-Trib), holding the amendment to section 263 in clear terms to be procedural, and hence prospective in operation. Submission in this regard in writing made by the ld.CIT-DR before us are reproduced hereunder: “3. Brief of submissions by CIT(DR) are primarily on the following issues: (i) That the jurisdiction assumed by Ld. CIT is proper because the amendment in Section 263 wherein the term TPO' has been included w.e.f. 01.04.2022 is a procedural amendment, (ii) Ld. TPO has accepted the submissions of the assessee, more specifically the benchmarking of the transactions done in TP Study Report by comparing it with the pure debt instruments, and thus this is a case of non-application of mind. ITA No.158 & 159/Rjt/2023 10 (iii) That on merits of the issue, Ld. TPO considered the CCDs as pure debt instruments, whereas, Ld. ITAT, Ahmedabad has considered them as quasi-capital instruments commanding nil interest; this view has thereafter been approved by Ld. ITAT Mumbai. (iv) The additional evidence being submitted by Ld. AR before Ld. ITAT did not form part of 'records' before CIT, while he reviewed the order of TPO. 4. On Jurisdiction: This issue has been specifically dealt with by Ld. CIT in the S. 263 order. In addition, It was submitted that the amendment u/s 263 is procedural/clarificatory and the orders of Ld. TPO are amenable to review u/s 263 by Ld. CIT (Intl Tax & TP) even for the assessment years prior to AY 2022-23. It was submitted that the date of amendment is to be seen with respect to the examination of records by Ld. CIT in cases of procedural amendments. A parallel was drawn with the decision of Hon. SC in case of Ashish Agarwal (SC 2022), wherein in the case of a similar procedural clarificatory amendment, Hon SC has held that amended provisions of Sec 148 were to be applied by the Revenue after the date of amendment even for reopening of cases of prior assessment years. On retrospective application of clarificatory amendments, reliance was placed on the discussion on interpretation in the case of Sree Sankaracharya (SC, 2023) and kind attention was invited to relevant provisions in FA 2022, wherein the term used is 'clear' This is also mentioned in the order of Id. CIT u/s 263. To substantiate that Ld. ITAT has held before such amendment to sec 263 that the order of TPO is amendable to action u/s 263, reliance was placed on the order of Agro Tech Foods (ITAT, Hyd). On the interpretation of clarificatory nature of amendment, reliance was placed on the order of Zenzi Pharmaceuticals (ITAT, Mumbai 2023) which deals with the issue directly and discusses the issue under consideration and holds that 'the the date of passing of the order, which is subject to revision, is irrelevant but what is relevant is the date of examination of such record by the Id CIT. the records, as well as order u/s 263 will show that the first notice u/s 263 was issued by Ld. CIT on 27.02.2023. Relevant extracts from Zenzi Pharmaceutical case: "As per provisions of section 263, several authorities are authorized to 'call for and examine1 the 'record of any proceedings' under the Income-tax Act and if they consider that any order passed therein by the respective authorities including the Transfer Pricing Officer is erroneous insofar as it is prejudicial to the interest of the revenue, such authority may after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as deems necessary, passed such order thereon as the circumstances of the case justify. Such order can also be of the order enhancing, modifying the assessment order cancelling the assessment order directing a fresh assessment. With respect to the transfer pricing order, it can be an order modifying the order under section 92CA order or cancelling the order under section 92CA and directing a fresh order under the said section. Therefore if at the time of the examination of the record by the revisionary authority of any proceedings under this Act, if transfer ITA No.158 & 159/Rjt/2023 11 pricing officer's order is also found therein which is erroneous and prejudicial to the interest of the revenue, it can be modified or it can be cancelled and directing a fresh order under that section by the revisionary authority. [Para 20] It is not the case of the assessee that (a) the date on which the revisionary authority examined the record, the order of the TPO was not forming the part of such record or (b) the show cause notice is issued to the assessee prior to 1-4-2022, when revisionary authority was not authorized to revise the order of the TPO. [Para 26] Further Explanation l(a) to section 263 is also amended with effect from 1-4-2022 wherein the order passed by the Transfer Pricing Officer is also included and in sub-clause (iii) the order under section 92CA by the Transfer Pricing Officer is included. Therefore, even if such order is passed by the Transfer Pricing Officer prior to 1-4-2022, but is available before the Assessing Officer passing the draft assessment order or final assessment order and same is also part of the record at the time of examination by the Principal Commissioner (TP), he is empowered to invoke the provisions of section 263 by revising or directing the TPO to pass the order under section 92CA(3) afresh. [Para 27] • Further when the proposed amendment was made to the provisions of section 263 in the 'Notes on Clauses' it is mentioned that the Income-Tax Act authorizes the authority to revise the order if at the time of examination, such orders are on record. Thus, the date of passing of the order, which is subject to revision, is irrelevant but what is relevant is the date of examination of such record. If on the date of examination of such record. The revisionary authority is vested with powers to revise such orders [i.e. after 1-4-2022]; the date on which such order subject to revision is passed is immaterial. [Para 30]" 17. Counter