ITAT Mumbai Remands ₹28.94 Crore CCD Interest TP Adjustment for Fresh Benchmarking

DCIT Vs Mahindra Homes Pvt. Ltd. (ITAT Mumbai)

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, in DCIT Vs Mahindra Homes Pvt. Ltd., ITA No. 1212/Mum/2025, decided on 15 September 2025, examined the Revenue’s appeal against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2015-16, involving a transfer pricing adjustment of ₹28,94,33,680 on interest paid on Compulsorily Convertible Debentures (CCDs). The assessee, a joint venture between Mahindra Lifespace Developers Ltd. and SCM Real Estate Singapore Pvt. Ltd., was engaged in residential real estate development and had issued CCDs to its Singapore-based associated enterprise carrying interest at 17.65% per annum. The assessee benchmarked the interest using the Comparable Uncontrolled Price (CUP) method against seven debt instruments identified from BSE, NSE and NSDL databases, with coupon rates ranging from 16.5% to 20% and a median rate of 18%. The Transfer Pricing Officer rejected this analysis and adopted an arm’s length interest rate of approximately 8.61% using Bloomberg loan comparables, resulting in the disputed adjustment. The CIT(A) deleted the adjustment by relying on Tribunal decisions in the assessee’s own cases for earlier assessment years. However, the Tribunal observed that CCDs are hybrid financial instruments containing an embedded equity conversion feature, which distinguishes them from ordinary non-convertible debentures and term loans. It held that the assessee’s benchmarking failed to account for equity conversion rights, subordination, security and other relevant contractual differences, while the TPO’s comparables involved secured or floating-rate loans from unrelated sectors such as oil and gas and infrastructure. Since neither analysis satisfied the requirements of Rule 10B(2) and Rule 10B(3) of the Income-tax Rules, 1962, the Tribunal set aside the CIT(A)’s decision and restored the CCD interest benchmarking issue to the AO/TPO for fresh examination, directing appropriate adjustments for material differences in risk, convertibility, security and contractual terms.

The Tribunal further considered the Revenue’s objections concerning the deletion of disallowances relating to legal and professional expenses, advertisement and sales promotion expenditure, and commission and brokerage expenses incurred in connection with the assessee’s real estate business. The Assessing Officer had treated certain expenditure as capital in nature or attributable to construction activities, whereas the CIT(A) had allowed relief by treating the relevant expenditure as revenue expenditure. Following the Tribunal’s directions in the assessee’s own cases for Assessment Years 2016-17 and 2017-18, the Bench held that the correct treatment of such expenses depended on their actual connection with the real estate projects. It clarified that expenditure directly attributable to pre-construction or construction activities should be capitalised as part of inventory or work-in-progress, while general administrative and selling expenses should be allowed as revenue expenditure in the year of incurrence, subject to verification. The Tribunal therefore set aside the CIT(A)’s findings on these issues and directed the Assessing Officer to examine the nature and purpose of each category of expenditure before deciding its allowability in accordance with law. Accordingly, the Revenue’s appeal was allowed for statistical purposes, with both the ₹28.94 crore CCD interest transfer pricing dispute and the expenditure classification issues remanded for fresh adjudication. The Tribunal did not finally uphold the transfer pricing addition or conclusively determine the deductibility of the remanded expenses.

Cases Discussed

• Mahindra Homes Pvt. Ltd. (ITAT Mumbai), ITA Nos. 2179/Mum/2021 and 1008/Mum/2021, order dated 30.09.2022, Assessment Years 2016-17 and 2017-18 — The Tribunal followed its earlier directions requiring the Assessing Officer to distinguish project-related expenditure, which must be capitalised, from general administrative and selling expenses allowable as revenue expenditure.
• Mahindra Homes Pvt. Ltd. (ITAT Mumbai), ITA No. 7159/Mum/2018, order dated 03.08.2022, Assessment Year 2014-15 — The earlier decision deleting the CCD interest transfer pricing adjustment was considered but distinguished because the Bloomberg comparables in the present year included INR-denominated data.
• Pr. CIT Vs India Debt Management (P.) Ltd. (Bombay High Court), [2019] 106 taxmann.com 55, ITA No. 266/2017 — The High Court emphasised strict comparability under the CUP method and the need for suitable adjustments for currency, country and tenor risks. The Tribunal distinguished the factual circumstances of the present case.
• India Debt Management (P.) Ltd. Vs DCIT (ITAT Mumbai), [2016] 69 taxmann.com 125, ITA No. 7518/Mum/2014, order dated 10.03.2016 — Considered regarding benchmarking of interest on CCDs using comparable debt transactions and appropriate adjustments for material differences.
• CIT Vs Somnath Buildtech Pvt. Ltd. (Delhi High Court), citation partly illegible in the supplied text (taxmann.com 472) — Relied upon by the assessee to support deduction of business-related real estate expenses. The Tribunal nevertheless directed verification of whether the expenditure was attributable to construction or constituted general administrative and selling costs.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

This appeal by the Revenue is directed against order dated 26.12.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – 57, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2015-16, raising following grounds:

Ground 1 Whether on the facts and circumstances of the case and in law, the Hon’ble CIT(A) has erred in not appreciating the difference between Debt/Term Loan vs CCDs duly distinguished by the TPO in his order, requiring different benchmarking?

