2019 (6) TMI 1438 - AT - Income Tax

Tribunal Upholds CIT(A)'s Decisions on Transfer Pricing & Section 14A

DCIT, Cir -4 (1) (1), Ahmedabad Versus M/s. Suzlon Energy Ltd.

The Tribunal dismissed the Revenue's appeal regarding Transfer Pricing and Section 14A adjustments, upholding the CIT(A)'s decisions. The assessee's ... Addition being upward adjustment while determining Arms Lengths Price under the Transfer Pricing Provision - adjustment was made with respect to “corporate guarantee” provided by the assessee to its associate enterprises - HELD THAT:- As decided in own case [2018 (1) TMI 1564 - ITAT AHMEDABAD] 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 adjust stands deleted Adjustment made to book profit u/s 115JB in respect of the provision of Sec. 14A - HELD THAT:- While deciding the appeal for A.Y. 2009-10 [2017 (12) TMI 1745 - ITAT AHMEDABAD] the Tribunal has considered this issue wherein the Coordinate Bench has decided the issue in favour of the assessee by drawing support from the decision of the Hon’ble High Court of Gujarat in the case of Alembic Ltd. [2017 (1) TMI 513 - GUJARAT HIGH COURT] Disallowance of employees’ contribution to PF and ESIC - Whether sum deposited beyond the due date prescribed u/s. 36(1)(va) ? - HELD THAT:- A relying on GUJARAT STATE ROAD TRANSPORT CORPORATION [2014 (1) TMI 502 - GUJARAT HIGH COURT] we set aside the issue to the file of the Ld. AO to decide as to whether there is any delay or not and to pass orders strictly in accordance with law after giving an opportunity of being heard to the assessee and upon taking into consideration the evidence on record and the evidences which the assessee may choose to file at the time of hearing. Issues Involved:1. Upward adjustment while determining Arms Lengths Price under the Transfer Pricing Provision.2. Addition made under Section 14A of the Income Tax Act to determine book profit under Section 115JB.3. Disallowance of employees' contribution to PF and ESIC due to delayed deposit.Issue-wise Detailed Analysis:1. Upward Adjustment while Determining Arms Lengths Price under the Transfer Pricing Provision:The first issue pertains to the upward adjustment of Rs. 1,45,92,645/- made while determining Arms Lengths Price (ALP) under the Transfer Pricing Provision. The adjustment was related to a 'corporate guarantee' provided by the assessee to its associate enterprises. The assessee argued that such a corporate guarantee, issued on behalf of its subsidiary company, was in the nature of quasi-capital or shareholder activity and not a 'provision of service,' thus excluding it from the scope of 'international transaction.'The assessee referenced a previous decision in its own case for A.Y. 2010-11, where the Coordinate Bench deleted the Transfer Pricing adjustment made for the 'corporate guarantee.' The Tribunal, respecting the precedent, held that extending corporate guarantees to its AEs as part of stewardship activities does not constitute an international transaction, and no ALP adjustment should be made. Consequently, the entire ALP adjustment was deleted, and the Revenue's appeal on this ground was dismissed.2. Addition Made under Section 14A of the Income Tax Act to Determine Book Profit under Section 115JB:The second issue involves the deletion of an adjustment of Rs. 15,77,90,288/- made to book profit under Section 115JB in respect of disallowance under Section 14A. The CIT(A) allowed the deletion, following decisions from earlier years in the assessee's own case and the case of Reliance Petroproducts Pvt. Ltd. vs. ACIT.The Tribunal confirmed the findings of the First Appellate Authority, noting that the Coordinate Bench had previously ruled that disallowance under Section 14A cannot be added to the book profit under Section 115JB. The Tribunal found no distinguishing decision favoring the Revenue and upheld the CIT(A)'s order, dismissing the Revenue's appeal on this ground as well.3. Disallowance of Employees' Contribution to PF and ESIC Due to Delayed Deposit:The third issue concerns the disallowance of employees' contribution to PF and ESIC amounting to Rs. 15,20,519/- due to delayed deposit. The AO disallowed the deduction, stating that the assessee failed to deposit the sum within the prescribed due date. The CIT(A) confirmed this disallowance, referencing the jurisdictional High Court's judgment in CIT vs. Gujarat State Road Transport Corporation, which held that contributions deposited beyond the due date prescribed under Section 36(1)(va) are not eligible for deduction under Section 43B, even if deposited before the due date of filing the tax return.The Tribunal, acknowledging the binding nature of the jurisdictional High Court's judgment, directed the AO to determine whether there was any delay in making the payment. The Tribunal emphasized that any delayed deposit of PF/ESIC should be disallowed in line with the High Court's ruling. The issue was set aside to the AO for a fresh decision, allowing the assessee's appeal for statistical purposes.Conclusion:The Tribunal dismissed the Revenue's appeal on both grounds related to Transfer Pricing and Section 14A adjustments, confirming the CIT(A)'s orders. The assessee's appeal regarding the disallowance of PF and ESIC contributions was allowed for statistical purposes, with the issue remanded to the AO for a fresh determination.