ITAT Holds Interest on CCDs Allowable as RBI’s FDI Classification Cannot Govern Income Tax

Embassy One Developers Pvt. Ltd. Vs DCIT (ITAT Bangalore) The assessee filed appeals against separate orders of the Commissioner of Income Tax (Appeals) for Assessment Years 2009-10 and 2010-11. The principal issue in both appeals concerned the disallowance of capitalisation of interest expenditure incurred on Compulsorily Convertible Debentures (CCDs) issued to its Associated Enterprise. The Assessing Officer (AO) had referred the matter to the Transfer Pricing Officer (TPO), who treated the CCDs as equity instead of debt by relying on the Reserve Bank of India (RBI) policy under the Foreign ...