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

ITA 1891/Hyd/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7078 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 18-07-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 14-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 144C; 139(1)

Judgement Text

ITA NO 1891 HYDERABAD INFRATECH P LTD HYDERABAD. PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.1891/HYD/2018 ASSESSMENT YEAR: 2014-15 HYDERABAD INFRATECH PVT. LTD HYDERABAD PAN:AACCH6263K VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 2(2) HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI K.R. VASUDEVAN REVENUE BY : SRI Y.V.S.T. SAI, CIT-DR DATE OF HEARING: 18/07/2019 DATE OF PRONOUNCEMENT: 18/10/2019 ORDER PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2014-15 AGAIN ST THE ASSESSMENT ORDER PASSED U/S 143(3) R.W.S. 92CA AND 144C OF THE ACT DATED 16.7.2018. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A PRIVATE LIMITED COMPANY, FURNISHED ITS RETURN OF INCOME FOR THE A.Y 2014- 15 ON 28.11.2014 ELECTRONICALLY U/S 139(1) OF THE I .T ACT DECLARING A LOSS OF RS.4,46,72,742/-. THE RETURN OF THE ASSES SEE WAS SELECTED FOR SCRUTINY UNDER CASS TO EXAMINE VARIOUS ISSUES. THE AO ALSO OBSERVED THAT THE ASSESSEE HAS PAID INTERES T TO AES ON CCDS. HE, THEREFORE, TREATED IT AS AN INTERNATIONAL TRANSACTION AND MADE A REFERENCE TO THE TPO FOR DETERMINING THE ALP U/S 92CA OF THE ACT. THE TPO, VIDE ORDERS DATED 29.9.2017, HELD THE CCDS TO ITA NO 1891 HYDERABAD INFRATECH P LTD HYDERABAD. PAGE 2 OF 6 BE A LOAN AND FURTHER PROPOSED TO LEVY THE INTEREST AT LIBOR PLUS 200 BASIS POINTS. ACCORDINGLY, HE DETERMINED THE EX CESS INTEREST PAID AT RS.15,21,21,649/- AND PROPOSED THE ADJUSTME NT. IN ACCORDANCE WITH THE TPOS ORDER, A DRAFT ASSESSMENT ORDER WAS PASSED, AGAINST WHICH, THE ASSESSEE PREFERRED ITS O BJECTIONS BEFORE THE DRP. THE DRP OBSERVED THAT SIMILAR ISSUE HAD AR ISEN IN THE ASSESSEES OWN CASE FOR THE EARLIER A.Y 2013-14, WH EREIN THE DRP HAD UPHELD THE FINDINGS OF THE TPO. FOLLOWING ITS E ARLIER ORDER FOR THE A.Y 2013-14, THE DRP CONFIRMED THE DRAFT ASSESS MENT ORDER AND IN ACCORDANCE THEREWITH THE FINAL ASSESSMENT OR DER IS PASSED, AGAINST WHICH THE ASSESSEE IS IN SECOND APPEAL BEFO RE US BY RAISING THE FOLLOWING GROUNDS OF APPEAL: THE GROUNDS MENTIONED HEREINAFTER ARE WITHOUT PREJU DICE TO ONE ANOTHER. 1. THE LEARNED ASSESSING OFFICER ('LEARNED AO'), LE ARNED TRANSFER PRICING OFFICER ('LEARNED TPO') AND THE HO NOURABLE DISPUTE RESOLUTION PANEL ('HON'BLE DRP') GROSSLY ER RED IN DETERMINING AN ADJUSTMENT OF INR 15,21,27,699/- WIT H RESPECT TO THE INTERNATIONAL TRANSACTIONS ENTERED B Y THE TAXPAYER UNDER SECTION 92CA OF THE INCOME-TAX ACT, 1961 ('THE ACT'). 2. THE LEARNED AO/ LEARNED TPO/ HON'BLE DRP ERRED I N REJECTING THE TRANSFER PRICING DOCUMENTATION MAINTA INED BY THE APPELLANT BY INVOKING PROVISIONS OF SUB-SECTION (3) OF 92CA OF THE ACT. 3. THE LEARNED AO/ LEARNED TPO/ HON'BLE DRP ERRED I N RE- CHARACTERIZING THE FULLY & V COMPULSORY CONVERTIBLE DEBENTURES ('FCCDS') ISSUED BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISE ('AE') AS A LOAN. 4. THE LEARNED AO/LEARNED TPO/HON'BLE DRP ERRED IN NOT CONSIDERING THE BENCHMARKING ANALYSIS CARRIED OUT B Y THE APPELLANT IN SUPPORT OF THE ARM'S LENGTH NATURE OF THE INTEREST PAID ON THE FCCDS ISSUED TO ITS AE 5. THE LEARNED AO/ LEARNED TPO/ HON'BLE DRP ERRED I N CONSIDERING AD HOC INTEREST RATE OF LIBOR + 200 BAS IS POINTS FOR COMPUTING THE INTEREST PAID BY THE APPELLANT ON FCCDS ISSUED TO ITS AE. 6. THE LEARNED AO/ LEARNED TPO/ HON'BLE DRP ERRED I N COMPUTING THE ARM'S LENGTH RATE OF INTEREST ON INR ITA NO 1891 HYDERABAD INFRATECH P LTD HYDERABAD. PAGE 3 OF 6 DENOMINATED FCCDS BY CONSIDERING THE RATE OF INTERE ST PREVAILING IN THE LENDER COUNTRY'S INSTEAD OF THE R ATE THAT IS PREVAILING IN THE BORROWER'S COUNTRY. 