2018 (1) TMI 1564 - AT - Income Tax

Deletion of transfer-pricing and ALP adjustments under section 14A upheld due to binding prior order; corporate guarantees not international transactions

Dy. Commissioner of Income Tax, Circle-8, Ahmedabad Versus Suzlon Energy Ltd.

ITAT AHMEDABAD upheld deletion of transfer-pricing adjustments: the addition for interest on loans to associated enterprises was deleted because the ... TP adjustment in respect of “interest on loans to AEs” and on account of “corporate guarantee” - CIT-A deleted the addition - HELD THAT:- As decided in own case [2017 (12) TMI 1745 - ITAT AHMEDABAD] impugned CIT(A)’s order, he has merely followed his order for the assessment year 2008-09 which has not been challenged, on this point, by the Revenue authorities. Learned Departmental Representative does not dispute this fact. In the light of the above factual position, it is clear that once the Revenue authorities accept the stand of the CIT(A) on an issue and allow it to reach finality in one assessment year, it cannot be open to them to challenge the same in the subsequent assessment year. As noted by Hon’ble Supreme Court, in the case of CIT vs. Radhasoami Satsang [1991 (11) TMI 2 - SUPREME COURT], while “strictly speaking, res judicata does not apply to income tax proceedings”, “where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not at all be appropriate to allow the position to be changed in a subsequent year - Thus the deletion of the TP adjustment on account of interest on loan is upheld. TP adjustment on account of corporate guarantee for working capital and Corporate guarantee for financing and other arrangements - HELD THAT:- Assessee extending corporate guarantees to its AEs, particularly on the facts and in the circumstances of this case and when the assessee has done so in the course of its stewardship activities for its subsidiaries, does not constitute an international transaction, and, as such, no ALP adjustment can be made in respect of the same. Accordingly, entire ALP adjustment stands deleted. As for the quantum of this adjustment, which is mainly the subject matter of grievance raised in revenue’s appeal, once the entire ALP adjustment stands deleted, that aspect of the matter is wholly academic and does not call for any adjudication by us. Deletion of the positive adjustment u/s. 14A while determining book profit u/s. 115JB confirmed. See ALEMBIC LIMITED [2017 (1) TMI 513 - GUJARAT HIGH COURT] Late payment of employees’ contribution to Provident Fund and ESI - HELD THAT:- This issue is no more res integra as it has been decided by the Hon’ble Jurisdictional High Court of Gujarat in favour of the Revenue and against the assessee in the case of GSRTC [2014 (1) TMI 502 - GUJARAT HIGH COURT] Issues:1. TP adjustment on interest on loans to AEs and corporate guarantee.2. Deletion of foreign exchange fluctuation loss.3. Positive adjustment u/s. 14A while determining book profit.Issue 1 - TP Adjustment on Interest on Loans to AEs and Corporate Guarantee:The appeal involved cross appeals by the Revenue and the Assessee against the order of Ld. CIT(A)-XIV, Ahmedabad for A.Y. 2010-11. The Tribunal upheld the deletion of TP adjustments on interest on loans and corporate guarantee, citing precedents from the assessee's own case in A.Y. 2009-10. The Tribunal emphasized that once the Revenue authorities accept the CIT(A)'s stand on an issue in one assessment year, they cannot challenge it in subsequent years. The Tribunal dismissed the Revenue's grievances and confirmed the deletion of TP adjustments, stating that no ALP adjustment was permissible. The Tribunal refrained from detailed arguments as the issue was pending before the High Court.Issue 2 - Deletion of Foreign Exchange Fluctuation Loss:The Tribunal declined to interfere with the deletion of the disallowance of foreign exchange fluctuation loss, following the findings of the Co-ordinate Bench and the decision in the assessee's own case for A.Y. 2008-09. The Tribunal dismissed the Revenue's appeal on this issue.Issue 3 - Positive Adjustment u/s. 14A while Determining Book Profit:Regarding the positive adjustment u/s. 14A while determining book profit, the Tribunal referred to its decision in the appeal for A.Y. 2009-10, where the issue was decided in favor of the assessee based on the decision of the Hon'ble High Court of Gujarat in another case. The Tribunal declined to interfere with this issue, following the findings of the Co-ordinate Bench and dismissing the Revenue's appeal.In conclusion, the Tribunal dismissed the Revenue's appeal while allowing certain grievances of the assessee. The judgment provided detailed analysis and cited legal precedents to support the decisions on TP adjustments, foreign exchange fluctuation loss, and positive adjustments u/s. 14A.