arguments were made by both sides, with both the parties emphasizing their stand that the amendment was Substantive / clarificatory in nature 18. We have heard both the parties, gone through the orders of the ld.CIT, and also considered various judgments referred to by both the parties before us. We do not find any merit in the argument of the ld.counsel for the assessee that the order passed in the present case by the ld.CIT was without jurisdiction. ITA No.158 & 159/Rjt/2023 12 19. His contention was that the impugned order u/s 263 of the Act was passed prior to 01-04-22, when orders passed u/s 92CA of the Act were not amenable to revision since: • the section (263 of the Act) was amended to include such orders passed by TPO’s(u/s 92CA of the Act) only by Finance Act,2022 w.e.f 01-04-22 , • it was a substantive amendment effecting substantive rights vested in the assessee to finality of TPO orders, • hence the amendment was prospective in operation applying only to orders passed u/s 92CA of the Act after 01-04-22, 20. We may point out that the entire thrust of the argument before us by both the parties was with regards to the nature of amendment, with the Ld.Counsel for the assessee contending the amendment to be substantive, and the Ld.DR contending the amendment to be clarificatory/procedural. There was no dispute with regard to the settled position of law that substantive amendments primarily are prospective in operation, while procedural/ clarificatory amendments are retrospective in operation. 21. Having heard both the parties, the Ld.Counsel for the assessee, we find, has been unable to make out a case before us that the amendment to section 263 of the Act was substantive. The contention of the ld.counsel for the assessee that amendment effected the substantive right of the assessee to finality to the orders of the TPO is based on several judicial decisions wherein he has contended it has been held that prior to amendment made to section 263 of the Act, orders passed under section 92CA of the Act were not amenable to revision. Three decisions were referred to before us and noted above by us as under: ITA No.158 & 159/Rjt/2023 13 i) Essar Steel Ltd. Vs. ACIT, (2012) 28 taxmann.com 232 (Mum); ii) Tata Communication Ltd. Vs. DCIT, (2014) 41 taxmann.com 486 (Mum-Trib); iii) Tetra Pak India P.Ltd. Vs. CIT, (2017) 78 taxmann.com 259 (Pune-Trib.) 22. We have gone through all the three decisions and we find that the said decisions do not lay down any such proposition of law. The lead decision out of the three above, is Essar Steel P.Ltd. (supra) which has been referred to in both the other decision of the ITAT. It is reproduced in the case of Tata Communication Ltd. (supra) at para-9 of its order as under: “9. We have heard the rival contentions, perused the findings of the authorities below as well as the order of the Tribunal relied upon by the learned Senior Counsel. In this case, the Commissioner has held that the order passed by the TPO is erroneous inasmuch as it is prejudicial to the interests of Revenue and, therefore, the assessment order passed by the Assessing Officer is also erroneous. Accordingly, he set aside the assessment order with direction to refer the issue of adjustment of arm's length value of international transaction to the TPO for re–consideration and then to pass assessment order afresh in view of the findings and the directions of the TPO. We find that the co–ordinate bench of the Tribunal, Mumbai Benches, in Essar Steel Ltd. (supra) has held that the Commissioner has no jurisdiction over the TPO administratively and he could not have revised the order passed under section 92CA(3) passed by the TPO. The relevant observations of the Tribunal in Essar Steel Ltd. (supra) are as under:— "13. We are not considering the issue whether the TPO's order could be revised by the CIT or by the Director of IT as that issue is not before us at this moment. As seen from the provisions, the CIT has no jurisdiction over the TPO administratively and therefore, the CIT could not have revised the order u/s 92CA(3) passed by the TPO. Whether the Director of IT can revise the order which he himself has approved as per the Board circular can only be examined when such issue arises but for deciding this issue, we can safely conclude that the order of the CIT revising the assessment order dt. 1st Jan., 2008 passed u/s 143(3) is not erroneous or prejudicial to the interests of the Revenue as it complied with the order of the TPO u/s 92CA(4). 18. Before parting, we would like to observe that there seems to be no clarity about. the authority who has to modify the TPO's order in case, any order of TPO is prejudicial to the interests of Revenue. CIT cannot ITA No.158 & 159/Rjt/2023 14 exercise jurisdiction over TPO as TPO functions separately under the Director of IT (TP).• In our view the Director of IT should have initiated the proceedings under s. 263 on the order of the TPO instead of sending proposal to the CIT for revising the order of the TPO. Be that as it may, the CIT, however, wrongly initiated the proceedings on the assessment order u/s. 143(3) which was in conformity with the TPO's order under s. 92CA(3). As there is no revised TPO order in this case, the order of CIT holding the order of AO under s. 143(3), dt. 1st Jan., 2008 as erroneous and prejudicial to the interests of Revenue cannot be upheld." 23. A perusal of the above would reveal that what the ITAT held in the case of Essar Steel Ltd. (supra) is that “the Commissioner had no jurisdiction over TPO administratively, and therefore, Commissioner cannot revise order passed by TPO under section 92CA(3) of the Act.”. The order goes on to state that the Director IT should have initiated the proceedings u/s 263 of the Act instead of sending a proposal to the CIT for revising the order of the TPO. It also notes that there was no clarity about the authority who has power to modify the TPO’s order and that the CIT cannot exercise jurisdiction over the TPO as the TPO functions separately under the Director of IT(TP). 