Hyderabad Infratech Private Limited, Hyderabad V. Deputy Commissioner of Income Tax , Circle-2(2), Hyderabad

ITA 1781/Hyd/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2694 (ITAT-HYDERABAD)
• Duration Of Justice: 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 25-01-2018
• Assessment Year: 2013-2014
• Appeal Filed On: 01-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J SIRI KUMAR
• Assessee Lawyers: SAMPATH RAGHUNATHAN
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 234B

Judgement Text

ITA NO1781 OF 2017 HYDERABAD INFRATECH P LTD HYDER ABAD. PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.1781/HYD/2017 (ASSESSMENT YEAR: 2013-14) HYDERABAD INFRATECH PRIVATE LIMITED, HYDERABAD PAN: AACCH 6263 K VS DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(2) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI SAMPATH RAGHUNATHAN FOR REVENUE : SHRI J. SIRI KUMAR, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2013-14. IN T HIS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE ASSESSMENT ORDER PASSED U/S 143(3) R.W.S. 144C(5) R.W.S. 144C(13) OF THE AC T. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN CONTRARY TO LAW, HYDERABAD INFRATECH PRIVATE LIMITED ('APPELLANT' OR 'COMPANY') RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE FINAL ASSESSMENT ORDER ISSUED BY LEARNED DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 2(2), HYDERABAD ('LD. AO') UNDER SECTION 143(3) READ WITH SECTION ('R.W.S.') 144C(5) & 144C(L3) OF THE INCOME-TAX ACT, 1961 ('ACT') DATED 25 SEPTEMBER 2017. DATE OF HEARING: 25.01.2018 DATE OF PRONOUNCEMENT: 2 5 . 0 1 .2 018 ITA NO1781 OF 2017 HYDERABAD INFRATECH P LTD HYDER ABAD. PAGE 2 OF 6 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN CONTRARY TO LAW, THE FINAL ASSESSMENT ORDER ISSUED UNDER SECTION 143(3) R.W.S. 144C(5) & L44C(13) OF THE ACT, BY THE LD. AO DATED 25 SEPTEMBER 2017 IS BAD ON FACTS AND THE TRANSFER PRICING ADDITION OF INR 14,66,09,696/- UNDER SECTION 92CA(3) MADE TO THE INCOME OF THE APPELLANT MADE IS UNJUST AND HIGHLY EXCESSIVE. WITHOUT PREJUDICE TO GROUND NO. 1 AND 2, THE APPELLANT RAISES THE FOLLOWING GROUNDS OF APPEAL: 3 ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN CONTRARY TO LAW, THE LEARNED TRANSFER PRICING OFFICER (TPO')/LD. AO HAS ERRED IN RE- CHARACTERIZING THE FULLY COMPULSORY CONVERTIBLE DEBENTURES ('FCCDS') AS FOREIGN LOAN FOR BENCHMARKING THE INTERNATIONAL TRANSACTION OF INTEREST PAYMENTS ON FCCDS AND THE HON'BLE DISPUTE RESOLUTION PANEL ('DRP') HAS FURTHER ERRED IN UPHOLDING THE ACTION OF LD. TPO/LD. AO. 4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN CONTRARY TO LAW, THE LD. TPO/LD. AO ERRED AND SUBSEQUENTLY HON'BLE DRP FURTHER ERRED IN UPHOLDING THE ACTION OF LD. TPO 1 LD. AO BY NOT APPRECIATING THE FACT THAT FCCDS WERE ISSUED IN INDIAN RUPEES AND ALSO CONSUMED IN INDIA AND THE INTEREST ON FCCDS SHOULD BE BENCHMARKED USING STATE BANK OF INDIA ('SB1') PRIME LENDING RATE ('PLR') INSTEAD OF LONDON INTER-BANK OFFERED RATE ('LIB OR') RATE. 5 THE LD. TPO/LD. AO ERRED AND SUBSEQUENTLY DRP FURTHER ERRED IN UPHOLDING THE ACTION OF LD. TPO I LD. AO IN CONSIDERING LIBOR PLUS 200 BASIS POINTS I.E. 2.94%, AS AN ARM'S LENGTH INTEREST ON FCCD ON AD HOC