The upward adjustment on international transactions for “payments of interest on Fully Convertible Debentures (FCD)” was deleted by the Mumbai bench of the Income Tax Appellate Tribunal (ITAT).
The cross-appeals have been filed by either party challenging the impugned order dated 25/10/2017, passed under section 250 of the Income Tax Act, 1961 (the Act) by Commissioner of Income Tax (Appeals)–55, Mumbai.
The assessee, Altico Capital India Pvt. Ltd engaged in the business of acquiring non-performing loans, and other assets and providing medium to long-term finance to corporate borrowers. The assessee was a subsidiary of Clearwater Capital Partners (CCP) Cyprus and the assessee acts as a sub-advisor and provides various investment advisory and appraisal services, which include sourcing of deals, analysis of the industry, sponsor checks, transaction structuring, financial modelling, preparation of draft term sheet, etc., to its associated enterprise CCP, Singapore.
The assessee used Transactional Net Margin Method for benchmarking as the most appropriate method with the Profit Level Indicator of Operating Profit to Operating Cost. The assessee identified 7 comparable companies with a three-year average weighted margin of 12.59% and computed its own PLI at 20%.
It was claimed that the international transaction of “Provision of Investment Advisory Services” was at arm’s length price (“ALP”) and the inclusion of ICRA Management Consulting Services Ltd was comparable to a taxpayer, who engaged in the business of providing non-binding investment advisory services. TPO made an upward adjustment of Rs. 4,57,86,527 to the international transaction and against this, the assessee stated that being an NBFC they didn’t qualify as an eligible borrower to raise External Commercial Borrowing.
Further submitted that LIBOR was not applicable as there was no lending/borrowing in foreign currency and the assessee had issued rupee-dominated debentures and pointed out that in earlier years TPO has taken Indian rates for charging interest on FCDs and not LIBOR rate.
The Tribunal observed that there was no change in facts and the methodology adopted by the assessee for benchmarking the international transaction of “Payment of Interest on FCDs” accepted in the prior years.
In light of the order passed in the assessee’s case of Clearwater Capital Partner (India) Pvt. Ltd. vs DCIT, the Tribunal comprising Shri Amarjit Singh, accountant member and Shri Sandeep Singh Karhail, judicial member upheld the plea of the assessee and delete the impugned adjustment in respect of an international transaction of “Payment of Interest on FCDs”. The appeal of the assessee was allowed and dismissed the appeal of the revenue.
The assessee was represented by Shri Madhur Agrawal & Shri Fenil Bhatt and the revenue was represented by Shri Rajesh Kumar Yadav
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.