24. It is abundantly clear that the ITAT did not rule out orders passed under section 92CA of the Act being amenable to revision u/s 263 of the Act. What it only held was that the CIT had no power administratively over TPO orders and therefore could not exercise powers u/s 263 of the Act over TPO orders. The ITAT categorically notes that the Director IT ought to have initiated proceedings for revision, and this itself makes it abundantly clear that the said decision did not lay down any proposition to the effect that orders u/s 92CA of the Act were not amenable to revision u/s 263 of the Act prior to its amendment by Finance Act, 2022,as canvassed by the Ld.Counsel for the assessee before us. 25. Hence even as per the judicial interpretation of the provisions of section 263 of the Act prior to amendment, relied upon by the ITA No.158 & 159/Rjt/2023 15 ld.counsel for the assessee there is nothing to suggest that the TPO orders were held not amenable to revision u/s 263 of the Act. 26. On the contrary, the decision cited by the ld.DR in the case of Agro Tech Foods Ltd. Vs. DCIT, ITA No.775/Hyd/2016 & ITA 1116/Hyd/2018 dated 17.12.2020 categorically holds that orders passed under section 92CA of the Act are part of the assessment orders and amenable to the jurisdiction of the ld.CIT under section 263 of the Act, as per the provision prior to amendment. 27. Clearly, therefore even prior to the amendment to section 263 of the Act, orders passed by TPO’s were amenable to revision. The assessees therefore had no right to finality of orders of TPO’s prior to amendment, as contended by the Ld.Counsel for the assessee. The amendment to section 263 of the Act hence did not effect any substantive right of the assessee. The reasoning of the Ld.Counsel for the assessee for stating that the amendment to section 263 of the Act was substantive in nature therefore, we hold, fails and so also , as a corollary, his contention that the amendment is prospective in operation 28. No other reasoning was given to us for claiming that prior to amendment to section 263 of the Act, the assessees enjoyed substantive rights which were effected by the amendment. Therefore, we hold, that the contention of the Ld.Counsel for the assessee that the amendment to section 263 of the Act including orders passed by TPO’s u/s 92CA of the Act for revision, was a substantive amendment and hence prospective in nature, needs to be rejected. 29. Even otherwise the ld.DR has brought to our notice a recent decision of the ITAT, Mumbai Bench in the case of Zenzi Pharmaceutical Industries P.Ltd. (supra) which has considered the ITA No.158 & 159/Rjt/2023 16 amended provision of section 263 of the Act and after analyzing the same, held all orders passed u/s 92CA of the Act which are part of the record before the CIT as on 01-04-22, amenable to revision even if such orders are passed prior to 01-04-22. The ITAT noted that accepting the contention of the assessee that the amendment was applicable to orders passed u/s 92CA of the Act after 01-04-22 , would result in an absurdity putting the powers given to revisionary authorities in abeyance till the time such orders come up before them, which as per law would be atleast 11 months. The relevant findings of the ITAT in this regard are given in the written submissions of the Revenue, which we have already reproduced hereinabove at para-16 of our order. 30. Moreover the ld.CIT, we have noted, has referred to the Explanatory notes to the provisions of Finance Act, 2022, issued by the CBDT pertaining to the amendment to section 263 of the Act and rightly derived the nature of the amendment therefrom to be clarificatory. 31. The relevant finding of the ld.CIT in this regard are as under: “7. I have gone through the reply of the assessee, it is considered and kept on record. However, the same is not found to be acceptable for the reasons summarized in subsequent paras wherein each of the contentions of the assessee have been dealt with. 7.1 The assessee has raised an argument that wordings "or the Transfer Pricing Officer, as the case may be" has been inserted in section 263(1) vide the Finance Act, 2022 w.e.f. April 01, 2022 and therefore, only orders passed u/s 92CA(3) of the Act on or after April 01, 2022 are amenable to revision u/s 263 of the AcLThe first argument of the submission dated 17.03.2023 is also on similar lines so dealt with here itself. This argument is not acceptable for the reason that as per Circular No. 23/2022 F. No. 370142/48/2022-TPL of Government of India, Ministry of Finance, Department of Revenue (Central Board of Direct Taxes) dated 3rd of November, 2022 Explanatory notes to the provisions of the Finance Act, 2022 have been issued of which the relevant portion regarding section 263 is reproduced below:- ITA No.158 & 159/Rjt/2023 17 "43 Amendment in the provisions of section 263 43.1 ............................. 43.2 As per provisions of section 92CA, if the Assessing Officer considers it necessary or expedient, he may, with the approval of the Principal Commissioner or Commissioner refer the computation of arm's length price (ALP) in relation to the international transaction or specified domestic transaction entered into by an assessee, to the Transfer Pricing Officer (TPO). The TPO passes an order determining the ALP in an international transaction or specified domestic transaction under the provisions of section 92CA and sends it to the Assessing Officer for final income determination. However, it is not clear as to who has the power under section 263 to revise the order of the TPO passed under section 92CA. 43.3 Therefore, the provisions of section 263 of the Act have been amended so as to provide that the Principal Chief Commissioner or the Chief Commissioner or the Principal Commissioner or the Commissioner who is assigned the jurisdiction of transfer pricing may call for and examine the record of any proceeding under this Act, and if he considers that any order passed by the TPO, working under his jurisdiction, to be erroneous in so far as it is prejudicial to the interests of revenue, he may pass an order directing revision of the order of TPO. 43.4 .................... 