BASIS WHICH IS ITA NO1781 OF 2017 HYDERABAD INFRATECH P LTD HYDER ABAD. PAGE 3 OF 6 COMPLETE VIOLATION OF TRANSFER PRICING PROVISIONS AND AGAINST THE PRINCIPLES OF LAW. 6 THE LD. TPO/LD. AO ERRED AND THE HON'BLE DRP HAS FURTHER ERRED IN UPHOLDING THE ACTION OF LD. TPO/LD. AO WITH REGARD TO THE DETERMINATION OF ARM'S LENGTH PRICE ('ALP') OF THE INTERNATIONAL TRANSACTION I.E., PAYMENT OF INTEREST ON FCCDS ISSUED TO ITS ASSOCIATED ENTERPRISE (' AE') BY NOT APPRECIATING THE FOLLOWING: 6.1 NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME-TAX ACT, 1961 ('ACT') READ WITH THE INCOME TAX RULES, 1962. 6.2 NOT ANALYZING THE DETAILS OF SEARCH PROCESS CARRIED OUT BY THE APPELLANT AND ARBITRARILY DISREGARDED THE SEARCH PROCESS FURNISHED BY THE APPELLANT ON THE REASONING THAT THERE WAS NO SPECIFIC MENTION FOR SELECTION OF TESTED PARTY. 6.3 BY DISREGARDING THE INDEPENDENT ALTERNATIVE ANALYSIS CARRIED OUT AND FURNISHED BY THE APPELLANT, BASED ON THE DATA AVAILABLE FROM THE PUBLIC DATABASE I.E., NATIONAL SECURITIES DEPOSITORY LIMITED. 7 THE LD. TPO/LD. AO HAS ERRED IN DISREGARDING THE JUDICIAL PRECEDENT OF THE HON'BLE INCOME-TAX APPELLATE TRIBUNAL ('ITAT'), HYDERABAD IN THE CASE OF ADAMA INDIA PRIVATE LIMITED (ITA NO.497/HYD/2016), WHEREIN IT WAS HELD THAT FCCDS CANNOT BE CATEGORIZED AS A LOAN AND LIBOR CANNOT BE CONSIDERED FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION OF INTEREST ON FCCD. 8 THE LD. AO HAS ERRED IN LEVYING INTEREST UNDER SECTION 234B AND 234D OF THE ACT. ITA NO1781 OF 2017 HYDERABAD INFRATECH P LTD HYDER ABAD. PAGE 4 OF 6 9 THE LD. AO HAD ISSUED A NOTICE OF DEMAND UNDER SECTION 156 OF ACT, THE APPELLANT HUMBLY REQUESTS BEFORE YOUR HON'BLE MEMBERS TO EXERCISE THE POWERS VESTED UNDER SECTION 220(3) AND 220(6) OF THE ACT AND GRANT EXTENSION FOR THE STAY OF THE BALANCE IMPUGNED TAX DEMAND, TILL THE APPEAL IS DISPOSED BY THE HON'BLE MEMBERS. 2. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT SIMILAR SET OF FACTS HAVE ARISEN BEFORE THIS TRIBUN AL IN THE CASE OF ADAMA INDIA PVT. LTD IN ITA NO.497/HYD/2016 AND THE REFORE, THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. 3. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 4. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE ISSUE BEFORE THIS TRIBU NAL IS THE RATE OF INTEREST WHETHER IT IS TO BE CALCULATED UNDER PLR A S CLAIMED BY THE ASSESSEE OR AT LIBOR+ AS COMPUTED BY THE TPO/DR P. WE FIND THAT THE COORDINATE BENCH OF THIS TRIBUNAL IN THE C ASE OF ADAMA INDIA PVT. LTD (CITED SUPRA) AT PARAS 8 & 9 OF ITS ORDER HAS HELD AS UNDER: 8. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE RIVAL CONTENTIONS. THERE IS NO DISPUTE WITH REFEREN CE TO THE FACT THAT THE CCDS WERE ISSUED IN INDIAN RUPEES . ACCORDINGLY, FOLLOWING THE PRINCIPLES LAID DOWN BY THE CO-ORDINATE BENCHES AND THE HON'BLE HIGH COURT AS RELIED ON BY THE ASSESSEE IN THE SUBMISSIONS, WE HA VE TO HOLD THAT TPO HAS WRONGLY TREATED THE ISSUANCE OF CCDS AS A LOAN, BY TREATING IT AS AN EXTERNAL COMMERCIAL BORROWING, IGNORING THE FACT THAT LOAN I S A ITA NO1781 OF 2017 HYDERABAD INFRATECH P LTD HYDER ABAD. PAGE 5 OF 6 DEBT, WHEREAS CCD IS HYBRID INSTRUMENT IN NATURE BASICALLY CATEGORISED AS EQUITY IN NATURE. IT WAS ACCEPTED BY THE HON'BLE