Mahindra Homes Pvt. Ltd. 2 ITA No. 1212/MUM/2025

Ground 2 Whether on the facts and circumstances of the case and in law, the Hon’ble CIT(A) has erred in directing to accept the benchmarking of interest on term loan/debt for inter st on CCDs, which are primarily different instruments?

Ground 3 Whether on the facts and circumstances of the case and in law, the Hon’ble CIT(A) has erred in relying on the Hon’ble ITAT’s decisi n in assessee’s own case for AY 201 -15 wherein reliance is pl ced on decision of Bombay High Court in the case ofIndia Debt Management in ITA.No.7518/Mum/2014 order dated 10.03.2016, the facts of which are distinguishable i the case of the assessee . In this case of India Debt Managem nt, the high court has obs erved that Bloomberg data has no INR denominated instrument; hereas in the case of the assessee Bloomberg data in INR are available and which were duly intimated to the Assessee in the show-cause notice by TPO?

Ground 4 Whether on the facts and ciroumstances of the case and in law, the Hon’ble CIT(A) has erred in restricting the disallowance of Legal & Professional expenses to the amo unt of Rs. 1,80,78,800/ – and also erred in holding the balance Legal & Professional expenses as Revenue Expenditure in nature and deleting the disallowance made by the AO, without appreciating the fact that the said expense has not contributed in earning any income during the year under consideration and have multiyear effect on the business of the assessee and therefore are liable to be treated as Capital Expenditure.

Ground 5 Whether on the facts and circumstances of the case and in law, the Hon’ble CIT(A) has erred in holding the A dvertisement & Sale expeses as Revenue Expenditure in nature and deleting the disallow nce made by the AO, without apprecia ting the fact that the said expense has not contributed in earning any income during the year under consideration and have multiy ear effect on the business of the assessee and therefore are liable to be treated as Capital Expenditure.

Ground 6 Whether on the facts and circumstances of the case and in law, the on’ble CIT(A) has erred in holding the Commission and brokera e expenses as Revenue Expenditure in nature and deleting the disallowance made by the AO, without appreciating the fact that the said expense has not contributed in earning any income during the year under consideration and have multiyear effect on the business of the assessee and therefore are liable to be treated as Capital Expenditure.

Mahindra Homes Pvt. Ltd. 3 ITA No. 1212/MUM/2025

2. Briefly stated, the facts of the case are that the assessee a domestic company , which is a joint venture between Mahindra Lifespace Developers Ltd. (MLDL), a part of the “M ahindra Group” engaged in the busi ess of real estate development, and SCM Real Estate, Singapore Pvt. Ltd., an investment ar of Standard Chartered Bank. The assessee company is primaril engaged in the development of residential projects in India.

2.1  For the year u der consideration, the assesse e filed return of income electronically on 30.11.2015 declaring total loss of Rs.13,39,91,969/-. he return of income filed by t e assessee was selected for scrutiny assessment and notice u/ 143(2) of the Income-tax Act, 196 (in short ‘the Act’) was issued and duly served upon the assessee o n 04.04.2016. Thereafter notic s u/s 142(1) of the  Act were issue d through Income-tax Busin ess Application (ITBA) portal on various dates. In view of internatio nal transactions of making intere t payment on Compulsorly Convertible Debentures (CCDs) issued to ‘SCM Real Estate Singapore Ltd.’ Singapore and othe r specified domestic transaction disclosed in Form No. 3CEB filed by the assessee, the Ld. Asses sing Officer(AO) referred the matter for determination of arm’s lengt h price of those international transactions to Ld. Transfer Pricing O fficer (TPO). The Ld. TPO in his orde r dated 29.12.2018 proposed transfer pricing adjustment amounti ng to Rs.28,94,33,680/- to the transaction of interest on CCDs. The value of the remaining sp ecified domestic transaction howeve was considered as at arm Assessing Officer al so made disallowance u/s 5 respect of ‘legal and professional expenses’ ( ‘advertisement and ‘commission and bro Rs.1,26,33,412/-. Th e Ld. Assessing Officer also adj usted the work-in-progress at value of Rs.3,49,59,30,826/- as against inventory or work-in-progress value of Rs.368,40,06,222/- as reported by the assessee.

adjustment, following the decision of the Co-ordinate Bench of the Tribunal in the ass ssee’s own case for A.Ys. 20 4-15, 2016-17, and 2017-18, wherein similar additions had be n deleted. The CIT(A) relied upon th in the case of Pr. CI taxmann.com 55 (Bo m), which had affirmed the Trib benchmarking based on Bloomberg/Thomson Reute the absence of INR regarded as appropr iate. The relevant finding of  reproduced as under :

“Further, it is noted that similar methodology were a dopted by the appellant as well as TPO in later A.Y.2016-17 an d 2017-18 also. The ap pellant has submitted that relying on the above decision of H on’ble ITAT for A.Y.2014-15, the Hon’bl e Mumbai ITAT order in the Appellant’s own case for AY 2016-1 7 and AY 2017-18 ITA No. 2179 of 2021 and ITA No. 1008 of 021) vide order dated 30.09.2022 decided the issue in favo ur of the

Mahindra Homes Pvt. Ltd. 5 ITA No. 1212/MUM/2025

appellant. The Hon’ble Mumbai ITAT in this regard had also referred to the case ofIndia Debt Management in ITA. No. 7518/Mum/ 014 (affirmed by the Hon’ble Bombay High Court) also. The relevant extract of the said case law has been reproduced as below.

“Respectfully following the same, we direct the Id. TP to delete the TP adjus ment made towards the interest paid o n CCDs to its AE. Acco dingly, the Ground Nos. 3 to 13 rais d by the assessee are allowed”

6.1.5 From t e above, it is clear that the claim of the appellant is correct that the issue involved is similar and the TP grounds of appeal – 1 to 9 – are squarely covered by the deciion of the Hon’ble juris ictional ITAT in its own case for A.Y. 201 4-15.

Hence, respectfully, relying on this decision of Hon’bl ITAT ITA No.7159/Mu m/2018 for A.Y.2014-15 dated 03.08,2022, the TP grounds of ppeal nos. 1 to 9 are considered as allowed. Consequently, the TP adjustment of Rs.28,9 ,33,680/-u/s.92CA of the Act (Rs.24,80,269/- added to the returned income and the amount of Rs.28,69,53,411/- bein reduced from invent ry on account of this TP adjus tment) is directed to be deleted.”

3. Aggrieved with the finding of the Ld. CIT(A), th e Revenue is in appeal before us by ay of grounds as reproduced above.

4. Before us, the d. counsel for the assessee file d a Paper Book containing pages 1 t o 237, comprises of mostly su bmissions made before the lower a thorities and copy of the d ecisions of the Tribunal in the case of the assessee.

5. The ground No s. 1 to 3 of appeal are in relation to transfer pricing adjustment for interest payments on CCD s to Associated Enterprise. The issu e in dispute pertains to benc marking of the interest paid by the assessee to its AE on CCDs iss ed at a coupon rate of 17.65% (gros s of tax). The facts in brief q a the issue-in- dispute are that the assessee reported international interest on CCDs amounting to Rs.56.51 crores t Enterprise namely S CM Real Estate, Singapore. Bef the assessee explained that the assessee issued CCDs to SCM Real Estate Singapore Pv . Ltd. on 25.07.2013, which c rate of 17.65% (gro ss of the tax). It was further those CCDs shall be automatically and mandatoril equity shares upon expiry of 12 years from the date of allotment. However, those CCD s could also be voluntarily converted based on an agreed conversio price before the expiry of 12 years period. It was submitted that CCDs had faced value of R .100 and were issued to SCM Real Estate Pvt. Ltd. at par witho ut charting any premium. It was fu rther submitted that CCD iss ued carried out coupon rate of 17.65 % (gross of tax per annum) an d the interest of CCDs issued was pa able quarterly.

5.1   For the purpos e of benchmarking the arm’s international transaction, the assessee carried o indentifying comparables on website of Bombay (BSE), National St ck Exchange (NSE) and National Security Deposit Ltd. (NSDL) The assessee carried out through search on the websites for ‘deb instruments’ including securities consisting of Central Government Securities, State Governm ent Securities, Treasury Bill Securities, Memorandum of privately placed bonds list, privately debt in struments. Out of the above de bt instruments, the list of privately d ebt instruments was selected fo r undertaking a detailed analysis. ut of list generated, the assessee further eliminated the list based on following criteria :

• Debt i struments not issued during FY 2013-14;
• Debt instruments issued at floating rate or at zero debt coupon rates;
• Debt instruments, issued by companies not engaged in real estate industry; and
• Debt i struments issued at floating redemption.

5.2 In this manner search result of the three we site resulted in total 65 listing. The assessee further eliminate d the duplicate entries and the inst ruments issued by the companies not operating in residential sub-se tor of real estate. The above criteria resulted in elimination of listin of 60 debt instruments leaving a list of five indentified debt i struments issued. Further, the assessee considered two debt instruments which were accepted in last year’s documentation but not appearing in current year list of probable companies, were a ditionally indentified and included. In this manner, the asse ssee finally indentified seven comparable companies with mea n coupon rate of which was worked out at 18%. The relevant list of comparables along with their coupon rate of interest is reproduce d for ready reference:

5.3 Based on the above analysis the assessee arm’s length rate of interest to an average of 18%. I by the assessee that as per the terms of subscript rate on CCD issued by the assessee to its AE was 1 tax), hence, the interest paid on CCDs by the assess ee to its AE was considered to be at arm’s length price under the Indian Transfer Pricing Guidelines.

5.4   The assessee al so supported its transaction at arm’s length following a seconda y analysis relied upon RBI published lending rates offered by vario us commercial banks in India as published by the RBI at quarterly basis in respect of advances ot her than export credits. The term loan lending rates published by R I on its website are considered as indicative rates at which banks in India lend money to its credit worthy customers. The asses see worked out median of 35^th perc ntile and ending on the 65^th ercentile of the term loan rates offe red by banks in India for the quarter ended September, 2013 wh ch was worked out to 17.25%. It was explained by the assessee that interest rate on CCD issued to the assessee to its AE was 17.65% (gross of tax) and therefore, it was within arm’s length price under th e Indian Transfer Pricing persp ective.

5.5   The Ld. TPO was not satisfied with the benchm arking result of ingly, he rejected the benchmarking carried out ee’s alternative mercial Banks atabase were not strictly comparable to the tion carried out by the assess out any evidence of actual tran ties. Further, the rates were the borrowing company. The controlled Price method (CUP benchmarking data whereas he RBI website considered b ange of lending rates offered ed customers with differing pr the assessee and lso the lending rates had b account without co nsidering the distinctive ter subscription of CCD s. The Ld. TPO further held that convertible debentures issued by the company were as a typ e of loan which could be converted into stock and therefore, the convertible debentures are diffe ent from the non-convertible d ebentures as in the event of bankruptcy, debenture are paid a ter other fixed ereas convertible debentures are a hybrid . benefit of both debt and equi ty. The Ld. TPO filters viz. issuance date, 12 years maturity, d, considering quarterly paym nt etc. The Ld. rch on “Bloomberg” loan dat abase involving and Singapore for benchmarking. Accordingly, at ALP on interest rate of 8.6% on the basis of two comparables namely ‘SVOGL’ and ‘Soma Ente complete search crit  shared by the TPO with the assessee.

5.4   The assessee h owever contended that CCDs ere unsecured, high risk instrument, specific to the real estate se ctor, unlike the ‘Bloomberg’ comparables, which pertain to the industry like ‘oil and gas’ and ‘infrastructure’. It was contended that industry risk and terms of issue made the transaction non-comparable. The assessee also argued that reliance on only two and t ree Bloomberg comparable was strictly insufficient for benchmarki g.

5.5 The Ld. TPO conversion, debt ins yields on Bloomberg by Ld. TPO that i Bloomberg provides reliance on RBI data by the Ld. TPO.

however maintained that CCDs are till trument and therefore, bench marking of loan database was the correct approach. It was held dustry filter was of limited relevance since reliable corporate bond yield. The assessee’s and sector specific risk was also not accepted

5.6 The Ld. TPO no assessment year 20 interest rate on CC above, the Ld. TPO should be computed payment of interest excessive, resulting crores.

concluded that ALP of the interest on CCDs at rate of 8.61% per annum. The assessee’s at the rate of 17.65% was considered as into transfer pricing adjustm nt of Rs.28.94 7159/Mum/2018, deleted the the Assessing Officer. The Tri 14-15 relied on the decision the case of Data Managem ated 10.03.2016, which ha ’ble Bombay High Court in IT The Hon’ble High Court ordinate Bench ssessment year transfer pricing unal (supra) in of the Tribunal nt in ITA No. been further No. 266/2017 observed that benchmarking done by the lower authorities in that case which was based on external ata using ‘Thomson Reuter’, ‘Dealscan’ and ‘Bloomberg’ Databa e which was not found to be correct. The Hon’ble High Court ejected the benchmarking analysis of the TPO firstly, for the rea son that there was no Indi an rupee (INR) denominated debt is suance data available on such databases and secondly, if at all sa d database is used for benchmarking same will require huge adjust ent on account of country risk, currency risk and tenor risk. The refore, Hon’ble High Court concluded that it would be difficult to arrive at an appropriate arm’s length range of price on the basis of the database used by the lower authorities. On the contrary regardi g BSE database used by the a ssessee Hon’ble High Court observed that assessee made minor tenor adjustment to factor the time pe iod as no data for the year 2009-10 was available. The Hon’ le High Court observed that though a high degree of comparability is required under CUP but in absence of comparable data mi or adjustment was permitted to eliminate the material defect of ti e difference. The assessee be ore the Hon’ble High Court filed two comparable transactions for the same financial year in the case of S hriram Transport Financial Company Ltd. and Tata Capital Ltd, where the credit rating of the enterprises was better than the rating of the company at ‘BBBQ and therefore, interest paid @ 11.3 0% was held to be arm’s lengt rate in view of 11.25% to 12% rate i n the case of comparables. The relevant finding of Tribunal (supra) is reproduced as under:

7. We have heard the rival submissions of bo h the parties, per sed the paper book filed by the ass ssee, orders of the authorities below and the m terial available on record. In the instant case, we fin that similar issue on hand has been came before the Mumbai Bench of the Tribunal in the case ofIndia Debt Management (P.) Ltd. v. Dy. CIT [2016 69 taxmann.co m 125 and the order of the Tribuna l has been affirme the case of [2019] 106 d by the Hon’ble Bombay High Court in  103 wherin the benchm on external and Bloomb observation reproduced the Hon’ble Court observed that as ar as rking done by the lower authorities ased data using Thomson Reuters, DealScan erg Database is not correct. The relevant observations High Court reproduced bservations of Hon’ble Jurisdictional is produced as under :

“15. The las t leg of the controversy is, wheth r the benchmarki g analysis done by the assesses is correct or not and whether the average rate of inter st of 11.30% paid by the assessee to its AE is at ALP o r not. So far as the assesses’s benchmarking analys is as done in TP Study report based on external data using Thomson euters’ Deal Scan, and Bloomberg Database, we find that such an approach is not correct, firs ly, there are no INR denominated issuance available on such databases and; sec in absence of such a data the assessee has to out huge a djustments on account of country currency ris adjustments, it would be difficult to arrive appropriate arm’s length range of price; therefo our opinion such an approach of the assesse e for benchmarki g the arm’s length interest rate may not be correct. However, as regards the search undertaken for comparable debt issuances in BSE data, w find that the assessee has shortlisted two comparables namely; Starlight Systems Private Limited and Share Microfin Limited which have a coupon rate of 15 and 13.75%. Since these data belong to year 201 , the assessee h d made minor tenor adjustment to actor the time period to arrive at interest rate of 15.97 and 14.05% givi
ng a mean rate of 15.01%.

Though the assessee w as required to benchmark its trans action by taking th e financial year data for year 2009-1 0,but, if such a da a were not available then it cannot b held that such a enor adjustment for taking into time eriod cannot be ade under CUP, if has been made quite accurately aking into account the material f ctors relating to time of the transaction affecting the price. We though agree that, a high degree of compar bility is required under CUP, but in absence of s ch a comparable data, a minor adjustment can be m de to eliminate the material effect of time differenc e for arriving at a comparable uncontrolled price. Now before us, the assessee had filed two comp rable transactions for the year 2009, that is, for the same financial y ar in the case of Shriram Tra sport Financial ompany Ltd. and Tata Capital Ltd., wherein, for credit rating ofAA Enterprises the c upon rate of interest per annum was between 11% to 12% for a tenor of 60 months. The yield on redemption is also aroun 11.25% to 12%. If for a credit rating company AA orAA(+) the interest rate is ranging between 11 % to 12%, then in the case of the ass esseewhich is admittedly BBBQ credit rating comp 11.30% inte est paid by the assessee to its AE is within the a mi’s length rate. This data/documen public domain now made available before us is reiving to benchmark and analyse the c transaction of coupon rate of interest paid/paya CCDs issued by the assessee. Accordingly, we that 11.30% interest rate is at arm’s length price. 48,53,19,31 0/stands deleted, and conseq ground no. 1 is allowed.”

7.1 In the comparable in CUP method related to database used NSE, BSE and NSDL database margin of the appellant is 17.65% g oss or 15% net of tax system wheres the rate or merging as per database 18.13%. The ass essee in secondar analysis calculated the rate at the rate of 17.89% on basis of the term loan lending rates ofered Bank of India. the learned TPO undertook a fresh search using Bloomberg database to benchmark the international transaction without appreciating that the circumstances necessitating determination of price by the TPO as mentioned in sub-section (3) of sectio 92C of the Act d id not exist in the instant case. The arm’s length rate of interest in CCDs was arrived @ 8.58% as per Bloomb erg database. The assessee applied the same rate of interest both in foreign AE and do estic AE. No oth r uncontrolled comparable is dete rmined during the TP study under CUP method. The application f CUP method as MAM without takin care the risk adj stment in terms of rule 10B(1)(e)(iii) of the Rules, which are generally involved in a third party transaction vis-à-vis between AEs to facilitate & maintain t e level and was not transaction of rendering atual service to AE. So, the benchm rking done by the appellant by way of search conducted on NSE, BSE & NSDL comprising of followi g 7 comparable should be accepted in TP study by the TPO. The revenue in TP study had considered the interest paid on loans in the oil, gas and infrastr cture industries as comparable to interest on CCDs under cup method. So, the two comparables from list of comparable selected by the TPO be rejected as per the ground number 9 of the assessee. During the stu y the TPO should take care specific characteristics f the products being compared, functions performed, contractual erms and conditions. It is directed that the benchmarki g undertaken by the assessee under CUP method usi g correct filter on NSE, BSE and NSDL data. We a cepted, arithmetic mean of which omes 18.13%then the interest rate on CCD in respect of the impugned international transaction of 17.65% is at arm’s length. The benchmark performed on Bloo mberg database y the appellant be considered, the impugned international transaction of interest on CCD paid at 17.6 5% is at arm’s length.

Respectfully following the decision in the aforesaid Judgment o Hon’ble Bombay jurisdictional High Court and in absence of any contrary decision brought to thenotice of the Bench by the Ld. D.R, we delete th e T.P. adjustment addition of Rs. 16,45,67,968/- pro osed by the TP and made by the A.O. in the draft assessment order and accordingly, grounds of a ppeal Nos.2 to 13 of the assessee company are setting aside to TPO cons dering the findings of the Bench. Nee dless to say the as sessee should get reasonable oppo rtunity for the case. ”

7. Before us, the Ld. TPO rejected th conducted on BSE, valid reason for the also rejected the sec to conduct a fresh s ALP on interest rat namely ‘SVOGL’ a operating in the oil entirely un-related t estate sector.

7.1The Ld. counse l further submitted that the L d. TPO erred in not adopting proper filters such as debt instrumen ts industry etc. while undertaking a search of Bloomberg Databa e and erred in selection of non-co parable dataset. The Ld. co nsel submitted that the dataset ado ted by the Ld. TPO was errone us for following reasons:

i. Comparabl es selected by the TPO operate in the Oi l & Gas and Infrastructure sectors, which are entirely unrel ted to the Respondent’s business in the residential real estate se ctor.

ii. The real es tate industry, is an inherently highly ris y sector and during AY 20 15- 16, real estate developers faced hi h borrowing costs, rising input prices and shrinking profit margins owing to the high rise in r al estate inventory. On the contrary, in the Oil & Gas industry, for example, there are ready buyers for the roducts and hence there s rarely any unsold inventory thereby lowering the inventory risk for companies operating in the Oil & Ga sector.

iii. Out of th e 6 loan transactions selected by learned TPO, 5 transactions pertained to secured loans taken SOMA Enterprises. However, in the case of the Appellant, the CCDs have been issued on an unsecu red basis, and hence, same cannot be considered to be comparable to the CCD’s issued by Respondent.

iv. The loan transactions selected by learned TPO ave floating interest rate is-à- vis fixed coupon rate in case of the CCDs issued ordinate Bench of th was further followed and 2017-18.

7.2 The Ld. ordinate Bench in was and 2017-18. counsel further relied on the decision of the Co ench of the Tribunal assessment year 2014 as further followed by the Tribunal in assessment year The Ld. counsel further relied on the decision of the Co- ordinate Bench of the Tribunal in assessment year 2014-15 which was further followed by the Tribunal in assessment years 2016-17

8. On the contra y, the Ld. Departmental Rep esentative (DR) submitted that decision of the Tribunal in the case of the assessee for assessment yea 2014-15 is not applicable f r two reasons,  therefore, same economic an sequent assessment years. He -15 in the case of the assesse in the case of India Data Man High Court held that INR de d therefore, said data set was arables in each lysis cannot be submitted that has ultimately agement (supra) nominated data not found to be comparable with that assessee. The Ld. DR submitted that in the instant year the Ld. TPO has used data set having INR data and therefore the ratio of the Hon’ble Bombay High Cou rt in the case of India Data Manage ment (supra) relied upon by the ITAT in assessment year 20 14-15 is distinguishable and ame cannot be applied as a valid p ecedent. Secondly, the Ld. DR submitted that the Hon’ble High Court in the case of India Data Management (supra) has taken i to consideration the rating and tenor of the debt instruments while comparing the transacti ns under CUP method. He submitt d that the Hon’ble High Court has specifically emphasized that a igh degree of comparability is required under the CUP unless mi or adjustment can be made t o eliminate the material effect of difference for arriving at a comparable uncontrolled price.

9. We have heard rival of the and the relevant materials mandates the ALP by applying the “ard submissions parties perused
he on record. The Section 92C of the Act tes that be determined most We have heard rival submissions of the parties and perused
The Section 92C of the Act mandates that the ALP be determined by applying the “mostappropriate method” Rules, instant Comparable (CUP) Method explicitly be had to: thod” prescribed under Rule 10B of the ules, 1962. In the case, both parties have applied the omparable Uncontrolled Price Method. The Rule 10B(2)plicitly lays down that for determining comparability, regard shall
appropriate method” prescribed under Rule 10B of the Income-tax Rules, 1962. In the instant case, both parties have applied the
The Rule 10B(2) explicitly lays down that for determining comparability, regard shal

i. the specific characteri stics of the property transferred or services provided;

ii. the functions performed, assets employed and risks assumed (FAR analysis);

iii. the contractual  terms  of thetransaction;      and

iv. the economic circum stances of the parties and the markets in which they operate.

9.1 The Rule 10 (3) further provides that a n uncontrolled transaction shall be considered comparable only if none of the differences between the transactions materially affe t the price, or if reasonably accurate adjustments can be made to eliminate such differences.

9.2 Further, the H on’ble Bombay High Court in Pr. CIT v. IndiaDeb t Management (P. ) Ltd. [2019] 106 taxmann.com 55 categorically held that CUP demands a high degree of comparab ility, and where databases (Bloombe g/Thomson Reuters) lacked I R-denominated transactions, bench marking could not be sus tained without suitable adjustments for country risk, currency risk and tenor risk.

9.3 The CCDs, by their very nature, are hybr d instruments. Unlike plain NCDs, they carry an embedded equ ty option since they mandatorily co nvert into equity shares at a future date. The option to convert co fers a significant equity upside to the investor, thereby reducing th required coupon rate compared to a straight debt instrument. he CCDs are not comparabl with ordinary debentures as they mbody the dual character of ebt and equity. The comparability under CUP cannot be presum d between two instruments of fundamentally distinct risk and retun profile.