43.5 Applicability: This amendment is effective from 1st April, 2022" [emphasis supplied] The plain reading of the amendment clearly suggests that the power of revision was always available with the PCIT/CIT. The amendment only clarified that the power to revise the order passed u/s 92CA by the TPO shall rest with the CIT who is assigned the jurisdiction of transfer pricing. In the instant case, the undersigned is assigned the jurisdiction of transfer pricing and therefore, the power of revision u/s 263 have been rightly exercised as per the provisions of the Act read with the clarification issued by the Finance Act, 2022.This amendment is only a clarificatory amendment as mentioned above.” 32. We do not find any infirmity in the above finding of the ld.CIT. The explanatory notes clearly point out that the purpose of the impugned amendment to section 263 of the Act was only to clarify the officer with whom the jurisdiction to revise such orders lay. The Ld.CIT, we hold, has rightly inferred therefrom that the power of revision of TPO orders always was available in law. ITA No.158 & 159/Rjt/2023 18 In fact, the explanatory notes addresses the lacuna noted by the ITAT Mumbai Bench in the case of Essar Steels Ltd. (supra) wherein the ld.CIT was noted to have no jurisdiction administratively over the TPO and therefore his order passed u/s.263 revising TPO’s order, was held to be without jurisdiction and hence invalid. 33. Therefore, it is abundantly clearly that the amendment to section 263 of the Act was merely clarificatory, made only to address the administrative irregularity in the provision, clarifying the correct jurisdictional officer to exercise jurisdiction for revision of orders passed by TPO’s u/s 92CA of the Act, a lacuna in the existing provision as noted by the ITAT in the case of Essar Steel Ltd. (supra). In the light of the above, we have no hesitation in confirming the order of the Ld.CIT holding the amendment to section 263 of the Act, including orders passed u/s 92CA of the Act for revision, a clarificatory/procedural amendment, and therefore retrospective in operation, in conformity with the principles laid down by the Hon’ble Supreme Court in the case of Hitendra Vishnu Thakur (supra),& Shree Sankaracharya University (supra). 34. The exercise of jurisdiction u/s 263 of the Act in the present case by the Ld.CIT on an order passed u/s 92CA of the Act is not without jurisdiction, we hold.All arguments raised by the assessee in this regard are dismissed. Ground No.1 of the assessee is accordingly dismissed. 35. Ground No.2 & 3 raised by the assessee need to be dealt together since they are interrelated. In ground no.3 the assessee has challenged the findings of the Ld.CIT on merits that the international transaction of interest paid on CCD’s was not at arms length and ITA No.158 & 159/Rjt/2023 19 needed upward revision, while in ground no 2 his contention is that the TPO had examined the transaction during TP proceedings and taken a plausible view of finding the transaction to be at arms length. Since it is necessary to first adjudicate whether the view of the TPO was plausible or not, ground no 3 needs to be dealt alongwith ground no.2 raised by the assessee. Ground No.2 & 3 read as under: 2. GROUND NO. 2; ORDER PASSED U/S. 263 OF THE ACT IS BAD-IN- LAW; 2.1. On the facts and in the circumstances of the case and in law, the impugned order passed u/s. 263 is bad-in-law, inter alia, on account of the following: 2.1.1. conditions stipulated for invoking the extra-ordinary jurisdiction u/s. 263 were not satisfied; 2.1.2. the TPO in the course of assessment had examined the agreement and other details relating to CCDs and interest thereon; 2.1.3. assessment made by the then TPO was neither erroneous nor prejudicial to the interest of the revenue. 2.2. The Appellant prays that the action of the Id. CIT invoking the revision proceedings and revising the order of the TPO be held as invalid. GROUND NO. 3: UPWARD ADJUSTMENT IN RESPECT OF THE ARM'S LENGTH PRICE OF INTEREST PAID ON COMPULSORILY CONVERTIBLE DEBENTURES TO THE ASSOCIATED ENTERPRISE 3.1. On the facts and in the circumstances of the case and in law, the Id. CIT erred in holding that the interest paid on the CCDs to the Appellant's AE is unwarranted and not at arm's length. 3 .2. The Id. CIT failed to appreciate that: 3.2.1. the CCD holders and the original subscriber to the equity shares of the Appellant is the same AE; 3.2.2. the CCDs, till the time of conversion, constitute debt instruments and interest expense thereon is a deductible expenditure. 3.3. The Appellant therefore prays that the addition made by the Id. CIT be deleted and the order of the TPO be restored. 36. The challenge raised by the assessee in the above grounds is with respect to the findings of the Ld.CIT of the TPO’s order being ITA No.158 & 159/Rjt/2023 20 erroneous causing prejudice to the Revenue for the reason that the TPO had accepted the international transaction of interest paid on CCD’s issued to AE as being at arms length without making necessary inquiries when a correct appreciation of facts on record would undoubtedly have resulted in an upward adjustment to the transaction. 