TMI Blog2022 (10) TMI 1170X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the adjudication of Ld. DRP determining the ALP as Nil could not be upheld. The convertible debentures may give ownership rights to the holders but the rights accrue only at a future date and till such time, the holder is entitled to receive interest on such holding. Since the debentures are denominated in Indian Rupees, the same, in our considered opinion, could be benchmarked at SBI Prime Lending Rate with mark-up of 2% considering the fact that the assessee has credit rating of BB+ (S P). AO / Ld. TPO is directed to re-compute TP adjustment accordingly. - ITA No. 732/Chny/2015 - - - Dated:- 31-10-2022 - Hon ble Shri Mahavir Singh, Vice President And Hon ble Shri Manoj Kumar Aggarwal, AM For the Appellant Shri Darpan Kripalani (Advocate) Shri H. Yeswanth Kumar (CA) - Ld. AR. For the Respondent : Dr. S. Palani Kumar- CIT-DR. ORDER MAHAVIR SINGH (VICE PRESIDENT) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2010-11 arises out of final assessment order dated 30-01-2015 passed by Ld. Assessing Officer, Chennai (AO) u/s 143(3) r.w.s. 144C(13) r.w.s. 92CA(3) pursuant to the directions of Learned Dispute Resolution Panel, Chennai (DRP) u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share capital, akin to share application money and treating the same to be in the form of FDI instead of ECB. 6. That on the facts and in the circumstances of the case the Ld AO and the Hon ble DRP erred in rejecting the economic analysis (transactional level analysis) undertaken by the assessee in connection with determination of ALP of the international transaction of Payment of interest on FCCD. 7. That on the facts and in the circumstances of the case the Ld AO and the Hon ble DRP erred in disallowing an amount of Rs.1,64,38,356/- on account of interest on FCCD. 8. That on the facts and in the circumstances of the case, the Ld. DRP erred in confirming the action of the assessing officer in disallowing the unpaid leave encashment of Rs 17,51,000/- under section 43B of the Act. 9. That the charge of interest under Section 234B and 234D of the Act is consequential in nature. Ground No.1 is general in nature. Ground No.8 has not pressed before us. Ground No.9 assails levy of interest u/s 234B 234C. The same is consequential in nature which do not require any specific adjudication. Ground Nos. 2 to 4 are related with Transfer Pricing (TP) Adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a suitable approach. The Ld. TPO also noted that in terms of agreement, the assessee was to make two advance payments of 90% of estimated annual fees to be paid at the beginning of each semester of the calendar year. The estimated annual fees were to be determined on the basis of a budget for the required amount of service for the year. Thus, it was questionable as to how the assessee was expected to receive the services without knowing the need and necessity which may or may not arise during normal course of business. The assessee did not prove that the AE had the capacity to provide such service. The assessee has its own high level personnel and the services were nothing but duplication of services. The Ld. TPO also rejected the allocation keys based on sales. 4.3 In support of rendering of services, the assessee submitted email correspondences, few of which have been extracted in the order of Ld. TPO. The Ld. TPO held that the services were very routine in nature which would not require a separate payment. Most of the evidences pertain to submission of report and Profit Loss Account by the assessee company to its AE. These activities were nothing but shareholder s activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t could be seen that the assessee is receiving these services since financial year 2002-03 onwards and making payment on the same basis to its AE. 6. Proceeding further, in AY 2009-10, Ld. TPO disputed the TNMM methodology adopted by the assessee and upheld application of CUP method. The Ld. TPO proposed an adhoc adjustment of 25% against the same which was rejected by Ld. DRP on the ground that the same was not permissible. In this year, Ld. DRP has taken a contrary stand and upheld application of CUP method and confirmed ALP at nil primarily by applying need and benefit test. The revenue assailed the adjudication of Ld. DRP for AY 2009-10 before this Tribunal vide ITA No.1032/Mds/2014 order dated 09.06.2016 wherein this issue was decided in assessee s favor as under: - 9. The Transfer Pricing Officer has not taken any pain to identify uncontrolled transaction between two independent entities. In the absence of any comparison of the transaction with transaction carried out in a uncontrolled market, this Tribunal is of the considered opinion that the Transfer Pricing Officer cannot independently come to a conclusion that volume and quality of services was disproportionate to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correspondences and other documentary evidences to substantiate rendering of services which have also been placed before us in the voluminous paper-book. These evidences have not been held to be non-genuine but alleged to be routine activities in nature and part of stewardship activities which would not require any payment on the part of the assessee. However, considering the facts of the case and considering the adjudication of Tribunal for AY 2009-10, the need and benefit test as applied by lower authorities, in our opinion, would not help the case of the revenue. 8. Going by the factual matrix, it could be seen that the assessee has availed bundle of services from its AE and made payment pursuant to the terms of the agreement. These payments are recurring in nature and are determined by applying specific allocation keys. The Ld. TPO held that the assessee may not be requiring these services in the normal course of business. The same, in our opinion, is not correct approach since the role of Ld. TPO was limited to determine the ALP of the transactions and not to adjudge the same at the threshold of business needs / requirements of the assessee. Also, though Ld. TPO observed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes as available on NSDL site were to be selected as CUP. The mean rate was computed @3% and accordingly, TP adjustment of Rs.89.38 Lacs was proposed. The working of the same has been given on page 38 of the order. 12.2 Before Ld. DRP, the assessee, inter-alia, submitted that intere-strate paid to third parties was at much higher rate of 18%. The Ld. DRP upheld rejection of bond rates by Ld. TPO. However the methodology of Ld. TPO was also held to be improper. The Ld. DRP observed that the FCCD was to be considered either as equity or advance for share capital which is akin to share application money. The funds which have been received from AE have been received as FDI and not ECB. The FCCD were subscribed to get the ownership rights in the assessee and not to earn the interest. Therefore, the ALP rate was to be considered as Nil and Ld. TPO was directed to compute the adjustment accordingly. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 13. We find that the assessee has issued fully compulsorily convertible debentures (FCCD) to its AE. As per the terms of the debentures, the assessee is required to pay interest of 12% to its A ..... 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