The Income Tax Appellate Tribunal ( ITAT ), Hyderabad Bench held that FCCD (Fully Compulsorily Convertible Debentures) are debt and confirmed the benchmarking done by applying LIBOR plus 200 points.
The assessee, Watermarke Residency Limited is engaged in the business of real estate etc. During the assessment year under consideration, the assessee filed a Form 3CEB report along with the return of income disclosing that the assessee has entered into international transactions to its Associated Enterprise (A.E.). Therefore, the case of the assessee was referred to the Transfer Pricing Officer (TPO) to determine the Arm’s Length Price (ALP).
Thereafter, the TPO had issued a show cause notice with a view to benchmark the international transactions and sought to benchmark by charging LIBOR plus 200 base points by issuing show cause notice and FCCD is not equity. The CIT(A) also confirmed the order of TPO. Hence the present appeal has been preferred.
The Counsels for the assessee, submitted that since the FCCDs were issued in INR, therefore, the relevant country for the purpose of benchmarking would be India. Hence, the interest rate prevailing in India should be considered for the purpose of benchmarking the international transactions. It was submitted that the assessee has rightly benchmarked by taking the interest rate of SBI PLR plus 300.
The Counsels for the Revenue, submitted that as per the balance sheet of the assessee as well as it’s A.E., the nature of transaction has been mentioned as loan only, therefore, the TPO was right in benchmarking the transactions as loan on the basis of the LIBOR Plus 200 points.
A Bench consisting of Rama Kanta Panda, Accountant Member and Laliet Kumar, Judicial Member held that “We hold that FCCDs are debt, therefore, the benchmarking done by the learned lower authorities are correct by applying LIBOR plus 200 points, which is in consonance with the RBI guidelines issued for the purposes of FDI.”
CA Raghunathan Kannan and Akshay Surna Siddharth Surna appeared for the assessee and M. Narmada and N. Swapna appeared for the Revenue.
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