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2022 (12) TMI 534 - AT - Income TaxTP Adjustment - payment of interest to Associated Enterprise on Compulsory Convertible Debentures (-CCD ) - ALP determination - HELD THAT:- We are of the opinion that CCDs are nothing but debt till the date of conversion and recharacterization of the same is impermissible and this issue stands covered by the order of the Tribunal in the case of ACIT Vs. CAE Flight Training India Pvt. Ltd. [2019 (8) TMI 554 - ITAT BANGALORE] as held RBI policy of FDI is governed by this that what will be future repayment obligation in convertible foreign currency and since, CCDs does not have any repayment obligation, the same was considered by RBI as equity for FDI policy. Now the question is that such treatment given by RBI for FDI policy can be applied in every aspect of CCDs. Whether the holder of CCDs before ins conversion can have voting rights? Whether dividend can be paid on CCDs before its conversion? In our considered opinion, the reply to these questions is a BIG NO. On the same logic, in our considered opinion, till the date of conversion, for allowability of interest u/s 36 (1) (iii) of Income tax Act also, such CCDs are to be considered as Debt only and interest thereon has to be allowed and it cannot be disallowed by saying that CCDs are equity and not debt. We hold accordingly. This issue is decided. ALP of the interest paid - Interest on Compulsory Convertible Debentures - As in assessee’s own case in assessment year 2011-12 [2021 (12) TMI 1167 - ITAT BANGALORE] admittedly, the CCDs are issued in INR, interest is paid in INR and CCD’s are repaid also in INR. Therefore, placing reliance on the judgment of Cotton Naturals (I) Pvt. Ltd. [2015 (3) TMI 1031 - DELHI HIGH COURT]. we hold that the TP study of the assessee to justify the interest rate by arriving at average rupee cost and comparing the same with SBI prime lending rate is correct. As held in assessment year 2012-13 [2022 (2) TMI 1279 - ITAT BANGALORE] TP study done by the assessee to arrive at the interest rate of 9% and 12% calculated based on the average rupee cost comparing the same with SBI prime lending rate. The assessee’s claim in this ground is allowed. Thus taking a consistent view, we remit this issue to the file of AO/TPO in both the years for a decision as per law as discussed in earlier years as above and pass fresh order. This issue is partly allowed for statistical purposes in both the appeals. ALP of royalty - As payment of royalty at 4% on sale is to be treated at Arm’s Length as in earlier year. Ordered accordingly. Determining the arm's length price of payment towards technical service fees to its AE at 1% of net sales - Justification of payment of technical services fees to its AE with commensurate benefits - difference between the services for which technical service fee is being paid and the technology for which royalty payment is being made - HELD THAT:- Fees paid was amounted from USD 975000 to USD 217500 and this amendment will have no bearing on the issue in hand. Consideration for services can increase or decrease depending on the projects for which services are availed. TPO’s case of declaration of services stand squarely covered in the assessee’s own case where there is a categorical finding that payment of technical service is not a declaration of royalty payment. Accordingly, these grounds of the assessee’s appeal in AY 2014-15 are allowed. Foreign exchange loss on Kelvin Loan - HELD THAT:- This issue is squarely covered by the earlier decision of Tribunal in assessment year 2013-14 [2022 (8) TMI 1272 - ITAT BANGALORE] as held cash flow statement does not provide any basis to the finding that the amount is used for the repayment of short term loans unless there is a thorough examination is done on the inflows and outflows in the cash flow statement. We also take into consideration the fact that the assessee has offered the forex gain in respect of the same loan in the previous year and in the interest of justice it is only correct when the loss arises out of forex movement the same be allowed - loss claimed by the assessee due to the forex fluctuation of the loan is to be allowed. This ground is allowed in favour of the assessee. Disallowance of expenditure u/s 14A by applying the provisions of Rule 8D - necessity of recording satisfaction - HELD THAT:- As decided in assessee own case for the AY 2013-14 [2022 (8) TMI 1272 - ITAT BANGALORE] .AO has recorded vague, stereotyped reasons de hors the accounts of the assessee for making the disallowance under section 14A. There is no satisfaction of the AO having regard to the accounts of the assessee. Addition u/s 14A as per clause (f) of Explanation 1 to section 115JB of the Act for computing book profits - The case of CIT v. Gokaldas Images P Ltd. [2020 (11) TMI 345 - KARNATAKA HIGH COURT] has held that disallowance u/s 14A of the I.T.Act cannot be added to book profits of assessee under section 115JB. Thus, we delete the disallowance made under section 14A in computing the total income under regular provisions and book profits under section 115JB. Disallowance of other expenses - HELD THAT:- The assessee herein filed the additional evidence before us along with petition and prayed that these additional evidences are to be admitted in the interest of justice. Accordingly, these additional evidences are admitted for consideration and after admitting the same, we remit the entire issue in dispute to the file of AO for fresh consideration. The assessee has to make available all the additional evidences filed before us to the AO for consideration. After considering the same, the AO has to decide the issue afresh. Accordingly, the issue is set aside to the file of AO for fresh consideration. Short credit of TDS - HELD THAT:- We direct the AO to give correct TDS credit as appearing in Form 26AS relevant to the assessee in these assessment years. Ordered accordingly.
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