SUPREME COURT IN THE CASE O F SAHARA INDIA REAL ESTATE CORPORATION LIMITED AND SAHARA HOUSING INVESTMENT CORPORATION LIMITED & ORS. VS. SECURITIES AND EXCHANGE BOARD OF INDIA & A NR. IN CIVIL APPEAL NO. 9813 OF 2011 DT. 31-08-2012 (SU PRA) WHILE ASSIGNING THE JURISDICTION TO SEBI AS AN 'EQU ITY INSTRUMENT'. FURTHER, THE POLICY OF GOVT. OF INDIA AND ALSO RBI EFFECTIVE FROM 01- 04-2010 ALSO INDICATE T HAT ISSUANCE OF CCD IS PART OF FDI BEING QUASI-EQUITY I N NATURE AND CONSIDERING THE SAME AS A LOAN WOULD BE COMPLETELY AGAINST REGULATIONS LAID BY DIPB, RBI AN D FEMA. IT IS TO BE REITERATED THAT ISSUANCE OF CCDS WAS DENOMINATED IN INDIAN RUPEES AND NOT FOREIGN CURRENCY. THEREFORE, TPO HAS ERRED IN CONSIDERING LIBOR AS BENCHMARK RATE WHICH IS IN COMPLETE CONTRADICTION TO THE PRINCIPLES ON THE ISSUE. THE FOLLOWING JUDICIAL PRECEDENTS SUPPORTS THAT THE RAT E INTEREST HAS TO BE CONSIDERED IN THE CURRENCY IN WH ICH LOAN HAS ORIGINATED: I. INDIA DEBT MANAGEMENT PVT. LTD., IT(TP)A NO. 7518/MUM/2014; II. CIT VS. COTTON NATURALS (I) LTD., ITA NO. 233/2 014 (DEL.HC); III. M/S. BRAHMA CENTER DEVELOPMENT PVT. LTD., VS. ITO, ITA NO. 373/DEL/2016 (ITAT DEL). BY RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH AND HON'BLE HIGH COURT DECISIONS, WE AGREE WITH THE ASSESSEE'S CONTENTIONS THAT THE CCDS CANNOT BE CATEGORISED AS A LOAN AND LIBOR PLUS TWO HUNDRED BASIS POINTS BENCHMARK CANNOT BE ACCEPTED ON THE FA CTS OF THE CASE. 9. COMING TO THE ISSUE OF ADOPTING THE BENCHMARK RA TE IN INDIAN CONTEXT, ASSESSEE HAS JUSTIFIED THE ALP N OT ONLY ON THE BASIS OF SBI PLR, WHICH WAS AT 12.26% F OR THE YEAR UNDER CONSIDERATION, BUT ALSO FROM THE DAT A FROM NSDL WEBSITE IN WHICH AVERAGE COUPON RATE RANGED FROM 0.50% TO 16.50% WITH AN ARITHMETIC MEAN OF 12.50%. THESE RATES WERE ALREADY BEFORE THE TPO. THEREFORE, WE ARE OF THE OPINION THAT THERE IS NO N EED TO ITA NO1781 OF 2017 HYDERABAD INFRATECH P LTD HYDER ABAD. PAGE 6 OF 6 RESTORE THE MATTER TO THE FILE OF THE AO FOR RE- EXAMINATION, WHEN ASSESSEE HAS JUSTIFIED THE ISSUAN CE OF CCDS AT 12%. IN VIEW OF THAT WE ARE OF THE OPINI ON THAT THE RATE AT WHICH THE CCDS WERE GIVEN ARE WITH IN THE RANGE, THEREFORE, NO FURTHER ADDITION CAN BE CONSIDERED UNDER THE TP PROVISIONS. IN VIEW OF THAT , THE ADDITION SO MADE IS DELETED AND GROUNDS OF THE ASSE SSEE FROM 4 TO 6 ARE ACCORDINGLY CONSIDERED ALLOWED. SIN CE THE ADDITION IS DELETED, WE DO NOT WISH TO CONSIDER GROUND NOS. 1 & 2 AS HAS ALREADY BEEN INDICATED ABOVE. 5. SINCE THE FACTS AND CIRCUMSTANCES IN THE CASE BE FORE US ARE SIMILAR, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL (CITED SUPRA), WE ALLOW THE ASSESSEES APPEAL. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JANUARY, 2018. SD/- SD/- (B.RAMAKOTAIAH) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 25 TH JANUARY 2018. VINODAN/SPS COPY TO: 1 HYDERABAD INFRATECH PVT. LTD, ADMIN BLOCK, MARINE R, THE V PLOT NO.17, SOFTWARE UNITS LAYOUT, MADHAPUR, HYDERABAD 5 00081 2 DCIT, CIRCLE 2(2), SIGNATURE TOWERS, OPP: BOTANIC AL GARDEN, KONDAPUR, SERLINGAMPALLI (M) HYDERABAD 500090 3 DRP - 1, KENDRIYA SADAN, 4 TH FLOOR, B&C WING, BENGALURU 560034 4 DIRECTOR OF INCOME TAX (IT & TP) HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER