CCDs Remain Debt Until Conversion – ITAT Quashes NIL ALP, Orders Fresh Benchmarking of Interest

Alfanar Energy Private Limited Vs DCIT (ITAT Delhi)

Alfanar Energy Pvt. Ltd., an Indian renewable energy company, had issued Compulsorily Convertible Debentures (CCDs) to its AEs and paid interest at 13%. The interest was not claimed as an expense but was capitalised into work-in-progress. The TPO re-characterised the CCDs as equity on the ground that conversion was at the discretion of parties and therefore treated the arm’s length price of interest as Nil. DRP upheld this view.

Before the ITAT, the assessee argued that capitalised interest

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