I already disallowed the whole of the interest paid to my associated enterprise under s.94B in my own computation. The TPO has still made a transfer pricing adjustment on the same interest. Can he?
Not on these facts. Where the assessee had itself added back the entire interest paid to its associated enterprises on non-convertible debentures under s.94B in its computation of income and paid tax on it, the Tribunal held that a further disallowance out of the same interest by way of a transfer pricing adjustment would amount to double taxation of the same income and was not permissible, and it directed the adjustment to be deleted.
Decided by the ITAT (Ms. Madhumita Roy, Judicial Member and Shri Manish Agarwal, Accountant Member) on 2026-01-16, reported as ITA No. 4199/Del/2024 (ITAT Delhi Bench 'I'), Assessment Year 2020-21. It bears on section 94B, section 94B(2), section 94B(4), section 92, section 92C, section 92CA of the Income Tax Act 1961, in Assessment & Scrutiny and Deductions & Disallowances matters.
This is the practical answer to the department's structural argument — pressed at length by the Commissioner-Departmental Representative here — that Chapter X and s.94B operate in separate realms, that a transfer pricing reference is mandated once there is an international transaction whatever the assessee has done under s.94B, and that arm's length determination still matters because it can affect the amount available for carry forward under s.94B(4). The Tribunal did not deny that the two sets of provisions are different; it decided the case on the arithmetic, that the same rupee cannot be taxed twice. The limit of the decision is exactly where the Departmental Representative aimed: the Tribunal only reached its conclusion after satisfying itself, from the tax audit report and the returns for the following years, that the assessee had neither carried the disallowed interest forward nor claimed it in any subsequent year. An assessee who has carried the amount forward under s.94B(4) is not protected by this order.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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For AY 2020-21 the assessee had paid interest of Rs 7,69,03,118 to its associated enterprises on non-convertible debentures. In its computation of income, under the head profits and gains of business or profession, it disallowed that entire amount suo motu under s.94B as being in excess of 30 per cent of profits within s.94B(2) and paid tax on it. The interest was nonetheless reported in Form 3CEB as an international transaction, the matter went to the Transfer Pricing Officer, and the Assessing Officer made a transfer pricing adjustment of Rs 1,60,21,483 on the interest paid on the debentures. Before the Tribunal the assessee raised the point as an additional ground. The Commissioner-Departmental Representative objected to admission of the ground, and argued in written submissions that s.94B is a thin capitalisation rule in line with OECD/G20 BEPS Action 4 with its own gateway of Rs 1 crore of interest, its own 30 per cent EBITDA cap and its own eight-year carry forward under s.94B(4) with banking and insurance companies excluded, that transfer pricing provisions and s.94B operate in separate realms and may both apply to the same transaction, and that arm's length determination still mattered because it could bear on the amount carried forward. He further contended, on a one-page computation handed up at the hearing, that the assessee appeared to have carried the interest forward in Form 3CD and to have claimed associated enterprise interest as a deduction in AY 2021-22 and AY 2023-24. In a rejoinder the assessee showed from clause 30(B) of the tax audit reports that the carry forward columns related only to Rs 4,49,05,457 for AY 2018-19 and Rs 17,89,175 for AY 2019-20, and that the deductions claimed in AY 2021-22 and AY 2023-24 were out of those years' own associated enterprise interest and not out of any brought forward disallowed interest.
The appeal was partly allowed. Once the assessee had added back the interest paid on the non-convertible debentures to its total income and paid tax on it, any further disallowance out of that interest would amount to double taxation of income, which is not permissible, and the transfer pricing adjustment of Rs 1,60,21,483 was directed to be deleted. On the department's contention that the assessee might have carried the amount forward and claimed it later, the Tribunal found on the audit reports and the subsequent years' returns that it had neither carried the amount forward nor claimed any deduction out of brought forward disallowed interest, so the contention was factually incorrect. The remaining grounds on the merits of the adjustment became academic (paragraphs 13, 14 and 15).
The Tribunal identified the sole issue as the transfer pricing adjustment of Rs 1,60,21,483 on interest on the debentures, and accepted from the computation at pages 188 to 190 of the paper book that the whole Rs 7,69,03,118 had been suo motu disallowed under s.94B in computing business income. From that it reasoned directly that a further disallowance out of the same interest would tax the same income twice, which the law does not permit, so the adjustment could not stand. It then dealt with the department's factual objection about carry forward by examining the tax audit report and the returns of income for the subsequent years, which showed no claim for brought forward interest disallowed under s.94B, and rejected the contention that the assessee might have taken the benefit of the disallowed interest in later years as not correct on the facts before it. Having allowed the additional grounds, it held the remaining grounds on the merits of the adjustment to be academic.
