Assessee's appeal partly allowed, interest recalculation ordered

The Tribunal partly allowed the assessee's appeal, directing the recalculating of interest on advances and verification of transactions with Silver Point Infratech Ltd. The additions based on the statement during the search and the loss incurred in the 4th quarter were deleted.

---

---

Issues Involved:
1. Issuance of Draft Assessment Order
2. ALP Adjustment for Interest on Advances
3. ALP Adjustment for Corporate Guarantee
4. Addition of Rs. 60 Crores Based on Books
5. Addition of Rs. 60 Crores Based on Statement During Search
6. Disallowance of Interest Expenses on Sham Transactions
7. Disallowance of Interest Expenses Paid to Silver Point Infratech Ltd.
8. Addition of Rs. 13.23 Crores Towards Loss Incurred in the 4th Quarter

Detailed Analysis:

1. Issuance of Draft Assessment Order:
The assessee argued that the AO erred by not issuing a draft assessment order as required under section 144C(1) of the Income Tax Act, which effectively made the assessment order final. The Tribunal found that the AO had issued a draft assessment order but had also sent a demand notice and penalty notices along with it, which was a procedural mistake. This did not amount to passing a final assessment order, and thus, the ground raised by the assessee was dismissed.

2. ALP Adjustment for Interest on Advances:
The TPO calculated interest on advances given to the AE without considering the dates of the advances and repayments. The assessee argued that the advances were for commercial expediency and that no interest was charged on similar transactions with non-AEs. The Tribunal held that the TPO should calculate interest only for the period the advances were outstanding, using LIBOR + 200 Bps instead of SBI PLR. The issue was remitted back to the AO/TPO for recalculating the interest accordingly.

3. ALP Adjustment for Corporate Guarantee:
The TPO made an adjustment for corporate guarantee provided to the AE by applying a rate of 1.30% based on SBI rates. The assessee contended that the corporate guarantee was for commercial expediency and should not attract any fee. The Tribunal referred to its earlier decision in the assessee’s own case for AY 2013-14, where it was held that corporate guarantee falls within the definition of international transactions and a rate of 0.53% was appropriate. The issue was remitted back to the TPO/AO to determine the actual exposure and apply the rate of 0.53%.

4. Addition of Rs. 60 Crores Based on Books:
The assessee had initially declared an additional income of Rs. 60 crores during the search, which was later withdrawn. The AO added this amount back, stating the assessee failed to substantiate the claim. The Tribunal held that the additional income was not real and was withdrawn, thus, it should not be added back. The ground raised by the assessee was allowed.

5. Addition of Rs. 60 Crores Based on Statement During Search:
The AO made an addition based on the MD’s statement during the search, without any corroborative evidence. The Tribunal referred to the CBDT Circular and various judicial precedents, holding that retracted statements without supporting evidence cannot form the basis for addition. The ground raised by the assessee was allowed.

6. Disallowance of Interest Expenses on Sham Transactions:
The AO disallowed interest expenses proportionate to purchases from related concerns, considering them sham transactions. The Tribunal, following its earlier decision in the assessee’s own case for AY 2013-14, held that since the AO accepted the purchases and sales, he cannot disallow the associated financial cost. The ground raised by the assessee was allowed.

7. Disallowance of Interest Expenses Paid to Silver Point Infratech Ltd.:
The AO disallowed interest expenses paid to Silver Point Infratech Ltd., considering the transactions non-genuine. The Tribunal remitted the issue back to the AO to verify the claim of back-to-back payments and delete the addition if the payments were found genuine. The ground was allowed for statistical purposes.

8. Addition of Rs. 13.23 Crores Towards Loss Incurred in the 4th Quarter:
The AO added Rs. 13.23 crores, suspecting the loss incurred in the 4th quarter. The Tribunal held that the AO cannot make an addition merely based on suspicion without finding discrepancies in the annual results. The addition was deleted, and the ground raised by the assessee was allowed.

Conclusion:
The appeal of the assessee was partly allowed for statistical purposes, with directions for recalculating interest on advances and verifying transactions with Silver Point Infratech Ltd. The additions based on the statement during the search and the loss incurred in the 4th quarter were deleted.

---