9.4 In the case, the assessee has issued Compul ory Convertible Debentures (CCD) to its Associated Enterprises and paid interest on the same at gross interest(coupon) rate of 17.65%. The assessee has compared the said interest rate with the dat a set of debt instruments on ‘BS ’, ‘NSE’ and ‘NSDL’ which co mprises of non-convertible debentures (NCD). The assessee has not carried out any adjustment to eliminate the effect of compulsory co nversion of this debenture at the en of the 12 years into equity w hich has added advantage to its associated enterprises. Further, the secondary analysis has been made on the basis of the set of he interest rate charged by the vari us Indian Commercial Banks on loans other than the export loans but in our opinion said dat base is not the and thus this is not for comparison und Secondly, said inter customer, tenor of t liable to be rejected.

9.5 Thus, any analysis CCDs NCDs, without option value, subordination, and equity convertibility Bloomberg loan transactions selected by the comprising floating oil and gas and infrastructure ny comparability between and plain adjustment for uity convertibility, fails the test of Rule 10B(3). Similarly, ransactions TPO mprising secured floating-rate loans in unrelated industries like
nd infrastructure—cannot be regarded as comparable Thus, any comparability analysis between CCDs and plain adjustment for option value, subordination, and fails the test of Rule 10B(3). Similarly, ransactions selected by the TPO—largely rate loans in unrelated industries like cannot be regarded as comparable to unsecured real sector, which inherently riskier and has not considered the effect of conversion optionality o CCDs issued in the estate is carries higher borrowing costs. also considere ffect equity to unsecured CCDs issued in the real estate sector, which is carries higher borrowing costs. The Ld. TPO has also not considered the effect of equity

9.6 As far as the contention of the assessee that in earlier year, the Tribunal has eleted the transfer pricing djustment and rejected the transfe pricing analysis of the TPO, we are of the opinion that there are factual differences in t he year under consideration as co mpared to the assessment year 2014-15. The Tribunal has relied on the decision in the case Data Management (supra) wherein the Hon’ble High court observed t at the data set used of the Bloom erg used by the TPO was ot having INR denominated data s t. Further, Hon’ble High Cou t observed that since the CCDs in uestion were used and utiliz d in India, the ‘Bloomberg’ data set without INR transactions was not accurate for comparison and if at all same was to be used then same would required a lot of adjustment for country risk, cu rency risk and tenor risk and there fore, said data set may not be appropriate for comparison. But in he instant assessment year, the Ld. TPO used Bloomberg INR interest rate data set and therefore, decision in the assessment year 201 4-15 is distinguishable on facts .

9.7   We are of the o pinion that the comparison carried out by the assessee as well a s the Ld. TPO, both are not meeting the requirement of the comparison with the CCD issued by the assessee. It is admit edly clear that no CUP transaction of the CCD subordination and e agreement prioritiz purposes of collecting repayment from a debtor Ld. TPO. The D issued in the adjustment for subordination d another for in the event of  foreclosure or bankruptcy.. The CCDs has manda therefore, as independent investor coupon interes lower because they lso receive equity upside. The NSE and NSDL data set largely reference straight d type terms) with no deduction. Further, security, seniority or  material price drive Rules, 1962. The as real estate borrowe association and imp credit profile. Accord

has been cited either by the assessee or by the Ld. TPO. The assessee has compared with the database of the NCD issued in the real estate sector. The assessee has not made any adjustment for subordination and equity conversion optionality. A subordination agreement prioritizes debts, ranking one behind another for purposes of collecting repayment from a debtor in the event of foreclosure or bankruptcy. The CCDs has mandatory conversion therefore, as independent investor coupon interest rate would be lower because they also receive equity upside. The assessee’s BSE, NSE and NSDL data set largely reference straight debentures (NCD type terms) with no equity options; absent a defensible option-value deduction. Further, the assessee has not shown any parity on security, seniority or covenants versus the tested CCDs. These are material price drivers under Rule 10B(2)(3) of the Income-tax Rules, 1962. The assessee has treated itself as standalone unrated real estate borrower, inflating the coupon whereas the passive association and implicit parental support can uplift the borrower’s credit profile. Accordingly, we conclude that :

(i) The assessee relied on seven comparables from BSE/NSE/NSDL databases, with coupon rates ranging between 16.5% and 20%. These, however, pertain to straight NCDs and no adjustment was carried out for the embedded equity feature of CCDs. By ignoring the convertibility element, the assessee’s benchmarking is inflated.

BSE/NSE/NSDL databases, with coupon rates ranging between 16.5% and 20%. Th se, however, pertain to straig t NCDs and no adjustment was carried out for the embedded e uity feature of CCDs. By ignoring the convertibility element, the assessee’s

ii. The second ry analysis based on RBI’s pu blished lending rates was rightly rej cted by the TPO, as those are indicative policy rates and not the ou come of actual independent transactions. They are therefore outsid e the purview of CUP as en isaged in Rule 10B(1)(a).

iii. On the other hand, the TPO’s reliance on Bloomberg comparables is also flawed. Firstly, the selecte d comparables pertain to unrelated industries with different risk -return profiles, violating Rule 10B(2) (b). Secondly, the majority of transactions were secured loans, while the assessee’s CCDs are uns ecured. Thirdly, the coupon structur s (floating vs fixed) are materi lly different. No adjustments were attempted to neutralize th se differences, contrary to Rule 10B (3).

iv. In effect, neither the assessee’s comparabl s nor the TPO’s comparables satisfy the statutory test of strict comparability under CUP. In such a position where neither party demonstrates reliable comparables, the be nchmarking must fail and the matter must be reconsidered with ap propriate adjustments.