Once the assessee has already added back the amount of interest paid of NCD's to the total income and paid the taxes thereon, any further disallowance out of such interest tantamount to double taxation of an income which is not permissible as per law and, therefore, in our considered opinion, addition made by AO towards transfer pricing adjustment is liable to be deleted.
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Handle my notice → Ask a CA on WhatsAppNot on these facts. Where the assessee had itself added back the entire interest paid to its associated enterprises on non-convertible debentures under s.94B in its computation of income and paid tax on it, the Tribunal held that a further disallowance out of the same interest by way of a transfer pricing adjustment would amount to double taxation of the same income and was not permissible, and it directed the adjustment to be deleted. This was decided by the ITAT (Ms. Madhumita Roy, Judicial Member and Shri Manish Agarwal, Accountant Member) and bears on section 94B, section 94B(2), section 94B(4), section 92, section 92C, section 92CA of the Income Tax Act 1961. It is reported as ITA No. 4199/Del/2024 (ITAT Delhi Bench 'I'), Assessment Year 2020-21. This is the practical answer to the department's structural argument — pressed at length by the Commissioner-Departmental Representative here — that Chapter X and s.94B operate in separate realms, that a transfer pricing reference is mandated once there is an international transaction whatever the assessee has done under s.94B, and that arm's length determination still matters because it can affect the amount available for carry forward under s.94B(4). The Tribunal did not deny that the two sets of provisions are different; it decided the case on the arithmetic, that the same rupee cannot be taxed twice. The limit of the decision is exactly where the Departmental Representative aimed: the Tribunal only reached its conclusion after satisfying itself, from the tax audit report and the returns for the following years, that the assessee had neither carried the disallowed interest forward nor claimed it in any subsequent year. An assessee who has carried the amount forward under s.94B(4) is not protected by this order. If it applies to you, the first step is this: Before running this argument, check clause 30(B) of your tax audit report for every year and confirm whether the disallowed interest was carried forward under s.94B(4); the Tribunal decided the point on that evidence.
For AY 2020-21 the assessee had paid interest of Rs 7,69,03,118 to its associated enterprises on non-convertible debentures. In its computation of income, under the head profits and gains of business or profession, it disallowed that entire amount suo motu under s.94B as being in excess of 30 per cent of profits within s.94B(2) and paid tax on it. The interest was nonetheless reported in Form 3CEB as an international transaction, the matter went to the Transfer Pricing Officer, and the Assessing Officer made a transfer pricing adjustment of Rs 1,60,21,483 on the interest paid on the debentures. Before the Tribunal the assessee raised the point as an additional ground. The Commissioner-Departmental Representative objected to admission of the ground, and argued in written submissions that s.94B is a thin capitalisation rule in line with OECD/G20 BEPS Action 4 with its own gateway of Rs 1 crore of interest, its own 30 per cent EBITDA cap and its own eight-year carry forward under s.94B(4) with banking and insurance companies excluded, that transfer pricing provisions and s.94B operate in separate realms and may both apply to the same transaction, and that arm's length determination still mattered because it could bear on the amount carried forward. He further contended, on a one-page computation handed up at the hearing, that the assessee appeared to have carried the interest forward in Form 3CD and to have claimed associated enterprise interest as a deduction in AY 2021-22 and AY 2023-24. In a rejoinder the assessee showed from clause 30(B) of the tax audit reports that the carry forward columns related only to Rs 4,49,05,457 for AY 2018-19 and Rs 17,89,175 for AY 2019-20, and that the deductions claimed in AY 2021-22 and AY 2023-24 were out of those years' own associated enterprise interest and not out of any brought forward disallowed interest. The matter was decided on 2026-01-16 by the ITAT (Ms. Madhumita Roy, Judicial Member and Shri Manish Agarwal, Accountant Member). On those facts the ITAT held as follows. The appeal was partly allowed. Once the assessee had added back the interest paid on the non-convertible debentures to its total income and paid tax on it, any further disallowance out of that interest would amount to double taxation of income, which is not permissible, and the transfer pricing adjustment of Rs 1,60,21,483 was directed to be deleted. On the department's contention that the assessee might have carried the amount forward and claimed it later, the Tribunal found on the audit reports and the subsequent years' returns that it had neither carried the amount forward nor claimed any deduction out of brought forward disallowed interest, so the contention was factually incorrect. The remaining grounds on the merits of the adjustment became academic (paragraphs 13, 14 and 15).