37. The argument of the Ld.Counsel for the assessee briefly put is that: • The TPO had made inquiries on the issue during proceedings before him. The assessee had filed all necessary documents, details and explanation justifying the impugned transaction being at arms length. Considering the same the TPO had taken a plausible view accepting the transaction being at arms length. Necessary documents evidencing the contention were pointed out to us from the paper book filed before us. • That the transaction was at arms length and no upward adjustment was warranted to the same. 38. There is no dispute with respect to the facts relating to the transaction in question which were noted by the Ld.CIT from the records before him. The agreement of issue of CCD’s mentions the same to be unsecured, unrated, unlisted, fully paid-up, non- marketable and non-redeemable, fully and compulsorily convertible debentures of the face value of Rs.1000/- each, on which interest is agreed to be paid at 9% per annum, for a period of ten years, after which they would be compulsorily converted into equity at pre- determined price of Rs.556 for each equity shares. The CCDs after conversion into equity would be equal to the shares of the company. The copy of the agreement for the issue of CCDs by the assessee to its AE, which is placed before at PB Page No.150 to 161. ITA No.158 & 159/Rjt/2023 21 mentions debentures being unsecured, unrated etc. on a value of Rs.1000/- carrying coupon rate of 9% per annum at point no.4 as under: 39. It mentions conversion price of the debentures into equity at Rs.556/- at point no.3 of the conversion clause as under: “(iii) Conversion Price The price at which Equity Shares will be issued upon conversion (the “Conversion Price”) will be Rs.556/- for each Equity Shares (subject to this being in accordance with the Foreign Exchange Management (Transfer or Issue of any Security by a Person Resident outside India) Regulations, 2000 or if not in accordance, such price as would be in accordance with the said regulations).” The Ld.Counsel for the assessee drew our attention to the justification given by the assessee of the transaction being at arm’s length to the TPO being Annexure A-7, placed at PB Page no.184 - 186 before us as under: ITA No.158 & 159/Rjt/2023 22 ITA No.158 & 159/Rjt/2023 23 ITA No.158 & 159/Rjt/2023 24 40. Referring to the same he pointed out that the interest rate of 9% paid on CCD’s was justified comparing it to the interest paid on other similar instruments. The comparable instruments being rated, further adjustment to their average coupon rate was made for premium attributable to unrated bonds, i.e CCD’s, and thus the arm’s length price of interest to be paid on unrated CCD’s was arrived at @ 8.99% which compared favourably with the interest paid by the assessee @ 9%. 41. The Ld.Counsel for the assessee was asked to explain the working of the premium for unrated bonds, since it was noted to be very technically worded and not comprehensible to a common man. To which he fairly admitted to have no explanation to offer. The TPO ITA No.158 & 159/Rjt/2023 25 also we find has asked for no explanation of the same, nor was any such explanation pointed out by the Ld.Counsel for the assessee to be given to the TPO during proceedings before him. We fail to understand, therefore, how the TPO was capable of forming a view that the ALP of the transaction was duly justified by the assessee, when the explanation itself was beyond comprehension. 42. Be that so, the Ld.DR countered by pointing out that the Ld.CIT had held that the CCD’s were not pure debt instruments but were hybrid instruments, noting the peculiar characteristics of the CCD’s , i.e being compulsorily convertible after 10 years at a price predetermined at the time of issue of CCD’s itself. He pointed out that the Ld.CIT thereafter brought out the difference between the two types of instruments; that in the case of pure debt instruments interest was paid as compensation for the time value of money, while in the case of CCDs, being hybrid instruments, the true consideration was not interest simplicitor on the amount advanced but also an opportunity to own capital that too on certain favourable terms in the present case. The true reward, he pointed out, of the hybrid instruments was the privilege to own borrowed capital on certain favourable terms of conversion at a predetermined rate at the time of issue of CCD’s . The Ld.CIT he pointed out noted that after conversion of CCD’s into equity after 10 years, the AE becomes entitled to share in all the earnings of the assessee in these years without charging of any premium for the same, since the conversion rate was decided at the time of issue of CCD’s itself. 43. The Ld.DR contended that noting the difference in the nature of instrument issued by the assessee the Ld.CIT held their comparison with pure debt instruments, as done by the assessee, as incorrect and therefore wrongly accepted by the TPO. Our attention was drawn to ITA No.158 & 159/Rjt/2023 26 para 7.6 of the order of the Ld.CIT holding the ALP of the transaction to be incorrectly determined by the assessee as under: “7.6 Lastly, the assesses has made arguments on merits of the case and stated that the ALP is correctly determined. This argument of the assessee is also not acceptable for the detailed reasons discussed below: - i. The assessee had issued 5,99,924 unsecured, unrated, unlisted, fully paid-up non-marketable, non-redeemable, fully and Compulsory Convertible Debentures (CCDs) of face value Rs.1000 each amounting to Rs. 59,99,24,000/- to its AE and paid interest of Rs.5,39,93,160/- on the CCDs. As per agreement dated 03.10.2013, CCDs were issued for a period of 120 months (10 years) and the interest rate payable was 9% p.a. As per agreement, the CCDs would be compulsorily converted into equity at Rs.556/- for each Equity Shares. The CCDs are unsecured and can be converted prior to the Conversion Date on mutual agreement. The CCDs after conversion into equity, would be equal to the shares