9.8 In light of the foregoing discussion, we are o view that the issue c annot be resolved on the pres sets of comparables are deficient in terms of Rule fundamental comp arability differences in res conversion option, subordination, security, indu the considered nt record. Both 10B(2)/(3). The ect of equity stry risk, and coupon structure re main unaddressed. As appro ch of both the assessee as well as of TPO is not meeting th e comparability standards required nder the method of CUP , n alternative left with us except to set aside the order of the lower authorities and restore the matter b ack to the file of the Ld. AO/TPO for carrying out appropriate adju stment to cover the convertibil ty (option value factor) to minimize the difference between the comparable transaction either of the NCD or Bloomberg INR de nominated loan interest transaction r SBI base/CLR credit tenor sp read interest on loan transaction. Ac ordingly, in the interest of just ce, we set aside the order of the CI (A) and restore the matter to the file of the AO/TPO with a direction to re-examine the issue de novo. We make it clear that our ob servations are confined to th e comparability analysis and shall no t prejudice the merits of the case. The AO/TPO shall pass a reasone order in accordance with law. It is needless to mention that the ad equate opportunity of being heard should be afforded to the asses international transation the Revenue are acco tion. The ground Nos. 1 to 3 of the appeal of rdingly allowed for statistical purposes.

10. The Ground No s. 4 and 5 of the appeal pertai n to the deletion of additions made by the Assessing Officer in resp ect of legal and professional expense s, advertisement and sales pro otion expenses, and commission and brokerage expenses. The Learned Counsel for the assessee submitt ed that the said expenditure h ad been claimed  Chartered Accounta developers. As per s land, labour, and progress, whereas administrative expen indirect expenses, includin diture, are not to be treated as progress, but are all owable as deduction in the year are incurred. Relianc e was placed upon the judgme Delhi High Court in CIT v. Somnath Buildtech Pvt. taxmann.com 472 (D elhi)], wherein similar expenses deductible. It was fu rther submitted that identical in the assessment year 2014-15 had already been Tribunal, and no f rther appeal was preferred before the Hon’ble High Court, thereby attaining fin

10.1. Per contra, the Learned Departmental submitted that in th e assessment years 2016-17 a Tribunal, after cons idering the ICAI guidelines, h matter to the file of was argued that the such expenses an attributable to the which case they ou only the residual should be allowed reliance upon the re levant findings of the Tribunal , which read as under:

7.10. It is not in dispute that the expenditures i curred by the assessee were incurred wholly and exclusively for the purpose of business only. What is required to be analysed here is as to whether they ar connected with the project or to be allowed as general administrative and selling costs. n any event, allowing revenu e expenditure to the extent of 42.08% of relevant expendi ure is grossly incorrect. There is absolutely no basis for the Id AO for doing this. All said nd done, the relevant expenditure has already been inc rred by the assessee. Restri ting the business expenditure to the extent of business income is certainly not provided in the entire scheme of the Act. Consiering the totality of facts circumstances of the case, we deem it fit and appropriate, in the int rest of justice and fair play, to remand this entire issue to the file of Ld. AO for adjudication In the light of the following directions:-

42. Restricting the allo wability of expenses to the extent of 42.08% is wrong.

43. Expenses directly attributable to Pre-construction and c nstruction period should be identified and added to the Inventory/ cost of work in progress.

44. Other expenses should be allowed as revenue expe nses as General Administration and S elling Expenses.

The Id. AO is direct ed to carry out the verification in the light of aforesaid directions and then d ecide the issue accordingly. Hence the Ground Nos. 14 to 25 raised by the assessee before us are allowed for statistical purposes.

10.2 Having conside red the rival submissions a d perused the material available o record, we note that the con troversy stands squarely covered b the directions issued by t he Tribunal in assessee’s own case for assessment years 2016-1 7 and 2017-18. Respectfully following the said precedent, we de em it just and proper to restore this issue to the file of the Assessing Officer for the limited purpose of v rification. The Assessing Office r shall examine whether the impug ed expenses, namely legal a nd professional fees, advertisement nd sales promotion expenses, and commission and brokerage expenses, are directly connected wit the real estate project. To the ext nt such expenditure is attributable to pre-construction or cons truction activity, the same shall be capitalised as part of work-in-progress; and to the extent they are in the nature of general administrative or selling expenses, they shall be allowed as revenue expenditure in the year of incurrence , in accordance with law.

10.3 In view thereof, the findings of the Learned CIT(A) on this issue are set aside, and the matter is restored to the file of the Assessing Officer for fresh adjudication in the light of the above directions. Accordingly, Ground Nos. 4 and 5 raised by the Revenue are allowed for statistical purposes.

12. In the result, the appeal of the Revenue is allowed for statistical purposes.

Order pronounced in the open Court on 15/09/2025.