The Tribunal identified the sole issue as the transfer pricing adjustment of Rs 1,60,21,483 on interest on the debentures, and accepted from the computation at pages 188 to 190 of the paper book that the whole Rs 7,69,03,118 had been suo motu disallowed under s.94B in computing business income. From that it reasoned directly that a further disallowance out of the same interest would tax the same income twice, which the law does not permit, so the adjustment could not stand. It then dealt with the department's factual objection about carry forward by examining the tax audit report and the returns of income for the subsequent years, which showed no claim for brought forward interest disallowed under s.94B, and rejected the contention that the assessee might have taken the benefit of the disallowed interest in later years as not correct on the facts before it. Having allowed the additional grounds, it held the remaining grounds on the merits of the adjustment to be academic. In the words reproduced by the source cited on this page: "Once the assessee has already added back the amount of interest paid of NCD's to the total income and paid the taxes thereon, any further disallowance out of such interest tantamount to double taxation of an income which is not permissible as per law and, therefore, in our considered opinion, addition made by AO towards transfer pricing adjustment is liable to be deleted."
It was decided by the ITAT on 2026-01-16 and is reported as ITA No. 4199/Del/2024 (ITAT Delhi Bench 'I'), Assessment Year 2020-21. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 94B, section 94B(2), section 94B(4), section 92, section 92C, section 92CA, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was partly allowed. Once the assessee had added back the interest paid on the non-convertible debentures to its total income and paid tax on it, any further disallowance out of that interest would amount to double taxation of income, which is not permissible, and the transfer pricing adjustment of Rs 1,60,21,483 was directed to be deleted. On the department's contention that the assessee might have carried the amount forward and claimed it later, the Tribunal found on the audit reports and the subsequent years' returns that it had neither carried the amount forward nor claimed any deduction out of brought forward disallowed interest, so the contention was factually incorrect. The remaining grounds on the merits of the adjustment became academic (paragraphs 13, 14 and 15). It arises in Assessment & Scrutiny and Deductions & Disallowances matters, on section 94B, section 94B(2), section 94B(4), section 92, section 92C, section 92CA of the Income Tax Act 1961, and was decided by Ms. Madhumita Roy, Judicial Member and Shri Manish Agarwal, Accountant Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. File the computations and returns for the subsequent assessment years to show that no deduction was claimed out of brought forward disallowed interest, which is what defeated the Departmental Representative's contention here. Distinguish clearly, on the record, between interest of the year that was suo motu disallowed and any brought forward disallowed interest of earlier years that appears in the same columns of the audit report — the confusion between the two is what the department relied on. Raise the point as an additional ground if it was not taken below; it was admitted as an additional ground here notwithstanding the department's objection that it had never been raised before the TPO, the Assessing Officer or the DRP. Take the double taxation point first: once it succeeds, the comparability and merits grounds on the same adjustment become academic, which is how the Tribunal disposed of them.
Validity check could not be completed. Validity check could not be completed — no search for later treatment was carried out and none is claimed. The order is recent (16 January 2026) and is fact-driven: it turns on the assessee having neither carried forward nor later claimed the disallowed interest, and it does not decide the broader question whether Chapter X benchmarking of interest is required at all where the whole interest has been disallowed under s.94B. A later pass should look for a decision on that broader question, which the Departmental Representative argued fully here and which remains open. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The report renders 's.94B' as 's.948' in several places within the quoted written submissions and rejoinder, which is plainly an optical character recognition artefact of the digit 'B'; it is read as s.94B throughout. Paragraph 12 records that the assessee's computation appearing at page 190 of the paper book was reproduced in the order, but the reproduced table does not appear in the retrieved text — only the page break markers. The order does not decide the Departmental Representative's wider contention that Chapter X and s.94B operate independently and that arm's length benchmarking of interest is legally mandated regardless of a s.94B disallowance; that argument was set out at length in the order and was answered only on the double taxation point and on the facts about carry forward. Paragraphs 11 to 15 were obtained as a strict transcription after an earlier retrieval returned the same paragraphs with added labels; the two agreed on the operative wording. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was partly allowed. Once the assessee had added back the interest paid on the non-convertible debentures to its total income and paid tax on it, any further disallowance out of that interest would amount to double taxation of income, which is not permissible, and the transfer pricing adjustment of Rs 1,60,21,483 was directed to be deleted. On the department's contention that the assessee might have carried the amount forward and claimed it later, the Tribunal found on the audit reports and the subsequent years' returns that it had neither carried the amount forward nor claimed any deduction out of brought forward disallowed interest, so the contention was factually incorrect. The remaining grounds on the merits of the adjustment became academic (paragraphs 13, 14 and 15).
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