of the company. ii. Above characteristics of CCDs indicate that these are not pure debt instruments but hybrid instrument rather almost akin to equity having salient features as discussed in preceding para i.e. the so called debt instrument will be compulsorily converted into equity shares after 10 years of its issue and that too at a price determined on the date of issue of CCD itself by completely ignoring the inherent value of equity shares on the date of conversion. In the Transfer Pricing Study Report, CUP method is selected as the MAM for benchmarking of the interest on CCDs. Three instruments have been selected as comparables. On examination of instruments, it is seen that these are pure debt instruments. In a pure debt instrument, at the end of term, the money is returned and therefore the interest is. nothing but compensation for time value of money. However, the CCDs are attached with the obligation to issue share capital. The CCDs are in the nature of hybrid instrument in the sense that substantive reward, or true consideration, for such a transaction is not interest simplictor on amount advanced but opportunity to own capital on certain favorable terms. The true reward of the transactions is the opportunity and privilege to own borrower's capital on certain favorable terms. Therefore, CCDs belonged to a different genus than the act of simply giving the money to the borrower, and fell in the category of Hybrid Instrument. In view of the above, the benchmarking of the transactions done in TP Study report by comparing it with the pure debt instruments is not appropriate as per law. 3. Also, the CCDs @ 9% were issued to its AE in the same year (2013- 14) with the right to convert them into equity shares after 10 years at the same rate i.e. @ Rs 556 per share. In this case, the true reward of the CCDs in the hand of holder (AE) is the opportunity and privilege to own portion of issuer's (assessee's) capital at the valuation of equity shares arrived at the time of issue of CCDs itself. In simple term, the ITA No.158 & 159/Rjt/2023 27 CCDs will be converted in to the equity share at conversion date(10 years after issue date) at the valuation of equity shares on issue date. 4. In view of the above discussion, the reward for money lent by CCD holder in this case was opportunity to subscribe to the capital on favorable terms, unlike in a normal loan transaction where reward is only interest, which is measured as a percentage of the money loaned or advanced. In the case under consideration, the AE has been adequately compensated for its money by way of issue of equity shares at a value of Rs.556/share which is pre-determined on the date of issue of CCD itself. Though the CCDs were converted into equity shares after 10 years but instead of charging premium from the AE for accumulated earnings of 10 years, goodwill of business, predictability of business, etc, the equity shares would be issued to the AE at the same original price of Rs.556/share at which they were first issued to the original subscriber in the year of issue of CCDs. The original holders of equity shares have right in the accumulated reserves/earnings of first 10 years of the issuing company. But by converting the CCDs at the same original price, the subscriber of CCDs, who is assessee's AE has been also given a right in the accumulated earnings of those 10 years/goodwill, etc. as well as has been additionally compensated by way of interest @ 9% on CCDs. This clearly indicates that the transaction of payment of interest to its AE i.e., the CCD holders is not done at arm's length because under similar circumstances i.e. at same price the original subscriber of equity shares is having rights only in the accumulated earnings/goodwill, etc. of the company whereas the CCD owner has been given this right in accumulated earnings/goodwill, etc as well as interest @ 9 %. This proves beyond doubt that the payment of interest on CCDs by the assessee to its AE was unwarranted and is not at arm’s length.” 44. He contended that the case of the Ld.CIT was not that of no inquiry conducted at all by the TPO but of inadequate inquiry conducted without appreciating the facts before him in the correct perspective. Our attention was drawn to para 7.2 of his order as under: “7.2 The second argument of the assessee is that the TPO has duly applied his mind to the determination the ALP. This argument is also not acceptable for the reason that the records of the TPO clearly suggests that the TPO has passed his order without making any inquiries or verification which should have been made regarding issuance of CCDs and genuineness of interest payments thereon and therefore, the instance case is squarely covered by the provisions of explanation 2 to section 263 of the Act. Simply because the TPO has called for information regarding this transaction does not mean that the TPO has conducted inquiries or verification regarding this transaction. Rather, on perusal of the case records it is prima-facie discernible that the TPO has failed ITA No.158 & 159/Rjt/2023 28 to conduct inquiries regarding this transaction and also did not verify the terms of the CCDs as a result he wrongly accepted the ALP of the transaction. This has led to the conclusion that the order of the TPO is not only erroneous but also it is prejudicial to the interests of the revenue.” 