7. THE LEARNED AO HAS ERRED IN LAW AND ON FACT IN L EVYING INTEREST UNDER SECTION 234 B OF THE ACT AMOUNTING T O INR 87,56,856/-. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, RESCIND A ND MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMEN TS, FACTS AND EVIDENCE BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. FOR THE ABOVE AND ANY OTHER GROUNDS WHICH MAY BE RA ISED AT THE TIME OF HEARING, IT IS PRAYED THAT NECESSARY RELIEF MAY BE PROVIDED. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT SIMILAR ISSUE HAD ARISEN IN THE ASSESSEES OWN CASE IN THE EARLIER A.Y I.E. 2013-14 AND THE COORDINATE BENCH OF THIS T RIBUNAL IN ITA NO.1781/HYD/2017, DATED 25.01.2018, HAS HELD THAT T HE DECISION IN THE CASE OF ADAMA INDIA PVT LTD IN ITA NO.497/HY D/2016 IS APPLICABLE TO THE ASSESSEES CASE AND FOLLOWING THE SAME, HAS GRANTED RELIEF TO THE ASSESSEE. A COPY OF THE SAID ORDER IS FILED BEFORE US. 4. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDER OF THE DRP AND ALSO RELIED UPON THE FOLLOWING CASE LAW: I) HON'BLE DELHI HIGH COURT IN THE CASE OF ZAHEER MAUR ITIUS V. DIT (IT)-II REPORTED IN (2014) 47 TAXMANN.COM 247 ( DEL.) 5. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ADAMA INDIA PVT LTD (SUPRA) HAS CONSIDE RED THE DECISION OF THE HON'BLE SUPREME COURT OF INDIA IN T HE CASE OF SAHARA REAL ESTATE CORPORATION LTD AND SAHARA HOUSI NG ITA NO 1891 HYDERABAD INFRATECH P LTD HYDERABAD. PAGE 4 OF 6 INVESTMENT CORPN. LTD IN CIVIL APPEAL NO.9813/2011 DATED 31/08/2012, WHEREIN THE CCD HAS BEEN HELD TO BE AN HYBRID INSTRUMENT IN NATURE OF EQUITY AND CANNOT BE THUS C ONSIDERED AS A LOAN PARTICULARLY WHERE THE CCDS ARE COMPULSORILY CONVERTIBLE DEBENTURES. WE ALSO FIND THAT THE TRIBUNAL HAS FOLL OWED THE DECISION OF THE COORDINATE BENCHES AND THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. COTTON NATURALS (I) LT D IN ITA NO.233/2014 TO GRANT RELIEF TO THE ASSESSEE. AS IN THE ASSESSEES OWN CASE, THE TRIBUNAL HAS FOLLOWED THE SAID DECISI ON TO GRANT RELIEF TO THE ASSESSEE, AND SINCE THE DRP HAS ALSO RELIED UPON ITS OWN ORDER FOR THE A.Y 2013-14, WE ARE OF THE OPINIO N THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL. FURTHER, WE ALSO FIND THAT THE DRP IN THE LAST PARAGRAPH OF ITS ORDER HAS OBSERVED THAT THE DEPARTMENT HAS FILED AN APPEAL AGAINST THE ORDER OF THE ITAT BEFORE THE HON'BLE HIGH COURT AND THEREFORE, CONFIR MED THE ORDER OF THE TPO. THUS, IT IS EVIDENT THAT THE DRP WANTED THE ISSUE TO BE KEPT ALIVE AND THEREFORE, HAS UPHELD THE ORDER OF T HE TPO. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH IN THE ASSESSEES OWN CASE FOR THE A.Y 2013-14, WE ALLOW T HE ASSESSEES APPEAL. FOR THE SAKE OF READY REFERENCE, THE RELEVA NT PARAS OF ITAT ORDER ARE REPRODUCED BELOW: 4. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE ISSUE BEFORE THIS TRIBUNAL IS THE RATE OF INTEREST WHETHER IT IS TO BE CALCULATED UNDER PLR AS CLAIMED BY THE ASSESSEE OR AT LIBOR+ AS COMPUTED BY THE TPO/DRP. WE FIND THAT THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ADAMA INDIA P VT. LTD (CITED SUPRA) AT PARAS 8 & 9 OF ITS ORDER HAS HELD AS UNDE R: '8. