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1.6 On the facts and in the circumstances of the case and in contrary to law, the Ld. AO/ ld. PO erred in ignoring the documentation, factual and legal submissions provided by the Appellant to substantiate the benefit, corresponding economic or commercial value derived on receipt of management services.

2. Re-characterization of Compulsory Convertible Debentures & interest thereon:

2.1. On facts and in the circumstances of the case and in contrary to law, the Ld. TPO / Ld. AO has erred in going beyond the scope to re-characterize the Compulsory Convertible Debentures ('CCD') as loan for benchmarking the international transaction of interest payments on CCD and the Hon'ble DRP has further erred in upholding the action of Ld. TPO / Ld. AO. 2.2. On the facts and in the circumstances of the case and in contrary to law, the Ld. TPO / Ld. AO erred and subsequently Hon'ble DRP further erred in upholding the action of Ld. TPO / Ld. AO by not appreciating the fact that CCDs are consumed in India and interest on CCDs should be benchmarked using State Bank of India ('SBI') Prime Lending Rate ('PLR') rather than London Inter-Bank Offered Rate ('LIBOR') rate.

7. As regards ground No. 2 (2.1 to 2.5) regarding recharacterization of Compulsory Convertible Debentures & interest thereon, the TPO noted that the assessee has stated that it paid interest @12% on the debentures allotted to its AE and compared the same with PLR and concluded the transaction is within arm's length as the PLR is more than the interest charged by the assessee company to it's AE. A show cause notice was issued on dt.13.10.2017 as to why LIBOR should not be applied to its case as LIBOR is usually applied as a bench mark for all the international loans and advances. The assessee was asked to furnish certain informati on on this. In response to which, the assessee replied that the assessee had allotted 18,56,25,815 CCDs at a face value of INR 10 per CCD to it's AE Celcius Property B.V. at an interest rate of 12% per annum. These funds were obtained from AE for the expansion of the business. At this juncture the paid interest on CCDs was at the rate of 12% amounting to Rs.18,14,93,230/-.

7.2 The TPO rejected the submissions of the assessee and observed that the assessee paid an interest of 12% to Its AE during the F.Y. under consideration as interest on compulsory convertible debentures (CCDs). Further, he observed that as per the RBI guidelines the CCDs are in the nature of loans. In various decisions the Hon'ble ITAT has clearly held that on international loans, LIBOR is appropriate for benchmarking. The ITAT decision in the case of Foursoft Ltd, Market Tools, Aurobindo Pharma Ltd, Dr. Reddy Laboratories etc. upheld the use of LIBOR.

7.3 Further, he observed that on perusal of the financial statements of the company, the revenues as well as the profits of the taxpayer have significantly increased over the last three years (upto F.Y. 2012-13 to 2013-14). Thus, the creditworthiness of the assessee is much better. Considering the tenure and nature of the transaction being CCDs, LIBOR plus 200 points is appropriate.

7.4 In view of the above reasons the TPO adopted LIBOR plus 200 basis points. The average 1 year Libor during the year is 0.63%. Thus the total interest payable worked out to 2.63% as arm's length interest.