45. Ld.DR contended that finding the ALP determination by the assessee to be incorrect, the Ld.CIT had rightly held that the view taken by the TPO, accepting the transaction to be at ALP, was not a plausible view. 46. He drew our attention to para 7.3 of the order of the Ld.CIT dismissing assesses contention of the view taken by the TPO being a plausible view as under: “7.3 The third argument of the assessee is that order u/s 263 cannot be passed where two views/diverging views are possible. This argument is also not acceptable for the reason that in the instant case, had the TPO conducted inquiries and verification of the transaction then the only inescapable conclusion would have been that the interest payment on the CCDs which are more of equity in nature is not at arm's length and therefore, an adjustment to the extent of interest payment on the said debentures was warranted. The characteristics of CCDs clearly indicate that these are not pure debt instruments but hybrid instrument rather almost akin to equity having salient features i.e. the so called debt instrument will be compulsorily converted into equity shares after 10 years of its issue and that too at a price determined on the date of issue of CCD itself by completely ignoring the inherent value of equity shares on the date of conversion. This fact which was very crucial to determine the ALP of the transaction was not verified by the TPO resulting in his acceptance of the ALP.” 46. Ld. Counsel for the assessee countered by stating that courts have held CCDs to be pure debt instruments and the Ld.CIT was therefore wrong in characterizing them as hybrid instruments. He referred to the following decisions; CIT Vs. Secure Meters Ltd. ( 2008) 175 Taxman 567(Raj) CIT Vs. ITC Hotels Ltd.(2010) 190 Taxman 430 (Kar). ITA No.158 & 159/Rjt/2023 29 Ld.Counsel for the assessee also contended that the Ld.CIT could not have recharacterized the nature of the instrument and referred to the following decisions for drawing support. 47. Another argument made by the ld.counsel for the assessee before us justifying that its CCDs were pure debt instrument, and not hybrid instrument was that, the conversion of the CCDs into equity was actually done at the face value of the equity on the date of conversion i.e. on 3 rd October, 2023 at the rate of Rs.27,154/- per share and not at the price allegedly predetermined of Rs. 556/-. That therefore even as per the logic applied by the Ld.CIT no benefit accrued to the CCD holders, the AE, on conversion to equity since the rate of conversion took into consideration all benefits which could have accrued to the assessee during the period they were held as debentures. That therefore the CCD’s before conversion were pure debt instruments and not hybrid instruments as held by the Ld.CIT. 48. The ld.counsel for the assessee stated that the conversion happened after passing of the order under section 263 of the Act, therefore could not be pointed out during the revisionary proceedings before the ld.CIT. He contended that the fact noted by the ld.CIT that the debentures were converted at a pre-determined rate of Rs.556/- was incorrect, and far from the truth. He placed before us, following documents to support is its case – i) Letter filed with the RBI of intimation of such conversion; ii) Filings done with the ROC i.e. filing of form no.PAS-3 ITA No.158 & 159/Rjt/2023 30 iii) Valuation report dated 21.9.2023 for the fair market value of Rs.27,154/- per share; iv) Addendum dated 14.3.2023 49. Ld.DR vehemently objected to entertaining the above documents at this stage. He stated that all the document the came into existing much after the passing of the order of the TPO and at the fag end of the proceedings before the CIT. They were, he pointed out, never brought to the notice of the Ld.CIT. That therefore the documents could not be considered for adjudicating the correctness of the order passed by the Ld.CIT. The ld.DR also pointed out the fact noted by the ld.CIT that in preceding four years i.e. Asst.Year 2014-15 to Asst.Year 2017-18, upward adjustment to the ALP of this same transaction of interest paid on CCD’s was done by the TPO. He contended that it was abundantly clear therefore that the TPO’s order in the impugned year was erroneous for not having made this upward adjustment. That the adjustment was warranted following the principle of consistency. The ld.counsel for the assessee countered by stating that the adjustment in the preceding years was made in orders passed under section 147 of the Act subsequent to the passing of the order by the TPO in the impugned year. That principle of consistency was in favour of the assessee and not against it. 50. We have patiently heard both the parties, gone through the order of the Ld.CIT and also taken note of the documents and case laws referred before us. 51. We do not find any infirmity in the order of the Ld.CIT finding on the basis of records before him: ITA No.158 & 159/Rjt/2023 31 • the CCD’s to be in the nature of hybrid instruments distinct from debt instruments; • the assessee to have incorrectly justified their ALP by adopting CUP method and comparing with completely different instruments i.e debt instruments; • the TPO to have not conducted necessary inquiries vis a vis the determination of ALP of the international transaction of interest paid on CCD’s to the AE of the assessee in the light of the facts on record before him and finally and most importantly; • the TPO’s order to be erroneous causing prejudice to the Revenue for having accepted the transaction to be at arm’s length. 