Assessee is Ekta Everglade Homes Pvt Ltd engaged in the real estate business and as a builder and developer.
The assessee had issued INR-denominated Compulsorily Convertible Debentures ('CCDs') to its Associated Enterprise ('AE') and paid interest at 19.17%, the Transfer Pricing Officer ('TPO') benchmarked the rate at SBI PLR + 75 bps, i.e. 15.5%, to align with domestic lending conditions, thereby making a TP adjustment.
Assessee’s Contentions | Revenue’s Contentions | Judgement |
|---|---|---|
Claimed that interest at 19.17% on CCDs issued to its AE was at arm’s length based on a foreign industrial yield comparable under the CUP method. | Rejected the use of foreign yield data as not representative of Indian market conditions for INR denominated CCDs, adopted SBI PLR + 75 bps as ALP. | Held that reliance on a single foreign comparable was unreliable under Rule 10B and upheld rejection of the assessee’s CUP analysis. |
Submitted that the interest rate reflected the assessee’s specific risk profile and funding terms, and therefore no separate adjustment was warranted; alternatively supported the CIT(A)’s acceptance of SBI PLR + 300 bps as a reasonable domestic benchmark. | Contended that the CIT(A) erred in relying on Granite Gate Properties Pvt. Ltd. and similar rulings to apply SBI PLR + 300 bps, since those precedents were fact-specific and related to foreign-currency “FCCDs”, materially different from the assessee’s INR-denominated CCDs. | Agreed with Revenue, holding that the cited decisions were context-specific and did not establish a universal benchmark, CIT(A) erred in applying them mechanically. |
Claimed the difference between the paid rate and ALP fell within the permissible tolerance range. | Maintained that the range cannot apply where ALP determination lacks credible comparables and supported SBI PLR + 75 bps as reflecting domestic lending realities. | Held tolerance u/s 92C(2) cannot cure a flawed ALP, upheld SBI PLR + 75 bps as consistent with market conditions and arm’s-length principle. |
The Mumbai ITAT held that foreign-currency yield data cannot benchmark INR-denominated CCDs and upheld SBI PLR-based rate as arm’s length.