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE R IVAL CONTENTIONS. THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT THE CCDS WERE ISSUED IN INDIAN RUPEES. ACCORDINGLY, FOLLOWING THE PRINCI PLES LAID DOWN BY THE CO-ORDINATE BENCHES AND THE HON'BLE HIGH COURT AS RELIED ON BY THE ASSESSEE IN THE SUBMISSIONS, WE HAVE TO HOLD THAT T PO HAS WRONGLY TREATED THE ISSUANCE OF CCDS AS A LOAN, BY TREATING IT AS AN EXTERNAL ITA NO 1891 HYDERABAD INFRATECH P LTD HYDERABAD. PAGE 5 OF 6 COMMERCIAL BORROWING, IGNORING THE FACT THAT LOAN I S A DEBT, WHEREAS CCD IS HYBRID INSTRUMENT IN NATURE BASICALLY CATEGO RISED AS EQUITY IN NATURE. IT WAS ACCEPTED BY THE HON'BLE SUPREME COUR T IN THE CASE OF SAHARA INDIA REAL ESTATE CORPORATION LIMITED AND SA HARA HOUSING INVESTMENT CORPORATION LIMITED & ORS. VS. SECURITIE S AND EXCHANGE BOARD OF INDIA & ANR. IN CIVIL APPEAL NO. 9813 OF 2 011 DT. 31-08-2012 (SUPRA) WHILE ASSIGNING THE JURISDICTION TO SEBI AS AN 'EQUITY INSTRUMENT'. FURTHER, THE POLICY OF GOVT. OF INDIA AND ALSO RBI EFFECTIVE FROM 01- 04-2010 ALSO INDICATE THAT ISSUANCE OF CCD IS PART OF FDI BEING QUASI-EQUITY IN NATURE AND CONSIDERING THE SA ME AS A LOAN WOULD BE COMPLETELY AGAINST REGULATIONS LAID BY DIPB, RBI AND FEMA. IT IS TO BE REITERATED THAT ISSUANCE OF CCDS WAS DENOMINA TED IN INDIAN RUPEES AND NOT FOREIGN CURRENCY. THEREFORE, TPO HAS ERRED IN CONSIDERING LIBOR AS BENCHMARK RATE WHICH IS IN COM PLETE CONTRADICTION TO THE PRINCIPLES ON THE ISSUE. THE F OLLOWING JUDICIAL PRECEDENTS SUPPORTS THAT THE RATE INTEREST HAS TO B E CONSIDERED IN THE CURRENCY IN WHICH LOAN HAS ORIGINATED: I. INDIA DEBT MANAGEMENT PVT. LTD., IT(TP)A NO. 751 8/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 CONTE NTIONS THAT THE CCDS CANNOT BE CATEGORISED AS A LOAN AND LIBOR PLUS TWO HUNDRED BASIS POINTS BENCHMARK CANNOT BE ACCEPTED ON THE FACTS OF THE CASE. 9. COMING TO THE ISSUE OF ADOPTING THE BENCHMARK RA TE IN INDIAN CONTEXT, ASSESSEE HAS JUSTIFIED THE ALP NOT ONLY ON THE BASIS OF SBI PLR, WHICH WAS AT 12.26% FOR THE YEAR UNDER CONSIDE RATION, BUT ALSO FROM THE DATA FROM NSDL WEBSITE IN WHICH AVERAGE CO UPON 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 T HE OPINION THAT THERE IS NO NEED TO 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 OPINION THAT THE RATE AT WHICH THE CCDS WERE GIVEN ARE WITHIN THE RANGE, THEREFORE, NO FURT HER ADDITION CAN BE CONSIDERED UNDER THE TP PROVISIONS. IN VIEW OF THAT , THE ADDITION SO MADE IS DELETED AND GROUNDS OF THE ASSESSEE FROM 4 TO 6 ARE ACCORDINGLY CONSIDERED ALLOWED. SINCE THE ADDITION IS DELETED, WE DO NOT WISH TO CONSIDER GROUND NOS. 1 & 2 AS HAS ALREADY BEEN INDI CATED ABOVE.' 5. SINCE THE FACTS AND CIRCUMSTANCES IN THE CASE BE FORE US ARE SIMILAR, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH OF THIS TRIBUNAL (CITED SUPRA), WE ALLOW THE ASSESSEE'S APP EAL. ITA NO 1891 HYDERABAD INFRATECH P LTD HYDERABAD. PAGE 6 OF 6 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH OCTOBER, 2019. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 18 TH OCTOBER, 2019. VINODAN/SPS COPY TO: 1 HYDERABAD INFRATECH LTD, ADMIN BLOCK, MARINER, TH E V PLOT NO.17 SOFTWARE UNITS LAYOUOT, MADHAPUR, HYDERABAD 500081 2 ACIT, CIRCLE 2(2) SIGNATURE TOWERS, OPP: BOTANICA L GARDEN, KONDAPUR, SERILINGAMPALLI (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