JCIT (OSD) Vs ZF Wind Power Coimbatore Pvt. Ltd (ITAT Chennai)
ITAT Chennai held that arm’s length price of interest paid on Fully Compulsory Convertible Debentures [FCCDs] issued in Indian denominated currency is to be determined by adopting average SBI Prime Lending Rate [PLR].
Facts-The case of the assessee was selected for scrutiny assessment and during the course of assessment proceedings, the case was referred to the Transfer Pricing Officer (TPO) to determine the arm’s length price of the International transactions undertaken by the assessee with its AEs. The TPO passed an order u/s. 92CA(3) of the Act on 22.01.2016 proposing TP adjustment of Rs.6,07,18,138/-.
The TPO in the manufacturing section had taken sale of scrap (others) as non-operating in nature. With regard to interest payment on Fully Compulsory Convertible Debentures (“FCCD”), the TPO rejected the TP analysis of the assessee company wherein assessee had adopted Comparable Uncontrolled Price (‘CUP’) method as most appropriate method. The assessee in its TP analysis had stated that its interest rate on debentures at 13.50% was lower than the average PLR of 14.46% prevailing as on the year ending 31.03.2012. The TPO by rejecting assessee’s TP study conducted a fresh search and picked up public limited companies and arrived at ALP of 10.42%. In this context, one of the comparable picked up by the assessee company during the TP proceedings namely Jay Pee Sports International was disregarded by the TPO stating SBI base rate is a variable factor and therefore, could not be considered in the bench marking analysis. By adopting the arm’s length interest rate of 10.42%, the TPO proposed adjustment of Rs.2,03,36,437/- with regard to interest payment of FCCDs.