52. The Ld.CIT’s finding of the CCD’s being in the nature of hybrid instruments, is based on appreciation of facts before him of the CCD’s being compulsorily convertible into equity after 10 years, that too at a predetermined rate, determined at the time of issue of CCD’s of Rs.556/-. He has rightly noted the distinction between the CCD’s and debt instruments, of the reward in the case of debt in instruments being only interest earned while in case of CCD’s besides interest the reward by way of their conversion into equity at favourable terms, by way of the conversion rate being determined at the time of issue of CCD’s ,thus entitling the CCD holders to all earnings of the assessee prior to conversion into equity without an appropriate charge for the same. 53. The Ld. Counsel for the assesses counter to the same referring to certain case laws holding CCD’s to be in the nature of debt instruments, we find, is of no consequence. We have gone through the decisions, and we find that they are not applicable to the issue on ITA No.158 & 159/Rjt/2023 32 hand before us. In the case of Secure Meters Ltd. (supra) the issue was allowability of expenses incurred in relation to the debentures, whether revenue or not. This was the primary question before Hon’ble Court, which held that whether the nature of debenture is convertible or non-convertible, will make no difference to the allowability of the interest paid on it as revenue expenditure. Therefore, this decision is of no assistance to the proposition being canvassed by the ld.counsel for the assessee that convertible debentures are pure debt instrument. Similarly, the decision of the Hon’ble Karnataka High Court in the case of ITC Hotels (supra) also addresses the same question of law on interest expenditure on debentures. The said decision also is no assistance to the proposition canvassed by the ld.counsel for the assessee before us. 54. The other contention of the Ld.Counsel for the assessee that Revenue authorities cannot recharacterize nature of instruments fails for the simple reason that it is not a case of recharacterization but on the contrary of determining the correct nature of the instrument. 55. The last attempt of the Ld.Counsel for the assessee for demonstrating that the CCD’s were pure debt instruments by pointing out that subsequent events showed that the CCD’s were converted at the prevailing market rate of Rs. 27,154/- per share and the CIT had wrongly interpreted the conversion clause of the agreement to revealing their conversion at a predetermined price of Rs.556/-, we hold, merits no consideration. 56. We have gone through the documents now filed before us, and we noted that addendum to the agreement rephrasing the clause relating to the price of conversion of debentures into equity i.e. 7(A)(iii) is as under: ITA No.158 & 159/Rjt/2023 33 “Accordingly, the existing Clause 7(A)(iii) would now be reworded as under: “The price at which Equity Shares will be issued upon conversion (the “Conversion price”) would be minimum of Rs.556/- for each Equity Shares unless the valuation as per the relevant Foreign Exchange Management Act Regulations as would be in force at the time of actual conversion would be higher.” 57. The addendum notes that it is clarificatory in nature so as to bring out the clear intention of the parties that the price at which the equity shares were issued upon conversion would be higher of the agreed price or the price determined as per the FEMA Regulations in force at the time of actual conversion. This addendum to the debenture subscription agreement dated 3.10.2013 is executed on 14.3.2023 which is the date of issue of the certificate of stamp duty issued. The order under section 263 of the Act was passed on 22.3.2023. The addendum therefore was entered into during and at fag end of the revisionary proceedings. This addendum was not before the ld.CIT when he passed his order, and more importantly was not even in existence when the TPO passed order u/s.92CA of the Act. Therefore, there can be no question of considering the same for the purpose of adjudicating the correctness of the order passed by the ld.CIT under section 263 of the Act before us. The assessee, we may add, is at liberty to furnish these documents to the TPO in the set aside proceedings. 58. In view of the above we have no hesitation in confirming the findings of the Ld.CIT, based on facts before him, that the instrument issued by the assessee, CCD, was a hybrid instrument and not a pure debt instrument. ITA No.158 & 159/Rjt/2023 34 The records reveal that the assessee had justified the ALP of interest paid on these hybrid instruments by adopting CUP as the most appropriate method and comparing the same with interest paid on pure debt instruments. There is no dispute vis-a-vis this fact. Clearly the comparability exercise done by the assessee was incorrect and the Ld. CIT, we hold, has rightly found so. 59. The TPO undoubtedly has accepted the apparently wrong justification of the ALP of the transaction of interest paid on CCD’s to AE, given by the assessee to him during proceedings before him. The inquiry conducted by him did not take note of the facts relating to the CCD’s which revealed its true nature as being distinct from pure debt instruments. Therefore the Ld.CIT, we hold, was right in finding the TPO to have not conducted necessary inquiries on the issue and as a consequence wrongly accepted the transaction to be at arm’s length. The view taken by the TPO was not a plausible view. 60. Moreover, the fact that in the preceding four years this instrument has been treated as hybrid instrument by the TPO and upward adjustment made to the ALP of the transaction of interest paid of CCD’s, in no uncertain terms, makes the TPO’s order passed in the impugned year erroneous causing prejudice to the Revenue for having accepted the transaction as being at arm’s length. The fact that the order for the four preceding year were passed subsequent to the TPOs order in the present case, does not alter the position and the fact remains that this identical transaction was found not to be at arm’s length by the TPO in the said four years and while in the impugned year was accepted to be at arm’s length without making necessary inquiry. ITA No.158 & 159/Rjt/2023 35 The Ld.CIT has, we hold, rightly held the TPO’s order erroneous and causing prejudice to the Revenue. All arguments of the Ld.Counsel for the assessee raised in ground No.2 & 3 are dismissed. 61. In the result, all the appeals of the assessee are dismissed. Order pronounced in the Court on 21 st May, 2024 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad, dated 21/05/2024