Assessee is Electronic Arts Games (India) Private Limited (Successor to Griptonite Games India Pvt. Ltd.) and providing Software Development Services (SDS).
TPO/DRP rejected assessee’s use of SBI-PLR (13.75%) to benchmark interest on ₹5.5 crore INR-denominated ECB (charged at 10.45%), treating it like a Masala Bond.
Using Masala Bond rates (avg. 7.68%) under CUP method, TPO deemed the interest excessive and made a TP adjustment of ₹4.7 lakh, stating SBI-PLR is not suitable for international benchmarking.
Assessee's Contentions | Revenue's Contentions | Judgement |
|---|---|---|
Assessee used the "Other Method" with SBI PLR (13.75%) to benchmark interest (paid at 10.45%) on its ₹5.5 crore INR-denominated ECB, claiming it was at arm’s length. | Rejected the assessee's benchmarking approach, asserting that since the interest and principal were to be discharged in Indian rupees, the transaction was similar to "Masala Bonds." | ITAT upheld the assessee's use of SBI PLR for benchmarking interest on INR-denominated ECBs, distinguishing them from Masala Bonds by noting that the borrower bears no currency risk. |
Argued that since the loan was INR-denominated, the currency risk lay with the lender, making domestic lending rates more appropriate than Masala Bond rates. | Applied the Comparable Uncontrolled Price (CUP) method and used interest rates from publicly available "Masala Bond" transactions (HDFC: 7.875% and NTPC: 7.48%, averaging 7.68%) as comparables. | ITAT held that when the borrower's liability is in Indian rupees, the appropriate benchmark should generally be an Indian Rupee-denominated lending rate available in the Indian domestic market. |
Relied on Hyderabad ITAT ruling in Adama India Pvt. Ltd. and Special Bench decision in Invesco (India) Pvt. Ltd., which held domestic rates suitable for INR loans. | Argued that domestic rates like SBI-PLR could not be adopted for benchmarking an ECB transaction, even if denominated in Indian rupees, as it is fundamentally an external borrowing. | ITAT followed coordinate bench rulings in Adama India Pvt Ltd and the Special Bench ruling in Invesco (India) Private Limited, which supported benchmarking INR-denominated loans with Indian domestic rates. |
The Hyderabad ITAT ruled in favour of the assessee, upholding its use of SBI PLR for benchmarking interest on INR-denominated ECBs by rejecting 'Masala bond' rates.
